Universal Credit ‘not meeting today’s labour force problems’

A new report on Universal Credit by the Resolution Foundation says the benefit is not meeting the challenges of today’s labour market.

Man having a doctor's appointment


Universal Credit needs an overhaul if it is to tackle the challenges of today’s labour market, in particular the rising number of people who are off work due to long-term sickness, according to a new report.

The In Credit? report by the Resolution Foundation think tank finds that there have been winners and losers when it comes to Universal Credit [UC] which will be fully rolled out by the end of the year.

The report points out that the 15-year roll-out has come at a time of big cuts to the welfare system. By 2028, entitlements to UC will total around £86 billion a year – £14 billion less than if the government had kept the 2013-14 benefit system. It says this means 70% of working-age families eligible for means-tested benefit support will be worse off under ‘Universal Credit Britain’ than with the pre-reform system.

But it adds that some people will lose more than others, with the biggest beneficiaries being working families in rented accommodation. A renting single parent who works 30 hours per week on the National Living Wage will be nearly £3,800 per year better off in 2024-25 than if they were on the old system, says the report.

However, it points out that the streamlining of disability premiums means that out-of-work claimants with disabilities are likely to be worse off under UC. For example, a single person with a long-term disability that prevents them from working will now be £2,800 per year worse off.

As well as simplifying the benefit system, the report says UC was designed to ‘make work pay’ through a mix of ‘carrots and sticks’. It says this has been done through the taper system and the increased role of conditionality.

But it says that, although ‘making work pay’ may have been the right focus for the problems of high unemployment and worklessness in the early 2010s, it is not the right approach for Britain today due to the large drop in unemployment since 2011 and fast rising levels of economic inactivity due to ill health – almost double the rate they were when UC was first introduced.

Alex Clegg, Economist at the Resolution Foundation, said: “A lot has changed since Universal Credit was first introduced back in 2013. The working-age benefit system is less generous, with entitlement down by £14 billion. The reform was designed to meet the 2010s’ problem of high unemployment, but Britain in the 2020s faces new challenges from an older and sicker population.

“Compared to the old system, Universal Credit offers greater support for renters and stronger incentives to enter work. But its original design did not anticipate there being over two million claimants with poor health or disabilities. Alongside efforts from the NHS, education, and labour market policy to address the drivers of ill-health, UC will need to change to tackle Britain’s new challenge of long-term sickness.”

Figures out this week show economic inactivity has risen further. According to the Office for National Statistics both unemployment and economic inactivity are up, with the number of people off work due to long and short term illness having broken through three million for the first time.

Tony Wilson, Director at the Institute for Employment Studies said: “Overall there are nearly a million fewer people in the labour force than there were four years ago, and over a million fewer in work than there would have been if pre-crisis trends had continued. The trouble is that not enough people out of work are looking for jobs, rather than that people who are looking for jobs can’t find them. In other words, the weak labour market is holding back economic growth, not the other way round.” He called for more support for those out of work, for instance, when it comes to health, and said employment services need to be more accessible. He added that employers should also play their role both in keeping people in work and improving access to work for those who may need more support.

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