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Universal Credit uplift should be replaced with Coronavirus Hardship Payment

Paloma Kubiak
Written By:
Paloma Kubiak

The ‘poorly targeted’ Universal Credit uplift should be replaced by a Coronavirus Hardship Payment to ensure ‘it always pays to work’, according to a leading think tank.

The ‘controversial’ £20 a week uplift in Universal Credit was introduced at the start of the pandemic to help families. The uplift equates to £1,000 a year and was a temporary measure due to end in April. It costs the government £6.6bn in annual increases in welfare expenditure.

Last week MPs voted on maintaining the uplift to prevent families facing financial hardship amid the continuing pandemic. However, the result of the vote is non-binding, so policy has not changed.

But the Centre for Policy Studies (CPS) said the uplift is a “blunt policy instrument” which is “poorly targeted” because of its blanket rollout. Removing it in April however “would be unreasonable” and taking it away now is “politically difficult”.

The CPS said the cash increase benefited certain claimants more in percentage terms, particularly those with relatively low entitlements such as those who are single, childless and younger.

Those with families and children benefited to a lesser extent with CPS research showing that the standard allowance for a single claimant under 25 increased by 36% compared to just 19% for a couple over 25 years old.

Coronavirus Hardship Payment

As part of its briefing paper, the CPS suggests repackaging the £20 uplift from April as a Coronavirus Hardship Payment to ensure claimants do not see a sudden fall in income while lockdown restrictions are still in place.

This also temporary measure would last for a further six months, with an additional three-month phasing-out period at half the value to prepare for its eventual withdrawal.

It explained that the hardship payment should be combined with a more generous one-off uprating of Universal Credit (currently set to rise by just 0.5%) of 2.5%, in line with the rate being applied to the State Pension. This would amount to an extra £100 a year on the standard allowance for a single claimant over 25.

Further, the government should improve the work incentives within Universal Credit through an 8p cut to the taper rate and increased work allowances. The taper rate from 63p to 55p was the original taper rate proposed when the UC system was first considered.

Claimants currently lose 63p of every £1 they earn in work, which can make it less worthwhile for claimants to take up employment. These proposed changes would mean those who move back into work after the pandemic would keep more of their earnings, and would make the benefits system more generous overall.

The CPS said the package of measures would still mean the UC system overall would be significantly more generous than it was pre-Covid, but the additional spending would be much less than the £6.6bn cost of the £20 uplift and “would significantly improve the way the system rewards work”.

‘Government backed into a corner’

James Heywood, head of welfare and opportunity at the Centre for Policy Studies, said: “The government has backed themselves into a corner with the £20 uplift in Universal Credit – it’s much harder to take something away once it’s in place. However, they do have the opportunity now to make significant changes to the system to benefit claimants and ensure it always pays to work.

“Replacing the uplift with a clearly defined temporary support mechanism, combined with other reforms, would offer the intended financial support while making it easier to prepare claimants for its eventual withdrawal.”