The single benefit is due to replace most means-tested benefits and tax credits for working-age adults. But the IFS report says that it will create 'winners and losers'. On average, couples with children will gain more than childless couples, who in turn will gain more than single adults without children. Lone parents will lose in the long run.
The report found that the Universal Credit will strengthen the incentive to work for those who have the lowest incentive to work under the current tax scheme, because earnings will reduce the credit award at a rate of 65 per cent. This is a much lower rate than under the current set of means-tested benefits.
However, the single benefit will weaken incentives to work for second earners in couples, as the credit will be withdrawn more quickly than under tax credits.
Families who have savings of more than £16,000 will not be eligible for the new Universal Credit at all under new capital rules. The report says that this is a 'dramatic change' from tax credits, where a similar amount of savings would reduce tax credits awards by, at most, £1.42 a week, and that it will act as a disincentive to save.
Full details of the Universal Credit are due to be published later this month as part of the Welfare Reform Bill.
Mike Brewer, deputy director of the Institute for Fiscal Studies and an author of the report, said, 'Our analysis illustrates the constraints all governments face when contemplating radical welfare reform. Work incentives will be strengthened for some, but weakened for others, and the reform will lead to winners and losers in the long run.'
