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Pop goes the payslip

2 April 2014
Pop goes the payslip cover

At a time when living standards are stagnating, housing costs are rising and the jobs market is unpredictable the tax and benefits system must provide certainty and stability.

Universal credit was designed to do this.The Government’s promise to make people better off for each hour they work is in danger of being broken.

We support the principles of universal credit and believe that work should always pay. An extra shift at work should mean more money in your pocket. However, our analysis shows that under universal credit many working parents will not see any financial gain if they increase their hours of work. This is because parents face additional costs, on top of travel, when they go out to work or increase their hours. This is true even with the welcome increase in support with childcare costs to 85 per cent. Extra earnings will be eaten up by reduced financial support, having to pay for school meals and the contribution to  childcare costs. In some cases, working parents will even end up worse off.

We are proposing a small number of recommendations that wouldn’t require any additional funding but would improve universal credit, give parents the choice, control and help needed to ensure that returning to work or taking on extra hours never leaves anyone worse off.

We recommend:

  • Providing free school meals to all children in households receiving universal credit.
  • Increasing the subsidy for childcare costs to 90 per cent.
  • Allowing the second earner in a household to keep an additional £50 a month of earnings before their income from universal credit is reduced.
  • Ensuring women on maternity leave get the same gain on maternity allowance as they would on statutory maternity pay.
  • Ensuring widowed parents don’t lose money.
  • Increasing the overall funding in universal credit for disabled people.

Taken together these recommendations would cost £1.5 billion and can be paid for with one simple change. As it stands, universal credit will be reduced by £6.50 for every £10 youearn. This should be changed to £7 for every £10 earned. Increasing this ‘taper’ from 65 per cent to 70 per cent would effectively save £1.5 billion. The savings made would go towards helping families on the lowest incomes who stand to lose the most from working more hours. This adjustment would rebalance support more fairly within universal credit and make work pay for more people.