Low-income working families on Universal Credit set to lose £1,300

Working households on Universal Credit are set to lose an average of £1,000 in 2020, rising to £1,300 for those with children, despite the welcome reversal of the main cuts to tax credits announced in the Spending Review ­– according to new analysis published today (Thursday) by the independent think-tank the Resolution Foundation.

The Foundation notes that these losses will be higher still if the cuts that only affect new welfare claims are added. In those cases losses will be particularly high for large families, with some low earning couples with three children losing £3,000.

The distributional analysis of tax, benefit and minimum wage changes announced in the Summer Budget and Autumn Statement shows that the average loss among households in the bottom half of the income distribution is £650, while there is no average loss in the top half of the distribution.

Torsten Bell, Director of the Resolution Foundation, said:

“The focus in recent months and on the day of the Autumn Statement was rightly on the immediate impact on family budgets of tax credit changes next April. That reinforces how welcome the Chancellor’s decision to reverse those changes is. It will have reassured millions of working families that were set to be significantly worse off next April.

“The attention now turns to the longer term changes to the welfare system the Government has put in train. All the post-2020 welfare cuts announced in the Summer Budget remain in place and will eventually affect millions of families as Universal Credit is rolled out nationally.

“New Resolution Foundation analysis shows that these cuts fall overwhelmingly on poor working families.

“The most damaging changes are to Universal Credit, the Government’s flagship welfare programme which is at serious risk of being undermined. For working households with children on Universal Credit the average loss with be £1,300 in 2020. These changes will also increase the risk of people being trapped in low-paid short-hours work. ”

Distributional analysis

Notes: Impacts are estimated in 2020-21 assuming that Universal Credit is fully in place, accounting for key changes to the tax and benefit system (including increases to the personal tax allowance and higher rate threshold in April 2016 and 2017, restricting pensions tax relief, cuts to Universal Credit work allowances, freezing working-age benefits for 4 years from April 2016, limiting social rents to local housing allowance rates, measures to remove the family element & limiting support to 2 children are assumed to be fully in place. Estimates also account for the introduction of the national living wage. Economic assumptions are consistent with OBR projections published at Autumn Statement 2015.

Case studies