Universal credit review: challenges and options for reform

The government is in the process of conducting a review of universal credit (UC), the main means-tested benefit for working-age people, received by 6.3 million families at any one time.This report discusses some of the challenges UC faces, and outlines potential directions for reform. Key findings1.The UC review should consider the way that universal credit interacts with council tax support (a separate means of support to low-income families).Because council tax support is a separate benefit from UC, claimants earning an extra £1 often lose 64p in benefits -and in some cases lose more than £1.This undermines the original case for UC which was meant to remove these very high effective tax rates.There is a strong argument for integrating the two benefits to address this issue.2. Parts of the system -most importantly the level of housing support that private renters can receive -are frozen in cash terms indefinitely.This means their generosity steadily falls in real terms over time at a speed determined by inflation, rather than because of a government decision.There is no good justification for this, and the government should decide what it thinks appropriate benefit amounts and thresholds are -which could be higher or lower than currently -and then commit to uprating them with a sensibly chosen index (such as CPI inflation).3. The benefit cap provides an upper limit on the total amount of benefit income a household can receive.While this is a straightforward way to reduce high levels of benefit entitlement, it is a relatively crude mechanism.Insofar as the benefit system attempts to guarantee a minimum standard of living, a simple cap undermines that, since households with higher entitlements have higher needs (such as more children, more adults and higher rent).The UC review should clarify what problem the cap is intended to solve, and whether it is the best means of doing so.