Universal Credit Could See Parents Paying to Work, Not Making Work Pay

11/07/2013 10:54 BST | Updated 10/09/2013 10:12 BST

The government want to make sure it always pays to work. This is the reason given for the major reforms to the welfare system currently underway. In particular, the introduction of the government's flagship Universal Credit is designed to make sure work always pays- as we're reminded at regular intervals by everyone from the Prime Minister down.

But new research by Loughborough University, published today by the Joseph Rowntree Foundation, calls into question this most fundamental of policy goals. It finds Universal Credit does provide a strong incentive to those currently out of work to take up a bit of work -a 'mini-job' of a few hours a week. But if you have children, the incentive to increase your number of work hours is weak. And in some instances people would actually be worse off working full time than when they worked part time.

Take an example. Imagine a lone parent - let's call her Lucy - with two young children. Out of work Lucy has a disposable income of £219 a week to cover the family's basic needs. By taking up a mini-job of one and a half days a week earning the minimum wage, her disposable income jumps up £49 to £268 per week. At this point it clearly pays to work.

But the incentive to work more hours is weak. As Lucy's hours increase the amount of Universal Credit the family is entitled to reduces sharply, and Lucy has to pay for more childcare. If she works 3 days a week - twice the number of hours than before - she will only be £6 a week better off.

Most damaging of all, if Lucy works full time she will actually be worse off: her disposable income will actually be less than when she worked fewer hours.

By working full time Lucy would be doing "the right thing" as the government often puts it, but she would be worse off for it. Why? It's down to three main factors: the continued withdrawal of Universal Credit as her earnings increase; crossing the threshold where she has to pay income tax; and requiring more childcare for her young children as her hours increase.

Making work pay will not be achieved through changes to the welfare system alone. For work to pay, and deliver an adequate standard of living, we must address a number of wider challenges too. Two stand out.

First, the UK has a large number of low paid, low skilled, insecure jobs offering little hope of a pay rise or promotion. Simply increasing hours in minimum wage jobs is clearly not going to be sufficient for some households to improve their situation; they need better jobs.

Second is the very high cost of childcare, which has increased at twice the rate of inflation over the last five years. Meanwhile, government support for the childcare costs of families on low incomes has been cut. For families with children - especially young children - childcare costs can be the difference between work paying and paying to work.