This post is largely in response to a Save the Children report, challenging Universal Credit for making some lone parents worse off. Their report ‘Ending Child Poverty: Ensuring Universal Credit support working mums‘ raises some important and valid concerns about the new benefit system, but also fails to recognise some important trade-offs that the government has to make.
Universal Credit Supports Lone Parents into Work
Save the Children (and other welfare rights groups) recognise the need to overhaul the existing benefit system and the positive impact that Universal Credit will have on the vast majority of benefit claimants, including the majority of lone parents.
I welcome their support for the Centre for Social Justice (CSJ) proposal to increase work incentives over time, specifically a lower taper rate meaning that all claimants keep more of their earnings as they move into work. The CSJ originally argued for a taper rate of 55 per cent when they proposed the Universal Credit in Dynamic Benefits (2009).
However, Save the Children are in danger of misrepresentation in their argument. Their report raises concerns about the impact of welfare reform on specific groups of benefit claimants making specific decisions, claiming that 150,000 women could lose up to £68 a week when Universal Credit takes effect. However, their report fails to acknowledge that under the current system, parents working 16 or 30 hours each week benefit at the expense of those working only 12 or 24. Under Universal Credit, work incentives are spread evenly and on the basis of income, with claimants keeping a fixed percentage of every pound they earn.
Hours worked should be determined by employers and employees, not set by a civil servant in Whitehall.
Under the current system, employees finding fewer hours in a given week risk losing their tax credits. Similarly, many employers have told me that they would like to give their best workers, single mums, more work but are told that they can’t take it because it will jeopardise their tax credits and they risk being worse off.
Universal Credit works with the grain of people’s decisions, rewarding work at any number of hours and reflecting the nature of the labour market today.
Supporting workless households into work.
The report also argues that second earners will be worse off, ignoring an important trade-off between second earner and household incentives. Helping second earners helps better off households, instead the Government, rightly, made a conscious decision to concentrate rewards on the poorest households who move into work.
Society as a whole benefits more when a workless household becomes a working household, incomes increase, poverty falls and more children grow up with at least one working parent. A separate disregard for second earners benefits only better off, two earner households. This money could instead be used to increase the household disregard, supporting single earner households and lone parents as well as households two earner households.
Under Universal Credit, both adults have the same incentives to work, if anything the second earner may have a higher incentives because of their personal tax allowance. The call for two disregards is misguided and will favour better off, two earner households at the expense of poorer, single earner households. The government has made the right decision about how best to focus resources.
The government should improve work incentives for all.
Save the Children calls for higher disregards for lone parents. While this may be justified because of the additional costs of work that some lone parents may face, for example a need for formal childcare, it is important to remember that disregards are higher under Universal Credit than under the current system.
The Government should improve work incentives for all by allowing people to keep more of their earnings from work (reducing the taper rate). The taper rate is an effective lever with which to tackle poverty, and a clear signal from the Government that they want to reward work.