Universal credit must make work pay for single parents

Photo credit: Drake Lelane

Almost all of the UK’s 2 million single parent families will be moved on to universal credit by the end of 2017. It will replace six current benefits that support both those in and out of work.

The current system of tax credits and benefits makes it difficult for many single parents to make work pay. Taking on extra hours or even getting a pay rise can leave single parents with little more to show for it at the end of the month, and any changes in circumstances can become an administrative nightmare, leaving families out of pocket while benefits are recalculated. As their family’s sole earner and main carer, for single parents this is a significant handicap.

Making work pay

This research shows clear actions for the government to take to improve the lives of millions of families. It is up to ministers to make that happen.

Alongside the difficulty in making work pay, single parents also have to negotiate finding that elusive family-friendly job and securing the right childcare to go with it. Given these challenges, it’s perhaps not surprising that single parent employment lags behind the employment of mothers from couple families by 11 percentage points: single parents have a 60 per cent employment rate, compared to 71 per cent of mothers in couples.

But in spite of the barriers, more than half of single parents do work, not only to provide for their families but also to be role models for their children.

Universal credit: the reality

So when a single parent hears that a new benefit that promises to make work pay is being introduced, this would seem like good news.  In fact, the principles of universal credit are laudable: the restructuring of in and out-of-work financial support designed to simplify a complex system, to make it easier for households to move in and out of work, and, crucially, to make work pay, including, specifically, a commitment that “Universal credit will make work pay, at each and every hour”.

However, the reality is that universal credit isn’t universally good news for single parents. The government’s own impact assessment has already shown that they will fare worse than households overall once universal credit has been fully rolled out. Only 32 per cent of single parent households will gain from universal credit. A greater proportion, 41 per cent, will lose out, while 27 per cent face no change compared to the current system.

Credit crunched

Professor Mike Brewer and Paola De Agostini of the Institute for Social and Economic Research (ISER) at the University of Essex were commissioned to carry out detailed analysis of the financial incentives for single parents to enter and progress in work under universal credit.

And the findings, published today, tell us that changes must be made to the way that universal credit payments are calculated if the government is to meet its objectives of always making work pay. The research found that not only will single parents lose out in cash terms under universal credit compared to the current system, but that working single parents, working at or above the minimum wage, will lose a higher proportion of their weekly income under universal credit than any other household type.

Moreover, universal credit will make very little difference to the ability of single parents to gain from progressing in work.

However, ISER did find that single parents looking to enter work part-time, in particular up to 20 hours per week, will see an increased financial return from work compared to the current system, but as their hours of work increase towards full-time, these gains will decrease significantly.

Getting the right support in place

It is crucial to remember that, for single parents, small financial gains have to be balanced against being the primary or sole parent or carer for their children. That is why getting the financial support right is vital.

We also asked ISER to model different possible solutions to increase the likelihood of making work pay for single parents under universal credit. Research looked at the government’s policy of increasing the personal tax allowance, vaunted as helping low-income families. However, research found that, in reality, this had very little benefit for low-income single parents, but came with a big price ticket.

It also found that increasing the standard allowance that universal credit recipients get would also have limited ability to improve the incentives for single parents to work longer hours, although it does mitigate some of the worst effects of poverty for out-of-work single parents.

Instead, the analysis shows that by far the most effective change would be to decrease the rate at which universal credit is withdrawn as earnings increase. The original designers of universal credit envisaged that for every pound earned, benefits would be tapered away at a rate of 55 per cent, but under current plans, this rate is actually set at a far steeper; 65 per cent.  This makes a huge difference to financial gains from working longer hours or an increase in wages.

The research also found that increasing the amount that claimants can earn before support from universal credit begins to be withdrawn is worth serious consideration by DWP.  It would trigger a gain for most working single parents, and would also increase the financial incentives for 93 per cent single parents who aren’t currently working to move into work.

 Where do we go from here?

While a limited rollout of universal credit has already begun, it is not too late to make changes to the system.

The government has the power to ensure that work always pays, and to lift many families out of poverty, and this research shows clear actions for the government to take to improve the lives of millions of families. It is up to ministers to make that happen.

Caroline Davey is Director of Policy Advice and Communications for the charity Gingerbread

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