DWP claimants on Universal Credit 'left worse off by working' as reforms urged

A new report says people on Universal Credit who increase their wages can end up worse off because they are earning too much to continue getting other help such as free school meals

The Labour Government has been urged to carry out a benefits overhaul to ensure DWP claimants are always better off when going to work. It is being asked to raise the thresholds of other means-tested support that's available to people on Universal Credit.

Academics say that when people on Universal Credit boost their income by increasing wages, they may then be earning too much to qualify for other means-tested support such as free school meals. The Institute for Policy Research at the University of Bath wants a review of the rules so that claimants who work don't end up being penalised for it.

Expanding access to free school meals so they are available to all Universal Credit claimants is among the reforms proposed by the researchers. They are calling on the Labour Government to carry out a comprehensive review of all the means-tested schemes that are linked to being on Universal Credit.

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The Institute for Policy Research (IPR) has published a new report funded by abrdn Financial Fairness Trust that examines how Universal Credit interacts with earnings, other 'passported benefits' (meaning schemes for which Universal Credit is required to gain access) and other forms of means-tested help. These include reductions in council tax, help with utility bills and prescription charges, free school meals, school uniform grants and Healthy Start food vouchers for new mums.

Dr Rita Griffiths, a Research Fellow at the Institute for Policy Research, University of Bath, said: "The last independent review of passported benefits was conducted more than a decade ago. The government pledged to review Universal Credit in the Labour Party manifesto and make work pay. We urge the government to prioritise delivering on this promise."

In July, the Prime Minister announced a new Child Poverty Strategy, led by the Work and Pensions Secretary Liz Kendall. She said it would "turn the tide on rising poverty levels so that every child no matter where they come from has the best start in life." However, the new report has found that many working families can't access means-tested help that would alleviate child poverty because of the very low earning thresholds and strict withdrawal of entitlement that are applied to most schemes as wages rise. For instance, in England, as soon as you earn just £1 more than £7,399 a year, your child loses entitlement to free school meals.

The IPR report says this means that earning more can leave low-income workers worse off because they're excluded from other support, challenging the idea that Universal Credit truly 'makes work pay.'

Dr Marsha Wood, a Research Associate at the IPR, said: "When people's earnings go up, they might end up worse off financially, which completely undermines Universal Credit's promise to make work pay. It's frustrating to realise that the extra money in their pockets doesn’t outweigh the benefits they lose, and this can lead to significant financial struggles. These 'cliff edges' discourage individuals from working longer hours or striving for higher pay."

Dr Rita Griffiths said: "If the new government is serious about supporting families and boosting work, we need to look beyond Universal Credit. A full review of the extra means-tested benefits outside UC is crucial to understand their real impact on earnings, work incentives, and employment choices. This must be part of the broader UC review and the new child poverty strategy."

Karen Barker, Head of Policy and Research at abrdn Financial Fairness Trust, said: "Universal Credit was touted as a simplification of the benefits system, by bringing together six previous benefits into one payment. However, this research demonstrates the hardship that is still being caused to working people by a lack of full integration between Universal Credit and other vital support people depend on, such as help with council tax and free school meals. The recommendations presented in this work offer an opportunity for the new Government to take a holistic view of our safety net and realise the potential of a fully integrated system."

As well as a general review of Universal Credit and the rules for accessing other means-tested support, Dr Wood and Dr Griffiths make several recommendations. They include:

• Expand access to free school meals: Free school meals should be available to more Universal Credit claimants, not just those earning below £7,400.
• Simplify and standardise entitlement rules: The rules and earnings thresholds for means-tested schemes need to be simplified and standardised, with fairer methods for withdrawing support as earnings increase.
• Make work incentives stronger: Entitlements should be increased to keep up with inflation to better support work incentives.
• Improve communication and access to help: Increase communication and signposting to the different schemes, using the Universal Credit journal and digital tools more effectively.
• Offer social tariffs across all utilities: Social tariffs, like those offered by some telecom and broadband companies, should be extended to all utility providers and made available to all Universal Credit claimants.

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