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Almost two million adults will be £1,000 a year worse off under Universal Credit

Poorer people will be worst hit over the long run, report shows

Around 1.9 million adults will be at least £1,000 per year worse off under the Universal Credit than the current system, research shows.

Conversely, 1.6 million adults will gain by more than £1,000 a year, according to the IFS analysis, funded by the Economic and Social Research Council and Understanding Society.

The report suggests 11 million adults, and a third of working-age ones, will be in households entitled to some universal credit.

Around 4.2 million of these will be at least £100 per year better off than under the current system and 4.6 million will – after transitional protection expires – be at least £100 per year worse off.

Among the 1.9 million losing £1,000 per year or more, three-quarters are affected by Universal Credit’s harsher treatment of those with financial assets greater than £6,000; the self-employed reporting low levels of earnings; couples where one member is above state pension age and the other below; and some claimants of disability benefits (though other claimants will gain).

Those in working rented households on means-tested benefits are most likely to gain large amounts – 29% see an increase in entitlement of at least £1,000 per year.

The research also looked at the effects of Universal Credit on people’s incomes over eight years of people’s lives.

Many of those hit hardest in the short run are only temporarily poor. The self-employed, owner-occupiers and people with significant financial assets – all of whom tend to lose out from Universal Credit – are one-and-half 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% of them are in the lowest-income fifth. But over an eight-year period, they lose an average of £420 per year, and only 38% of them are in the lowest-income fifth over the eight years as a whole.

Those who are disabled or live with a disabled person are especially likely to be persistently, rather than temporarily, poor.

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 – 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 under Universal Credit.

The overall result of the reform 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, only around one in six will see an annual change of at least that much over an eight-year period.

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 – the persistently poorest – lose, on average, 1.1% of their income over the eight years (equivalent to £100 per year) from Universal Credit, more than any higher-income group.

Tom Waters, research economist at the IFS and an author of the briefing note, said 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,” he added.