More than half of working households’ Universal Credit (UC) payments varied by £400 or more from one month to the next at least once a year
Published on Tuesday 16 April 2024
Last updated on Wednesday 17 April 2024
It was meant to "make work pay," but new research from the University of Bath Institute for Policy Research (IPR) shows that Universal Credit (UC) can make working households’ incomes more volatile, less secure, and less predictable. In some cases, working families are worse off and stripped of vital means-tested help like council tax support, free school meals and free prescriptions.
The research, funded by abrdn Financial Fairness Trust, tracked changes in earnings and household income month to month between 2022 and 2023 among 61 Universal Credit claimants in 42 households with one or two earners in paid work or self-employment.
The Universal Credit system adjusts payments monthly based on real-time earnings. For every £1 earned, payments decrease by 55p, stopping altogether with significant monthly increases. This results in losing eligibility for other financial support, including reductions in council tax and help with childcare costs, impacting those in insecure work, self-employment, and working families with paid childcare the most.
Key findings:
For 20 of the 37 households, UC payments varied by £400 or more from one month to the next at least once in the year.
For 10 of the 37 households, UC payments varied by £600 or more from one month to the next at least once in the year.
23 of the 37 households, UC payments varied month to month by an average of £100 or more.
Fluctuating UC payments have serious knock-on effects in terms of the loss of entitlement for other means-tested help.
Small increases in earnings make some families financially worse off.
There is a worrying trend of "robbing Peter to pay Paul" when households’ UC payments dip. Families fall into arrears with their rent, council tax, or utility bills.
Dr. Rita Griffiths from the University of Bath Institute for Policy Research said:
"The monthly assessment and means-testing of Universal Credit entitlement is flawed. It generates enormous uncertainty for people with irregular work and those with earnings that change month to month. Because the UC payment fluctuates alongside changes in income, the amount people receive to help pay for rent, childcare, and household bills can change monthly. Instead of giving them a steady, predictable monthly amount to top up their wages, it exacerbates volatility. Some face significant financial struggles as a consequence."
Karen Barker, Head of Policy and Research at abrdn Financial Fairness Trust, said:
"One of the key aims of Universal Credit is to ensure work always pays. However, this research finds in practice it can create income volatility which is actually undermining the financial security of some working people. The system needs to be reformed from the current ’one size fits all’ approach to better take into account people’s different circumstances."
A key recommendation of the IPR report would be to allow claimants to keep more of what they earn. This could be done by reducing the 55% taper rate and by enabling more claimants to benefit from a ’work allowance’ - the amount people can earn before the taper is applied. The IPR also recommends changes to the monthly means-testing and arrears payment of financial help towards childcare costs. Reducing the amount taken in deductions for debts would also help to increase monthly disposable income.
Dr. Rita Griffiths said:
"These policies don’t come cheap, but the costs would be offset by an increase in the number of UC claimants in work and paying tax, including, crucially, more working mums."