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Universal Credit

Country of implementation
United Kingdom
General short description of the innovation
Similar to the Coalition Government?s single welfare-to-work programme the Universal Credit is a single benefit system. It provides a single payment for various types of working-age adults (18+), who are unemployed or on a low income, and are not in full-time education. In certain cases 16-17 year olds are also eligible. In April 2013, it started to replace a range of means-tested benefits and tax credits for working age individuals and households in certain ?pathfinder? areas. This includes Income Support benefits, Income-based Jobseekers Allowance and Employment and Support Allowance, Housing benefits, Child Tax Credits and Working Tax Credits. / / The benefit is means-tested, paid in as well as out of work, and consists of a basic standard allowance awarded at different sums depending on the claimant?s age and household with additional elements for children, disability, housing and caring (DWP 2010a). One of its key features is the ?single taper?, a more generous earnings disregard for working claimants. This means as earning rise, the benefit is withdrawn at a constant rate of 65 pence for each pound of net earnings (instead of 100%) to incentivise work for any period of time. Payments for employees will be automatically adapted through a ?real time information? IT system. Claimants will normally be expected to make a claim for Universal Credit online and to manage their claim, including reporting changes in circumstances, via an online account. / / A reinforced system of rights and benefits will hold claimants more responsible for their job-search and employment outcomes and increase the level of requirements.
Target group
Total Population
Policy Field
  • employment
  • social
  • wage
Type of Policy
  • public
Duration of the policy
Piloted since April 2013; national rollout is planned between 2014 and 2017.
Scope of innovation
  • Scope: structural
  • Budgets: around ť1.7 billion (in 2014?15 prices)
  • Spatial coverage: Great Britain
General description of (intended) objectives and strategies
simplify and streamline the benefit system; reduce the financial and administrative barriers to work, tackle unemployment by improving claimants? incentives to work as well as by a reinforced system of controls of fraud and error; make it easier for claimants to cycle between being in work and out of work.
Type of ideal-typical strategy for the innovation
  • liberalisation
Type of innovation
  • new form of policy implementation/delivery
  • new policy, practice or measure
New outputs
  • benefit eligibility
  • benefit level
  • subsidies/tax-credits
Intended target group
Working-age adults in and out of work
Working age population
  • employment situation (unemployed and people on low income)
  • income level (low/medium/high) (low income households)
  • main source of income: paid work
  • main source of income: social protection (social assistance, disability benefits as well as other types of benefits)
Actors involved in policy-making/implementation and/or evaluation
  • agency or national social insurance body (Jobcentre Plus)
  • central state
Clarification of the role of various actors
Administered by the DWP and Jobcentre Plus
Intended output
  • benefit eligibility
  • benefit level
  • subsidies/tax-credits
Clarification of outcomes in terms of impacting resilience and labour market inclusion
The highest Marginal Effective Tax Rate (METR), the amount which will be lost in taxes and loss of benefits from earning an additional pound, will be 76.2% after the reform (André et al 2013). This might still be considered high in absolute terms but is rather generous compared to the current system which could reach 100%. Incentives to work will also be better than OECD average for most individuals after the reform (Pareliussen 2013). IFS research (Brewer 2011) suggested that poorer families will benefit from more from the new system than richer ones. It estimates that the bottom six-tenths of the income distribution will gain on average, while the rest four-tenths will lose out slightly in the long run. Couples with children would also profit from the new system compared to childless couples. / / At this point it is not possible to say to which extent the new benefit system effectively incentivises work. The DWP expects a net effect on labour supply will reduce the number of workless households by 300,000 (DWP 2010). Brewer et al. (2011:4) suggest that the system will improve work incentives for low-earning single people and primary earners in couples, but will weaken the incentives for second earners in couples. Low earners who do have a working partner will also see their METR increase, since the Universal Credit will have a higher withdrawal rate than tax credits do. / / Early analysis of the pathfinder wave found that only a minority had problems to use the online tool (DWP 2013). However, others criticised the lack of support to those who do not have access to internet facilities or would have to travel far distances to use the facilities provided in Jobcentre Plus (Finn and Tarr 2012). / / Due to several issues including technical problems the piloting started with delays, does not work properly and managed to enrol only a very small number of claimants. For this reason, the general roll-out of the Universal Credit will not commence until October 2014, at the earliest. Recent publications even claim the policy might be scrapped after the general elections in May 2015 (Morris 2014). / / Sources: / André, C. et al. (2013). Labour market, welfare reform and inequality in the United Kingdom, Economics Department Working Papers, No. 1034, OECD, Paris. / Brewer, M. (2011). Universal Credit: A preliminary Analysis, IFS Briefing Paper Note 116, Institute for Fiscal Studies. / DWP (2013). Universal Credit pathfinder evaluation: interim results from the Universal Credit claimant survey, wave 1, London. / DWP (2010). Universal Credit: welfare that works ? Impact Assessment, London. / DWP (2011). Universal Credit: welfare that works ? Impact Assessment, (revised), London. / Finn, D. and Tarr, A. (2012). Implementing Universal Credit: Will the reform improve the service for users?, Centre for Economic and Social Inclusion/Joseph Rowntree Foundation. / Morris, N (2014). Universal Credit: Government?s welfare reform may be scrapped after next election, The Independent, 19 February 2014. / Pareliussen, J. (2013). Work incentives and Universal Credit ? reform of the benefit system in the United Kingdom, OECD Economics Department Working Papers, No.1033, OECD publishing, Paris.
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