Headlines: June 9th, 2015

The Resolution Foundation has called for a rethink of the structure of Universal Credit before millions of families are moved onto the new system.

The thinktank argues that the policy focus in UC must shift from reducing worklessness to encouraging and supporting all members of a household into decent, sustainable work. Simply being in work is not enough; the objective must be to tackle endemic low pay. To do so, we make recommendations that would improve incentives and provide effective practical support to help people progress.

UC must learn the lessons of the current tax credits regime, particularly in relation to simplicity. The existing system successfully supports many people into work. However, its highly complicated structures and interactions can mean those who could stand to benefit most do not do so. The withdrawal of multiple benefits at the same time fails to provide workers with a clear incentive to progress and increase their earnings. A better-integrated and simpler-to-navigate working-age benefit system – which we have made suggestions to develop – can help to achieve these aims.

Simplifying the system will not be enough on its own however. To reach the targets set for UC, it is imperative that incentives to enter work are rebalanced. Those most in need of support to start working – single parents, second earners with children and the disabled – should have their incentives strengthened. Those with fewer barriers to work – people without dependent children – must not have their work choices distorted. Government must improve incentives to progress in work. People will feel little impetus to do so if 76 pence of every additional pound earned is lost through reduced benefits and payment of income tax and NI. Along with getting the financial incentives to progress right, effective practical support can help people improve their earnings via the route most appropriate for them.