Universal credit to see 1.9 million people lose more than £1,000 per year, IFS finds

Benefit reforms hit ‘persistently poor’ the hardest on average, analysis suggests

Almost 2 million people will lose out on more than £1,000 a year under new universal credit reforms, according to new analysis by the Institute for Fiscal Studies (IFS).

Those worst off under the new benefits system were the “persistently poor”, as well as people in certain groups such as the low-income self-employed and those with financial assets, the study by the respected economic research group found.

The findings suggested that large gains and losses from universal credit are not uncommon, with 1.6 million adults standing to gain by more than £1,000 per year, while 1.9 million will lose at least the same amount.

Margaret Greenwood, Labour’s shadow work and pensions secretary, said the analysis made it clear “that it is hitting the poorest hardest.”

Researchers took an in-depth look at which households lose or gain the most under universal credit, and whether the effects are short-lived or persistent.

Among those expected to be £1,000 or more worse off, three-quarters are affected by universal credit’s harsher treatment of certain groups, according to the analysis which was funded by the Economic and Social Research Council and Understanding Society.

These included those with financial assets greater than £6,000, the self-employed reporting low levels of earnings, couples where one person is above state pension age and the other below, and some claimants of disability benefits.

Meanwhile, those in working rented households on means-tested benefits are most likely to gain large amounts with 29 per cent expected to see an increase in entitlement of at least £1,000 per year.

The IFS looked for the first time at the effect of universal credit on people’s incomes in the long term over a period of eight years since many of those listed above are only hit hardest temporarily.

The self-employed, owner-occupiers and people with significant financial assets – all of whom tend to lose out from universal credit – are 1.5 to two times as likely as other low-income groups to find that a period of low income is temporary, rather than persistent.

For example, in any one year, those affected by universal credit’s lower awards to people with significant financial assets lose an average of £1,430 of benefits, and 61 per cent of them are in the lowest-income fifth.

But looking at those same people and their incomes over an eight-year period, researchers could see that they lose an average of £420 per year. Only 38 per cent of them are in the lowest-income fifth over the eight years as a whole.

In contrast, those who are disabled or live with a disabled person are especially likely to be persistently, rather than temporarily, poor – although there are both large giveaways and takeaways depending on particular circumstances.

After transitional protections have expired, those who would have been entitled to the severe disability premium – paid to those who generally live alone and struggle with basic living activities such as preparing food – can receive as much as £2,230 per year less in universal credit than they would have under the previous system.

Others, such as those whose health is not deemed to affect their basic living activities but is deemed to substantially constrain their ability to do paid work, can receive £1,120 per year more.

The study found the overall result of the reforms is that, while in any one year about one in three adults entitled to means-tested benefits see a change in entitlement of at least £1,000 per year (1.6 million gaining, 1.9 million losing), only about one in six see an annual change of at least that much over an eight-year period (0.6 million gaining, 1.2 million losing).

However, while many of the biggest losses are temporary, universal credit still hits the persistently poor more than those who are better off.

Those whose average incomes over eight years are in the lowest tenth of the population lose, on average, 1.1 per cent of their income over the eight years (equivalent to £100 per year) from the benefits system – which is more than any higher income group.

Tom Waters, a research economist at the IFS who was involved in the study, said: “Universal credit changes benefit entitlements for three quarters of those entitled to means-tested benefits, and 30 per cent see a change of at least £1,000 per year.

“The biggest losses experienced as a result of the switch are mostly down to a small number of specific choices the government has made about universal credit’s design, such as its treatment of the low-income self-employed and people with financial assets. Many of those very large losses do turn out to be temporary for those concerned.

“However, even when measuring people’s incomes over relatively long periods, universal credit still hits the persistently poor the hardest on average.”

The report – Universal credit and its impact on household incomes: the long and the short of it, by Mike Brewer, Robert Joyce, Tom Waters and Joseph Woods – will be published on the IFS website.

Commenting on the findings, Ms Greenwood said: “Pensioners with working-age partners and disabled people who would have been eligible for disability premiums are among those to receive the harshest treatment under universal credit and could be thousands of pounds worse off than they would have been under the old system. Labour will stop the rollout of universal credit and ensure that our social security system is there to support people when they need it.”

A Department for Work and Pensions spokesperson said the report ”wrongly assumes that everyone was claiming their full benefit entitlement under the old system, which they weren’t because the system was overly complex”.

The spokesperson added: “With recent work allowances changes, 2.4 million households will be up to £630 a year better off and people will access around £2.4 bn of previously unclaimed benefits. Universal credit supports people into work and helps them increase their earnings while providing a vital safety net for those who need it, while the old system trapped people on benefits or taxed them punitively for taking on more hours.”