Official: Universal Credit is “less generous” than tax credits

For the first time, an authoritative statutory body has recognised that the cuts to Universal Credit announced in last summer’s Budget will mean that it is much less generous than was originally planned, making it effectively a cut when compared with Working Tax Credit and Child Tax Credit which it replaces.

Back in 2010, when the government announced that it was going to replace all the means-tested benefits for working age people, including the tax credits with one new benefit, Universal Credit they claimed that, compared with the tax credits:

  • “Universal Credit could lift as many as 350,000 children and 500,000 working-age adults out of poverty. This is before we consider the positive impact of more people moving into work.”
  • “In the bottom decile, the average impact of Universal Credit will be to increase net incomes by around 1.5 per cent – a cash value of £2.40 per week. In decile two this figure is around 1 per cent, which equates to more than £3.60 per week. This is before we take the impact of increased take-up into account, so is likely to significantly understate the gains to those on the lowest incomes.”
  • “We expect to see average net incomes reduce in the long term in only deciles 7 to 10 [the richest deciles], and even there the average reduction will be small – less than 15 pence per week in deciles 8 to 10.2”

The Institute for Fiscal Studies confirmed that UC would take hundreds of thousands of children and adults out of poverty. Together with the creation of a single taper for all means-tested benefits, was, on balance, progressive. The TUC and most anti-poverty organisations welcomed it (warily). Since then, just about every change announced has made UC meaner. Last summer’s Budget was the worst of all, Mr Osborne announced cuts due to cut spending by 2020-1 by £4,887 million:

  • Very substantial reductions in the work allowances (the amount that can be earned before UC is ‘tapered’ away);
  • Limiting the child element to two children for new claims and births; and
  • Removing the first child premium for new claims.

These are huge cuts and there was an outcry against them. But most of the political debate focused on the tax credit cuts because they would have started hurting this year. The government was therefore able to get away with announcing that it was reversing these cuts but keeping the equivalent UC cuts. It’s been clear to most of us policy wonks this meant that the positive potential of UC is now mostly lost and it represents a step backwards, but it’s been very hard to get any sort of official acknowledgement that the claims made for UC in 2010 are no longer true.

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