Almost 1.2m low paid people could see benefits reduced under new government scheme

Almost 1.2m low paid people could see the state handouts which top up their wages reduced unless they work longer hours, according to report published today.

Under the Government's flagship plan to streamline the benefits system, a new universal credit will replace tax credits and most working-age benefits, including jobseeker's allowance and housing benefit, in a year's time. The new system will encourage people to working longer hours so they are less reliant on state top-ups.

In the first study of effect of the "work more" incentives, the Resolution Foundation think tank urged ministers to think again because many people will struggle to find another part-time job or boost their hours at a time of "chronic unemployment." It said an estimated 1.4m people work part-time because they cannot find a full-time job.

Under the shake-up, the low paid will have to show that they are unable to push up their wages any further by finding better paid work, increasing their hours or taking on an extra job. Conditions will be attached to the state payments to many claimants who earn less than the weekly equivalent of the minimum wage - £212.80 for a single person. It is the first time such "conditionality", which already applies to job-seeker's allowance, has been extended to people in work.

Iain Duncan Smith, the Work and Pensions Secretary and architect of the reform, has not yet said what type and level of checks will be made on working claimants or what sanctions will be taken against people who fail to meet the conditions. Jobless claimants can lose payments for three months (or longer for repeat offences) for failing to accept a reasonable job offer, apply for a post or undertake mandatory work placements.

Gavin Kelly, chief executive of the Resolution Foundation, said: "Given record levels of under-employment it is a worrying time to be introducing a new system of rules that could result in benefits being withdrawn from low-earners if they can't secure more hours of work. The introduction of conditionality for a large swathe of working people is totally uncharted territory for the Department of Work and Pensions (DWP). It needs to think very carefully about how it will be introduced and whether this can be done in the current economic climate."

Mr Kelly added: "We're surprised that the Government has not published estimates of how many people will be affected by this substantial change or given detail on how it will work. There are pressing questions about what the conditions for working people will be. Will they need to attend regular interviews with case workers and, if so, does an already stretched Jobcentre Plus have the capacity for this?"

The DWP said last night: "Universal credit will help people increase their hours and see a clear financial gain in work, but no one will lose out where caring responsibilities, illness or lack of jobs means full-time work isn't possible for them. People who could work full-time but chose instead to have benefits top up their income should be encouraged to do more and we intend to run pilots to agree the best approach on this."

Working claimants working less than 16 hours a week will be eligible for top-ups for the first time if they work fewer than 16 hours a week but the "conditionality" rules will as a way of discourage them from settling into a pattern of low-hours work.