Will Universal Credit push 250,000 children into poverty?

15 March 2012

The papers were awash with statistics detailing the impact of the proposed Universal Credit on low-income families earlier this week.

One Guardian article headline read 'Universal credit will make 150,000 single parents worse off, study finds', while The Mirror plumped for the bigger figure on the number of children to be adversely affected by the introduction of Universal Credit 'Tories welfare trap for low-paid women: 250,000 more children to be pushed into poverty'.

The report, titled Ending Child Poverty, was released earlier in the week by Save the Children, who backed up their claims with further figures on the loss of welfare support to low income families.

According to the charity, a typical single parent with three children working full time on or around the minimum wage could be £3,500 per year (£68 a week) worse off under the Universal Credit system. A couple with three children where one parent works 24 hours a week and the other a few hours on low pay would lose as much as £1,800 a year (£35 a week).

With such significant sums of money at stake, Full Fact decided to find out how Save the Children arrived at these figures.

The report relies on the outcomes of the Department for Work and Pensions [DWP] Policy Simulation Model, based on the Family Resources Survey 2008/9. This allows for a comparison between household incomes under Universal Credit and under the benefit and tax credit system, projected forwards to 2014/15, when the new system will be fully implemented.

Although we cannot access the model itself, the projections can be found in the DWP Equality Impact Assessment from November 2011.

However, on reading the examples given in Save the Children's report, it seemed that some information needed to verify the difference in credits paid was missing. So we asked Save the Children for a breakdown of their calculations. The Poverty Policy Advisor who compiled the report said the equations incorporated figures from several sources:

  • the assumption of average childcare for pre-school children in 2011 [research in conjunction with the Daycare Trust rated this at between £94 and £97 a week per child]

  • the assumption of average housing costs [from government data on local authority rents; in 2011 average weekly UK rent was £65.06]

  • the Institute for Fiscal Studies TAXBEN model, which "calculates households' tax liabilities and benefit entitlements for each household under different tax and benefit systems"

Unfortunately, the current system is extremely complicated, so it is almost impossible to accurately work out the precise amount the case studies in the report receive in any given tax year.

Full Fact has asked for a full breakdown of the Save the Children figures. We are awaiting these details and will update when we have them.

CORRECTION: The modelling in Save the Children's data was not carried out by IFS. It was carried out by IPPR Trading Ltd on behalf of Save the Children between December 2011 and February 2012. Please see footnote 3 in the report.

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