Investing in Universal Credit is a great first step towards making work pay

Investing in Universal Credit is a great first step towards making work pay

24th November 2016

The new Chancellor, Philip Hammond MP, signalled a welcome new direction for welfare reform in today’s Autumn Statement.

At previous budgetary events the question was whether money would be taken out of Universal Credit; not whether it would be put back in.

That has all changed as of Wednesday, when the Chancellor announced an investment of £700 million a year more into Universal Credit, from when it is fully rolled out.

This investment means that those in low paid work will receive a greater proportion of what they earn. To date they have kept just 35p for every £1 they have earned. This has now increased to 37p. It is equivalent to a two per cent tax cut for the poorest workers across Britain. Even this relatively small change will make a significant difference and is a great first step. It is something the Government could build upon at future fiscal events.

Universal Credit is a great place to invest for a Government that cares about those who are just about managing: almost every penny spent on Universal Credit will go to the bottom half of earners; whereas just 25 per cent of the benefits from increases in the income tax personal allowance will go to this group.

In practical terms this investment will mean that, for example, a single parent with one child who is earning £15,000 a year (and does not have housing costs) will be £170 a year better off. A couple with two children, with one parent earning £30,000 a year (with housing costs) will be £425 a year better off.

This money matters, and will make a real difference to the three million people who will benefit. Yet it will do more than just put money in people’s pockets – it will incentivise people to work harder and earn more. This is an effect that is difficult to measure, and not one the Office of Budget Responsibility or the Treasury have yet mastered. It is crucial they do so to help Government fully understand this “dynamic” effect of welfare reform and to build the case for further investment.

Yet, even without this, we know that Universal Credit is working and that it is a strong programme within which to invest. Compared with those on Jobseeker Allowance, Universal Credit claimants are 13 per cent more likely to have been employed, work 12 days more a year on average, earn more and are twice as likely to want to work more hours.

This really matters for tackling poverty, as the benefits of work are not limited to the income it provides: it is also proven to improve people’s self-esteem, and their physical and mental health. Moreover, a child in a workless household is almost three times as likely to be in poverty as a child living in a family where at least one adult works.

The Government should be congratulated for investing in Universal Credit. They have made a great first step towards making work pay: it will help tackle poverty by encouraging more people into work, boost productivity and support those who are struggling to make ends meet.

Edward Boyd is the Managing Director at the CSJ.

This article originally appeared on Reaction.