30/10/2012 02:46 GMT | Updated 30/10/2012 03:25 GMT

Universal Credit 'Could Leave Many Households Worse Off', Says Joseph Rowntree Foundation

Work and Pensions Secretary Iain Duncan Smith's welfare reforms intended to encourage claimants to find work could in fact leave many households worse off, a think tank warned today.

The Joseph Rowntree Foundation (JRF) questioned whether computer systems at the Department for Work and Pensions would be able to cope with the introduction of the new universal credit, which is due to replace a raft of out-of-work benefits from October 2013.

It warned that the overall effect of Mr Duncan Smith's benefit changes would be to add to the complexity of a benefits system which they were supposed to simplify.

Iain Duncan Smith's welfare reforms intended to encourage claimants to find work could in fact leave many households worse off

Mr Duncan Smith has always said that the key principle behind the universal credit is to remove disincentives to claimants taking jobs by ensuring people are always better off in work.

However, the JRF said many households would actually be worse off or only marginally better as a result of the changes.

While universal credit would incentivise more people to take so-called "mini-jobs" - involving less than 16 hours a week - it would encourage people to take the next step into full-time work enabling them to move out of poverty.

"Marginal increases in earnings alone are unlikely to be sufficient incentive to move into full-time work with small financial gains likely to be wiped out by costs such as childcare and travel," the report said.

At the same time, changes to council tax benefit and to social fund loans designed to help families in crisis would create additional complexity and were "likely to be so aggressive as to leave some people worse off as their earnings rise".

While the DWP expressed confidence that its IT systems would be ready in time for the implementation of universal credit, the report said that IT experts raised concerns that the planned timetable was "unrealistic".

"The consequences of system failure would obviously be serious for recipients of universal credit; DWP needs to clarify the 'stand-by' arrangements being put in place to ensure that claimants are paid," it said.

JRF chief executive Julia Unwin said: "The principle of universal credit is sound, but our research has found the actual roll-out could unintentionally trap people in poverty and hardship.

"Universal credit reforms are approaching at break-neck speed, so the DWP must show similar urgency to address the very serious concerns outlined in this report."

A DWP spokeswoman said: "Universal Credit will help millions of people by making them better off in work than on benefits.

"People will have their level of benefit protected when they move onto Universal Credit, and the £300 million spent on extra childcare support will allow more families to move into work.

"We know that people on low incomes manage their money well, but we have always said we would be flexible with people who might struggle and will ensure they get the support they need."

Shadow Work and Pensions Secretary Liam Byrne said universal credit was "becoming a multiple pile up of problems to which David Cameron and Iain Duncan Smith appear completely incapable of bringing any sense."

“This was supposed to be the silver bullet that was going to end welfare dependency, but now the policy is spinning out of control and world respected organisations like JRF are joining the chorus warning Universal Credit simply won’t be fit for purpose," he said.

“David Cameron and Iain Duncan Smith must stop pretending there isn’t a problem and actually start listening, otherwise Universal Credit is going to end as a policy that is dead on arrival.”