Welfare Reform - Universal Credit | tutor2u Economics
Study notes

Welfare Reform - Universal Credit

  • Levels: AS, A Level, IB
  • Exam boards: AQA, Edexcel, OCR, IB, Eduqas, WJEC

Universal credit is a huge reform to the working of the welfare benefits system in the UK. But is it fast becoming a landmark example of government failure?

The six working-age benefits combined into universal credit are as follows: income-based jobseeker’s allowance, income-related employment and support allowance, income support, working tax credit, child tax credit and housing benefit.

City AM news report

The basics of universal credit

Universal Credit (UC) will replace a range of means-tested benefits and tax credits for working age families. In other words, it will merge several large welfare benefits into one.

The aim of the reform is to simplify and streamline the welfare benefits system for claimants, making it easier for people to understand; to reduce the financial and administrative barriers to work; to tackle in-work poverty; and to reduce fraud and error in the welfare system.

Universal Credit is means-tested and will be payable both in and out of work. A means-tested benefit is one where the level of benefit provided is linked directly the financial circumstances of the welfare claimant. It is designed to target welfare payments to those most in need.

A key feature of Universal Credit is the "single taper" for the withdrawal of UC for those in work. As a person's in-work earnings rise, UC is withdrawn at a constant rate of 65 pence for each pound of net earnings (although an initial amount will be "disregarded" before the taper is applied). For employees paid through PAYE, Universal Credit payments are to be calculated and adjusted automatically using a new system giving "real time" information on earnings from employers.

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