Universal Credit: Benefits claimants could be 'trapped in poverty'

Queue outside a Jobcentre Plus Millions of claimants including the unemployed will eventually receive Universal Credit

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Benefit claimants could find themselves "trapped in poverty" when a new single welfare payment is introduced next year, it is being claimed.

While the Universal Credit was sound "in principle", the Joseph Rowntree Foundation said its implementation could leave some people worse off.

It warned any financial gains people might make in part-time jobs may be wiped out if they found full-time work.

Officials said anyone struggling would get the help they needed.

In the biggest shake-up of the welfare system in generations, the single consolidated payment will replace a host of existing working age benefits for new claimants from October 2013.

Ministers say the Universal Credit - to replace income-based Jobseeker's Allowance, income-related Employment and Support Allowance, Income Support, Child Tax Credits, Working Tax Credits and Housing Benefit - will increase work incentives and reduce poverty among those on low incomes by ensuring people keep more of their income in employment and benefits are withdrawn more gradually.

But analysis of the new system for the Joseph Rowntree Foundation, by the University of Portsmouth and the Centre for Social and Economic Inclusion, has raised serious concerns about its administration and potential outcomes.

'Self-defeating'

While some would see improvements to their finances, the report concludes, not everyone will benefit and some could be worse off on universal benefit than under current arrangements.

While it found the shake-up would incentivise more people to take jobs of fewer than 16 hours a week, it said it would not "encourage" recipients to go on to search for full-time work.

How changes will happen

  • October 2013 to April 2014: About half a million new claimants will receive Universal Credit instead of existing benefits
  • At the same time, another half a million existing claimants and their families will be transferred to the new credit when their family circumstances change significantly, for instance if they get a job or have another child.
  • From April 2014 a further 3.5 million claimants and their families will move to Universal Credit.
  • From the end of 2015 to the end of 2017, a further three million people will be moved over, focusing on Housing Benefit claimants

Any "marginal" increase in earnings from a full-time job would be counteracted by work-related costs such as childcare and travel.

The Foundation warned this was "self-defeating" and that people aspiring to increase their hours and income should not be penalised.

"The principle of Universal Credit is sound but our research has found the actual roll-out could unintentionally trap people in poverty and hardship," the organisation's chief executive Julia Unwin said.

"Universal Credit reforms are approaching at breakneck speed so the Department for Work and Pensions must show similar urgency to address the very serious concerns outlined in this report."

After the system is launched nationally in autumn 2013, existing claimants will be transferred to universal credit in stages until 2017.

Amid worries about whether the new IT system being set up to process payments will be able to cope, the report calls for more details about stand-by arrangements if systems crash and for ministers to consider creating an ombudsman to deal with complaints.

The report also warned that separate changes to council tax benefit and social fund loans designed to help families in crisis could make the system more complex not more straightforward.

'Out of control'

For Labour, shadow work and pensions secretary Liam Byrne urged ministers to listen to the concerns.

"This was supposed to be the silver bullet that was going to end welfare dependency, but now the policy is spinning out of control and world-respected organisations are joining the chorus warning Universal Credit simply won't be fit for purpose," he said.

"Universal Credit is becoming a multiple pile-up of problems to which David Cameron and Iain Duncan Smith appear completely incapable of bringing any sense."

Ministers said Universal Credit would help millions of people by making them better off in work than on benefits.

"People will have their level of benefit protected when they move onto Universal Credit, and the £300m spent on extra childcare support will allow more families to move into work," a Department of Work and Pensions (DWP) spokesman said.

"We know that people on low incomes manage their money well, but we have always said we would be flexible with people who might struggle and will ensure they get the support they need."

The DWP has expressed confidence that its IT systems will be ready in time for the implementation of the new payment.

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