13/11/2012 03:24 GMT

Universal Credit Reforms Will Not Help Working Parents

The government has been told to "get a grip" after it was revealed that many single parents will be no better off if they work longer hours under the flagship universal credit reforms.

Work and Pensions secretary Iain Duncan Smith has repeatedly said that the new credit - which replaces a range of benefits and tax credits for jobless people - will "make work pay" for the poorest in society and ensure that those who take on more work receive a financial benefit from it.

But a report published on Tuesday for the single parent charity Gingerbread found that one-parent families on the minimum wage will be left on or below the poverty line, and that working longer hours will have only a "negligible" effect on their net incomes.

Shadow work and pensions secretary Liam Byrne said: "The welfare revolution David Cameron promised us is fast descending into welfare chaos.

"Universal Credit was supposed to ensure that work will always pay but this report shows the scheme is badly off-track. Many families are now set to find themselves better off for working less thanks to this Government's flagship scheme.

"This multi-billion pound project is late, over-budget and failing the government's own tests. Ministers have got to get a grip."

Because of the cost of childcare and housing - not all of which will be covered by universal credit - some of the poorest families will even see their disposable incomes fall if the parent takes on more work, according to the report by Donald Hirsch, director of the Centre for Research in Social Policy at Loughborough University.

The report also found that a more generous universal credit would be many times more helpful to the poorest single-parent households than the government's increases in tax allowances.

iain duncan smith

Iain Duncan Smith's welfare reforms have been a major part of government business

The £1,000 rise in the allowance introduced last year cost £3.3 billion but left typical low-paid single parents only about £1 a week better off, while spending the same amount on universal credit would have helped them to the tune of £24, it said.

Almost two million single-parent households will start to move on to universal credit from next year. The report found that, under the new system, it will pay for single parents to take on part-time work, even at the minimum wage of £6.19 an hour.

But it found that, because of the way the credit is designed, many families will swiftly find themselves stuck on a "financial plateau" where working longer hours will not increase their income once housing and childcare are taken into account.

Under the universal credit, a single parent with a child aged one would gain significantly by working up to 10 hours on the minimum wage. But for every additional hour worked after that, the family would only gain around £1.50 in income, with the rest lost in reduced universal credit and higher tax and national insurance. This sum would be further reduced by about £1 an hour because of the need for more childcare, leaving the family about 50p an hour better off.

Single parents with three children could actually see family income after housing and childcare decline if they work more than about 18 hours a week, even if they are on the national median average wage of £11.15 an hour, the report found.

welfare reforms

Iain Duncan Smith and David Cameron have gone round the country selling the reforms to the public

And the situation is more difficult in London, where childcare costs on average £5.16 an hour, compared with £3.70 elsewhere in the country.

At average London childcare rates, under the universal credit, a single parent cannot lift his or her family above the poverty line on the minimum wage and can only just do so on the average median wage, found the report. In both cases, the net income of the family falls sharply if the parent works more than 29 hours a week, because they hit the cap on support for childcare.

"Universal credit will help many - but by no means all - single parents to escape poverty, but is likely to leave most with incomes that are too modest to be able to afford the standard of living that most people would consider a minimum in 21st-century Britain," wrote Mr Hirsch.

"In many cases, increasing the number of hours worked will make a negligible difference to net household income, removing the incentive for them to progress and take on more work. Moreover, for some families, especially those with high housing or childcare costs, even working long hours will not remove the risk of poverty."

Gingerbread chief executive Fiona Weir said: "Through universal credit, the government has the opportunity to make work pay and offer real financial incentives for families on low wages to work more hours - which many want to do. However, we have discovered that for many single parents, working longer hours won't necessarily pay.

"This is about supporting single parents into work, into more hours and to lift their families out of poverty - which is exactly what the Government claims it wants to do. But unless the government gets it right now, the sums just won't add up for too many single parents."

A spokesman for the Department of Work and Pensions said: "Universal credit will make millions of people better off, including 700,000 lone parents.

"An extra £300 million will be spent on childcare support, so that more families will be able to take up jobs. And we're changing the rules so that people can access childcare support from their first hour in work - a move that will clearly benefit lone parents.

"We know rising childcare costs are a concern, and the Childcare Commission is currently tasked with finding solutions to this problem."