Working Tax Credit and Child Tax Credit Replaced With the Universal Credit
March 23, 2018
Universal Credit is a social security benefit in the United Kingdom introduced in 2013 to replace six means-tested benefits and tax credits: income based Jobseeker’s Allowance, Housing Benefit, Working Tax Credit, Child Tax Credit, income based Employment and Support Allowance and Income Support. It was announced by Work and Pensions Secretary Iain Duncan Smith at the Conservative Party annual conference in 2010 stated as designed to bring “fairness and simplicity” to the British system of social security. It was one of several wide-ranging welfare reforms introduced by the 2010–2015 Coalition Government in the Welfare Reform Act 2012.
The new benefit was introduced gradually to all Jobcentres, initially focusing on claimants whose circumstances are the least complex (single adults without housing costs). By February 2016, 364,000 people had made claims on Universal Credit, government research claiming these “[benefit] claimants find work quicker, stay in work longer and earn more than the Jobseekers’ Allowance claimants”.
Universal Credit has faced continuing criticism. Payments are made on a monthly basis, with a waiting period of at least six weeks before an initial payment is made, which can particularly affect claimants for housing benefits paid directly to them leading to arrears, as tenants may have to borrow to meet other living costs during this period. Critics have noted other issues, including problems with IT systems and project management. Roll-out of Universal Credit has been significantly delayed as implementation costs, initially forecast to be around £2 billion, were later raised to over £12 billion. At its introduction, all existing claims to “legacy” benefits (the six benefits Universal Credit is due to replace) were expected to transfer gradually to the new Credit by 2017. However, this timetable was later extended and, under current plans, is not due to be fully delivered until 2021.
In 2015, government announced significant reductions to the value of Universal Credit, ultimately expected to save £5.5 billion per year, by reducing the working income allowance and removing the family element and first child premium, and limiting the per-child element to the first two children. In May 2016, the think-tank the Resolution Foundation published evidence arguing that cuts to Universal Credit meant the reforms risked failing to achieve their original purpose of incentivising work. In November 2016, the government announced a reduction, from 65% to 63% of post-tax income, of the taper rate that controls the reduction of Universal Credit as income increases, with an eventual cost of £600 million per year.