Reforms to the Universal Credit system could make it more generous post-Covid than it was going into the pandemic – and significantly better at rewarding work.
A new briefing paper by the Centre for Policy Studies suggests replacing the controversial £20 uplift introduced in March last year with a Coronavirus Hardship Payment to support families through the pandemic.
This would ensure claimants do not see a sudden fall in income while restrictions are still in place, while being clearly defined as a temporary measure to last a further six months, with an additional three-month phasing-out period at half the value to prepare for its eventual withdrawal.
Simply maintaining the uplift would be poorly targeted, as it means those who previously had relatively low entitlements benefit much more in percentage terms than those with families and children to support.
Research shows the standard allowance for a single claimant under 25 increased by 36% compared to just 19% for a couple over 25 years old.
The think tank suggests the hardship payment should be combined with a more generous one-off uprating of Universal Credit (currently set to rise by just 0.5%) of 2.5%, in line with the rate being applied to the State Pension. This would amount to an extra £100 a year on the standard allowance for a single claimant over 25.
In addition, the Government should improve the work incentives within Universal Credit through an 8p cut to the taper rate and increased work allowances. Claimants currently lose 63p of every £1 they earn in work, which can make it less worthwhile for claimants to take up employment. These proposed changes would mean those who move back into work after the pandemic would keep more of their earnings, and would make the benefits system more generous overall.
James Heywood, Head of Welfare and Opportunity at the Centre for Policy Studies, said:
“The Government has backed themselves into a corner with the £20 uplift in Universal Credit – it’s much harder to take something away once it’s in place. However, they do have the opportunity now to make significant changes to the system to benefit claimants and ensure it always pays to work.
“Replacing the uplift with a clearly defined temporary support mechanism, combined with other reforms, would offer the intended financial support while making it easier to prepare claimants for its eventual withdrawal.”