A cut to Universal Credit

At the start of the coronavirus pandemic, the government introduced a temporary £20 uplift to Universal Credit. It was announced to help claimants through the economic disruption that the pandemic brought with the Universal Credit recipients doubling between March 2020 and January 2021 from three to six million. However, on October 6, the temporary uplift expired. Proponents of the cut argue that given the number of employment opportunities currently available with a notable example being that of the shortage of workers in the trucking industry, there needs to be a better incentive in getting people back into work. With this said, this cut fails to recognise both previous issues with Universal Credit and problems that lie ahead given rising inflation whilst working families have their benefits slashed.

Universal Credit

Universal Credit was announced by the Conservative government in 2010 and introduced in 2013. The system was designed primarily to gradually taper off as individuals moved into work whilst ensuring that work always paid more than not working. However, Universal Credit is greatly flawed and has many fundamental issues that have yet to be addressed.

First of all, there is a six-week waiting delay for claimants claiming Universal Credit. This creates a problem in which an individual losing their job is forced to exhaust their savings until the Universal Credit payments kick in. As over a third of British households live paycheque to paycheque, this just isn’t feasible for most. This is without taking into account that when individuals start claiming Universal Credit, they will be forced to further deplete their savings given that benefits aren’t enough for basic living standards.

In addition, Universal Credit disincentivizes saving. This is because when the value of liquid assets exceeds £6,000, Universal Credit payments are reduced until the value of liquid assets falls below this figure. This creates a problem in which Universal Credit recipients who are entering work are unlikely to save much of their income, thereby making it likely that these individuals are likely to stay on Universal Credit forever. This phenomenon was witnessed in the years leading up to the coronavirus outbreak as the number of individuals receiving various employment benefits increased between 2016-19, despite there being a reduction in the unemployment rate during this period.

Recent cut

The poor timing of the recently introduced cut to Universal Credit at a time of rising inflation will hurt families greatly across the country. The allowance of £118 per week per individual living alone is hardly enough for most to live on and yet the government plans to cut this by £20. A study conducted by Loughborough University found that a typical family with two primary school-age children need £482 a week, after deducting housing costs. As energy bills skyrocket due to the supply-chain shocks, this figure will likely exceed £490 by Christmas. Following the removal of the £20 uplift, this typical family will only receive £266 weekly, which is 55% of that which is currently required.

“Twenty pounds may not seem like a significant amount to many, but for families living on the brink, this money is a lifeline

Gordon Brown – Former UK Prime Minister

Reductions to other Universal Credit benefits have also taken place, with the weekly £30 payment for limited work capacity having been withdrawn. It is estimated that the withdrawal of the £20 uplift will put 130,000 Londoners into poverty, with lone parents being disproportionately affected. The poorest 10% of households in London will experience an 8% decrease in their incomes, whilst the number of children in poverty is projected to increase by 10%.

Ultimately, society as a whole will face the burden of the £20 cut to Universal Credit alongside the problems that the current welfare system has failed to resolve since its introduction. The failure of Universal Credit to address fundamental issues in our society have produced poverty traps that have a knock-on effect on the rest of society. Rising poverty levels negatively impact everyone, due to rising benefit and healthcare alongside higher crime rates that come with poverty. The current welfare system is broken and needs to be replaced by a system that rewards work whilst breaking the seemingly endless poverty trap that currently exists here in the UK.