Benefit changes ‘will leave 2.6m families £1,600 worse off’

The Chancellor out and about after delivering his Autumn Statement to the House on Wednedsay
The Chancellor out and about after delivering his Autumn Statement to the House on Wednedsay

The new Universal Credit system will mean a less generous benefit entitlement for working families, a respected economic think tank has said.

An estimated 2.6 million working families can be expected to be an average £1,600 a year worse off under UC than they would have been under the existing system, said the Institute for Fiscal Studies.

Transitional protections mean that no existing claimants will lose out in cash terms when the new system comes in, but new claimants and those whose circumstances change will lose out in the long run, the IFS said.

Despite Chancellor George Osborne’s decision to scrap cuts to tax credits proposed for next April, the IFS said his plans still envisage reducing non-pension benefits to their lowest level as a share of national income for 30 years.

Research economist Andrew Hood said: “No existing claimants will see a cash fall in their entitlements.

“Previously, in April 2016, some people were going to see less money than they previously had. That’s no longer going to be the case.

“The point we are making is the system is still less generous in the long run, so new claimants and claimants whose circumstances change and lose that transitional protection, will lose out in the long run.”

He said the transitional protection meant that there could be “potentially very different amounts of benefit” for people in similar circumstances, depending when their UC claim started.

Among factors which could trigger a new claim, losing the transitional protection, was gaining a partner - swiftly dubbed a “love tax” by Labour critics.

Transitional protection means a claim is protected in cash terms until the annual rise in universal credit in line with prices means there is no longer any requirement for it.

Mr Hood said: “The things that lose you transitional protection are acquiring or losing a partner - so if I move from being a single to a couple in the system - that loses you transitional protection.

“Obviously if I move off universal credit entirely, so if one month I got a lot of earned income, that took me off the top of the taper, I would have to make a new claim the next month and that would mean I lost my transitional protection.

“Thirdly, if my income falls, my universal credit entitlement does not rise to offset that until I have exhausted the transitional protection.”

After transitional protections had expired, “once universal credit has taken its full effect, 2.6 million working families will be worse off as a result”, Mr Hood said.