Rita Griffiths has worked in the Institute for Policy Research (IPR) at the University of Bath since 2016. She was lead researcher on the project, ‘Couples balancing work, money and care: exploring the shifting landscape under Universal Credit’, and lead author of the report ‘Couples navigating work, care and Universal Credit’, with colleagues Marsha Wood, Jane Millar and Fran Bennett.
Knowing how much money you will earn or receive in benefits each week or month is one of the fundamental building blocks of income security and wider well-being. So, how would you feel if you only knew a week ahead of time how much money you and your family would have to live on for the coming month? Would it make budgeting easier or harder? If you lost 63 pence for every pound of net earnings (on which you had already paid tax and National Insurance), would it make you want to work more or less? What if you only knew after you had paid for child care how much financial help you would get back towards those costs?
These are the kinds of challenges many families who receive Universal Credit have to grapple with every month and which our three-year ESRC-funded longitudinal research on Universal Credit and couples explored.
The study involved two waves of in-depth interviews conducted some two years apart. Based on the lived experience of 90 research participants interviewed in 2018/19, 63 of whom were interviewed again in 2020, the research examined how couples claiming Universal Credit (with and without dependent children, and with and without earnings) juggled work and care and budgeted their household finances. Most were households with dependent children and with one or more earners. Their first-person accounts offer a unique insight into the experiences of a group of Universal Credit claimants who have received little attention in research and policy debates to date.
Drawing on 186 interview transcripts, a key aim was to explore how well the assumptions underlying Universal Credit’s main policy levers designed to encourage people to work and earn more fitted the realities of people’s lives and helped them in practice.
These policy levers include the work allowance (the amount working parents and people with a limited capacity for work are allowed to earn before benefit starts to be reduced); the taper (the rate at which Universal Credit is withdrawn as earnings rise); financial help with childcare costs; together with employment conditionality and support.
The research found that virtually all the participants in this research were struggling to make ends meet as a result of inadequate benefit levels (made worse by the removal of the £20 weekly uplift in September 2021) and low pay, for those in employment. However, specific aspects of the design of Universal Credit that were intended to help them enter work and earn more could frequently make things worse.
The system of monthly assessment - whereby entitlement to Universal Credit is means-tested every month in relation to earnings and other income - could create significant income volatility and budgeting difficulties. This could be exacerbated by the ‘all in one’ payment, which integrates elements for adults and children, and housing and childcare costs, into a single monthly household award.
The logic of monthly assessment is that people are motivated to work and increase their earnings because they see an immediate financial reward. However, the super-responsiveness of Universal Credit, together with the high rate of benefit withdrawal at the time of the research - then 63 pence for each pound of net earnings - was more likely to act as a disincentive. The complex relationship between monthly earnings and entitlement made it virtually impossible for many to calculate the financial impact that working additional hours would have on the Universal Credit payment.
Increased household earnings, moreover, could reduce entitlement not only to Universal Credit but also to other means-tested support, including help with council tax, free school meals and prescriptions. The combination of variable wages and a highly volatile Universal Credit payment made it difficult for many to work out the amount of benefit they would actually get and therefore how much money they would have available for household spending each month. This added to financial difficulties, rather than helping them to budget as the Government argued Universal Credit was intended to.
These effects were multiplied when both parents worked. Those with paid child care struggled the most. The cost and hassle of having to pay childcare fees upfront and reclaim them in arrears each month, together with the fact that these costs are only partially covered anyway and that entitlement is subject to a monthly means test, were key reasons why. Very few families in this research had taken up the childcare offer and those who had often struggled to make it work for them. Most working parents preferred, or switched to using, the free 30 hours per week of government childcare provision for three- and four-year-olds, or informal care.
Not everyone was similarly affected or experienced such difficulties. Working claimants with earnings paid via PAYE liked the automated wages feed from HMRC and the automatic top-up of Universal Credit if their wages went down because of illness or reduced working hours. Some families also preferred the reduced risk of overpayment in Universal Credit compared with tax credits. But families in which the parents worked irregular hours and shifts often suffered large, unpredictable swings in their payment.
Conversely, for those with no earnings coming in, the Universal Credit payment was often stable. The main issue here was the inadequacy of income - simply not having enough money to live on. Most affected were claimants for whom Universal Credit was their only source of income, those with deductions for debts, those subject to the two child limit and benefit cap (which both reduced the amount of benefit paid each month), and claimants under 25 whose standard allowance is lower.
Both the insecurity of income for those with one, or especially two, earners and the inadequacy of income for those out of work could adversely affect mental well-being and the stability of family relationships. Not all the couples in this research stayed together; and some children were taken into care.
Women, who tended to have greater responsibility for household budgeting and arranging child care, were disproportionately affected by the added stress and administrative burden of managing the claim. They were also more likely to be the recipient of Universal Credit. So it was also frequently the female partner’s income that was reduced when her partner’s earnings increased. To reduce the uncertainty and stress, some second earners - who were mainly women - reduced their hours of work or left their jobs. When they did so, the Universal Credit payment often stabilised.
Indeed, overall, single-earner couples generally fared best in terms of being able to achieve a work-care arrangement that was workable and gave the family enough money to live on without falling into debt or having to resort to food banks. Having at least one working parent reflects the work-care pattern underpinning the incentive structure favoured in the design of Universal Credit.
Some couples with older children worked extra shifts or took on another job to enable the family to stop claiming Universal Credit altogether. But not everyone was able or willing to make the significant trade-off in terms of work-life balance that this often required. Longer working hours inevitably meant less family time. For most, the relatively small net increase in household income as a result of one or both parents working longer hours was just not worth it. In the main, for the participants here - whose earnings potential was limited by low levels of qualifications and skills - having a steady income on which they could depend trumped income maximisation. The Covid-19 pandemic, too, had convinced some that spending more time at home, and a simpler life, were preferable to working as many hours as they could simply in order to earn more.
In December 2021, partly to counter the effects of withdrawing the £20 weekly uplift in Universal Credit, the Chancellor increased the work allowance and reduced the rate at which Universal Credit is withdrawn as earnings rise from 63 to 55 per cent. These reforms will certainly help families with one or both partners in work to keep more of what they earn. But they provide no additional help to people who are not in work. It also remains to be seen whether these changes encourage low-income parents to work, or work longer hours.
The challenges of balancing work and care while claiming Universal Credit add to current concerns about how people on low incomes will cope as living costs soar. At the last count, there were almost 5.7 million people claiming Universal Credit, but this figure is set to rise considerably as the 3 million or so people still claiming tax credits and other legacy benefits are moved across.
Recent analysis by the Institute for Fiscal Studies also indicates that a further 600,000 families with one or more earners will newly become entitled to Universal Credit as a result of the increase in the work allowance and reduction in the taper rate. Approaching half (43 per cent) of all families with children will be eligible.
Of course, whether or not people will take up Universal Credit or increase their hours in response to these changes is not yet clear. The research here suggests that a mismatch may exist between how the government envisages Universal Credit will change work behaviour on the one hand, and on the other, how recipients are actually responding and experiencing it in practice.
Indeed, our findings indicate that if Universal Credit is to succeed in its aims of persuading more low-income families, and potential second earners in particular, to work and earn more, the support they receive to do so will urgently need a radical rethink.
All articles posted on this blog give the views of the author(s), and not the position of the IPR, nor of the University of Bath.
Read the report ‘Couples navigating work, care and Universal Credit’ in full, or learn more about the research.