Context

During 2020, there was a rise in the main adult allowance for universal credit and working tax credit by around £20 per week. The government plans to remove this at the same time as coronavirus-related unemployment-prevention measures also come to an end in April. This paper looks at the potential impact of this cut over the medium term, once universal credit is fully rolled-out and people on legacy benefits are brought into the universal credit system.

The study

The study uses data from the Family Resources Survey, an annual report from the Department of Work and Pensions, which provides facts and figures about the incomes and living circumstances of households and families in the UK. The analysis applies the Landman Economics Tax-Transfer Model (TTM), a micro-simulation model of the tax-benefit system, to project the impact the changes both on household incomes and on public finances.

The study is conducted by the Fabian Society, a left-leaning think tank. It is part of a broader project to look at social security, and it is supported by the Standard Life Foundation, an independent charitable foundation focused on improving financial well-being in the UK.

Key findings

The key findings are split into two main sections as follows:

• Primarily working families and disabled people - 87 per cent of the cuts (£5.5bn per year) will hit working or disabled households. Many people who are working or disabled will see a cut in their incomes of around £1,000 per year. The report reveals the following breakdown of the impact of the cuts:
• will be hit by 57 per cent of the cuts (£3.7bn)
  • will be hit by half the cuts (£3.2bn)
  • will be hit by 12 per cent (£700m)
  • (£4.1bn compared to £2.3bn)
• Again, working and disabled people - 95 per cent of people pulled into poverty by the cuts (720,000 people) will live in working or disabled households. In all, 540,000 (71 per cent) of the people falling into poverty live in families with children; 360,000 (47 per cent) live in a household with at least one disabled adult; and 100,000 (13 per cent) live in a household with a carer.

The author recommends that chancellor should cancel the cuts and place the 2020 increases on a permanent footing.

Points to consider

• There are few details given about the modelling method so it is hard to assess. The data used is from a reputable source and the model has been validated in previous use by the Institute for Public Policy, another think tank, so there is no reason to assume that the method is anything other than rigorous and appropriate to the purpose. However, it will be important to recognise that the report is written from a left-leaning perspective.
• The report is specific to the universal credit system in the UK and, as such, isn’t transferrable to other situations.
  • The report is aimed at influencing government policy but anyone with an interest in the benefits system or the impact of coronavirus on low-income households will find it useful.
• The report is highly topical as the cuts are due to be implemented in April 2021.