Universal Credit overhaul leaves 1.6 million Britons £2,000 poorer every year

The Institute for Fiscal Studies (IFS) has delivered a damning verdict on the Tory legacy, revealing that over a decade of benefit reforms and crackdowns have left more than a million of Britain's benefit claimants £2000 worse off annually. Their investigation into the Universal Credit system shows a stark divide with almost as many people benefiting as those who have suffered losses, creating a system fraught with "winners and losers."

Since its inception in 2013, the Department for Work and Pensions (DWP) has been transitioning claimants to the one-for-all Universal Credit system, affecting over five million individuals. While nearly half have seen their benefits increase modestly by up to £200 a year, a significant minority, about 20%, have experienced devastating cuts, losing up to £2000 annually.

Describing the Conservative Party's overhaul of the welfare state as "the most significant reform to the working-age benefits system" since the post-war Labour government's initiatives in 1945, the IFS report highlights the ambitious goal of Universal Credit: to streamline welfare and reinforce the connection between receiving benefits and finding employment, with 40% of recipients now in low-paid jobs.

Parts of these "significant" changes included increased conditionality, such as work coaching and work-search diaries, alongside the reduction of barriers to employment from legacy benefits, where previously earning over a certain amount could result in claimants experiencing a drastic 70 per cent drop in their monthly income. Now, this has been adjusted to taper off to support claimants as they begin working while still receiving benefits.

However, with a surge in the number of people now employed yet still drawing on government benefits, the Institute for Fiscal Studies (IFS) suggests that the system may be subsidising low-paid work rather than encouraging progression. The IFS report highlighted: "While the incentive to move into paid work has been strengthened, there has been almost no change in the incentive to move from part-time to full-time work.", reports the Mirror.

A smaller group, about one in ten households, have witnessed their benefits slashed by up to £4000, amidst escalating costs for food, housing, and heating. These are typically households where one member is below the state pension age and another is above.

The IFS clarified that this situation arises because "They are entitled to UC rather than the much more generous pension credit 70 per cent of these households (180,000) lose out by more than £4,000 per year under the UC system. Households with assets exceeding £16,000 and the self-employed can also face significant disadvantages under the UC system."

The Department for Work and Pensions (DWP) is set to extend Universal Credit this year to the remaining 1.2 million individuals still on traditional benefits, a move propelled by recent DWP measures aimed at saving millions in welfare payments - with one in 25 people failing to transition to the new system.

Following the switch, those who receive tax credits are hit the hardest, with one third of people scheduled for transfer this year leaving the system entirely. However, the IFS highlights a particularly "vulnerable" group set to undergo the switch later this year.

Per the IFS: "The largest group left to be migrated are claimants of employment and support allowance (ESA), a particularly vulnerable group who may face even more acute difficulties with putting in a UC claim."

"DWP has already pledged additional support to help these claimants, but getting this assistance right will be a critical issue for the next government or large numbers of disabled claimants, often receiving over £10,000 a year in means-tested benefits, may suddenly end up without any of that financial support."

The IFS concluded by stating: "We have seen in this report that the UC reform makes large numbers of households worse off, even though the average household gains from it. Families receiving disability benefits, mixed-age couples, the self-employed and those failing a harsher assets test are much worse off under the UC system than under legacy benefits."

"There are transitional protections in place to ensure families do not lose out when moving from the legacy system to UC in the short run. But under current plans, they will still be left worse off in the long run."