Tens of thousands of low-paid working families can expect to lose up to £200 a month as a result of changes to universal credit introduced on Monday – the first wave of £3bn in welfare cuts that will affect 1m households by 2020.
Ministers have said households affected by the changes could work extra hours to make up the difference, but charities have said that will be impossible in many cases, and that the cuts will push more families into poverty.
The introduction of the cuts, which will be felt in May because universal credit is paid a month in arrears, comes as the new work and pensions secretary, Stephen Crabb, prepares to make a speech on Tuesday setting out the government’s social security agenda in the wake of the resignation last month of his predecessor Iain Duncan Smith.
Crabb is expected to say the government will push ahead with universal credit, the troubled and much-criticised reform of the benefits system. In a wide-ranging address he will also set out plans to tackle poverty and improve social mobility.
The ambitious universal credit project, which aims to streamline existing working-age benefits into a single monthly payment, is six years behind schedule, and critics say Treasury cuts have undermined its original vision of making work – and working extra hours – more attractive than relying on state benefits.
Crabb’s attempts to re-establish the credibility of the government’s claim to be the party of low-paid working families, which took a battering last autumn after a backbench rebellion forced it to back down on cuts to tax credits, may be undermined by the universal credit cuts.
Analysis by the Child Poverty Action Group (CPAG) estimates that families with a sole earner working full-time on the “national living wage” of £7.20 an hour would have to work a 13-month year to compensate for the cuts, and a full-time single parent would have to work a 14-month year.
The cuts stem from changes in the work allowance unveiled by the chancellor, George Osborne, in his summer budget a year ago. These drastically reduced the amount people can earn before low-wage top-ups are withdrawn at the rate of 65p per £1 earned.
Working households claiming universal credit currently have a work allowance of £222 per month for a couple with children and £263 for a single parent. The allowances fall to £192 from Monday, lowering the threshold at which the benefit is withdrawn.
CPAG estimates that after income tax and national insurance is deducted, and taking universal credit deductions of 65p in the pound into account, a full-time sole earner couple would have to work 19 extra days a year to make up the shortfall, and single parents would have to work 46.
The charity’s policy director, Imran Hussain, said: “Asking parents already working full-time to magic up more days in the year to recoup the cut just isn’t an option.”
A spokesman for the Department for Work and Pensions said households affected by work allowance changes would get help from jobcentre work coaches to increase their hours and earnings.
“Universal credit is revolutionising welfare, with claimants moving into work faster and earning more than under the previous system,” the spokesman said. “We are simplifying the work allowances under UC and giving people extra help to progress in work. This is alongside the increase in the national living wage and personal tax allowances which are helping to move us to a higher wage, lower tax, lower welfare society.”
Ministers have promised that households that migrate from tax credits to universal credit will have their income protected as it is rolled out over the next three years. People currently on the benefit, however, and those who make new claims, will get no financial support to help them cope with the shortfall.
The work allowances cut will hit the majority of 80,000 UK households currently in work and on universal credit. This will increase to about 1m households it rolls out over the next few years, saving the Treasury a projected £3bn a year by 2020.
Individual losses will vary according to the particular circumstances of each household, but case studies show the shortfall could be as high as £200 a month.
The biggest concentration of households affected is in the north-west of England, where the rollout of universal credit has been most extensive. Liverpool city council estimates that 2,800 low-paid working families will lose out by between £60 and £200 a month.
The shadow work and pensions secretary, Owen Smith, said: “While the Tories claimed they had listened and learned over their tax credits fiasco, the reality is they are still pressing ahead with cuts to low- and middle-paid workers through the back door.
“Tens of thousands of working people who are already struggling to make ends meet are set to lose huge amounts of support when the cuts kick in this April.”
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