Universal credit and work: the reality

Published on: 
21 July 2021
Written by: 

Bea Pitel

Campaigns officer

In attempting to justify the unjustifiable, namely the cut to universal credit that is due in October, secretary of state for work and pensions Thérèse Coffey said the government was: ‘shift[ing] the focus strongly on to getting people into work.’ But this is a cut that will affect millions of working families. The government has subjected our social security system to so many cuts and freezes that families desperately needed the £20 increase and it must stay, but universal credit’s very design still makes it hard for parents to escape poverty through work.

Seventy-five per cent of children growing up in poverty in the UK live in households where at least one adult works. Low-income working families are struggling to pay for essentials like utility bills, new school uniforms and the food shop. In a couple household, having both members of a couple in work is increasingly important in preventing child poverty but in reality, universal credit does little to support parents trying to increase their income through work.

Firstly, as soon as a family with children earns more than £293 a month (their ‘work allowance’), for every pound they earn through work their universal credit is reduced by 63p. The very limited single work allowance, combined with the high reduction rate, makes it very difficult for families to increase their income through work. A mother taking part in the Covid Realties research project said:

“My husband has gone back to work so now we’re losing money on universal credit. To be honest I am not sure how much I can take… Feel like I’m struggling to keep my head above water.”

Secondly, the UK has one of the most expensive childcare systems in the world. Universal credit allows parents in work to claim 85 per cent of childcare costs but only up to a certain limit. However, it’s standard practice for childcare providers to require parents to pay a month’s or even a term’s fees upfront. Parents on universal credit who are starting a new job are expected to find a way to pay for a childcare place before universal credit will support them, and before they receive their first pay cheque. Some may get help with these costs via the flexible support fund, but this is a discretionary fund that has not been well promoted, and the pot of money available is too small to meet demand.

If the government is serious about helping the country to recover from COVID-19 any strategy should urgently tackle in-work poverty, and that includes addressing the design of universal credit as well as its adequacy. We are calling for the £20 cut to universal credit to be abandoned, for changes to ensure parents keep more of their earnings, and for action on childcare so that parents can work in the first place.

Read our new report Universal credit: what needs to change to make it fit for children and families.