Working families will be ‘worse off’ under Universal Credit scheme

Some working families will be worse off under Iain Duncan Smith's flagship Universal Credit - even though it was intended to encourage people back into work, according to research published today.

The Government was last night accused of reneging on its promises and “failing to make work pay” as a Joseph Rowntree Foundation (JRF) study reveals that many parents working longer hours on low pay could end up poorer under the new benefit.

Families with children will hit a ceiling where, despite working more hours, the steep withdrawal of Universal Credit means their disposable income after childcare costs fails to increase, or even falls. In some cases, families will be worse off working full-time than part-time.

Researchers say the new welfare programme has been undermined by the sharp withdrawal rates of benefits, reduced help with childcare costs and the continued prevalence of low pay. There is little incentive to move to full time work because Universal Credit plateaus at 10 hours a week for many, reducing sharply with additional earnings.

JRF chief executive, Julia Unwin, said: “Universal Credit is a welcome step to reforming welfare, but there is a danger any potential positive impact will be undermined. For families to move from welfare to work, Universal Credit must restore a situation where working full-time is properly rewarded. It is vital that families are able to improve their disposable incomes by working more hours. The risk otherwise is it will trap families on inadequate incomes where they don't have enough to make ends meet, with little prospect of them progressing to a better standard of living.”

The findings will be a source of embarrassment for the Work and Pensions Secretary, who had said the scheme, which starts in three months, would be a welfare revolution to make work pay.

The revelations come after Mr Duncan Smith was grilled by the Work and Pensions Committee yesterday on their progress in implementing the new benefit. They announced that Jobcentres will put new claimants on to Universal Credit from October in six more areas - Hammersmith, Rugby, Inverness, Harrogate, Bath and Shotton. It is currently being tested in two areas, with a further two starting later this month.

Liam Byrne, the shadow Work and Pensions Secretary, claimed the Government's “welfare revolution” had collapsed, because the streamlined benefit system was originally due to apply to all new claims for out of work support in October. He said the “devastating” JRF report showed the Government is failing to make work pay. “Universal Credit was supposed to be the answer to all our prayers, but it's late, over budget and now we know it won't even reward hard work. This scheme isn't just a mess, it is teetering on the brink of disaster. David Cameron promised us a welfare revolution but all he is really doing is flogging working families.”

A Department for Work and Pensions spokesman said: “Universal Credit will give very clear incentives for people to move into work and to work more - with claimants due to increase their working hours by 1m to 2.5m hours a week.”

* Mr Duncan Smith told the committee that he “personally disliked” the way payday lenders appeared to target benefit claimants and that further action might be needed to clamp down on the companies.