Struggling to make ends meet: Single parents and income adequacy under universal credit

a paper by Donald Hirsch (Director, Centre for Research in Social Policy, Loughborough University) published by Gingerbread

Introduction

From 2013, universal credit will start replacing the present benefits and tax credit system as the main financial support for families on low incomes. Single parent families are highly dependent on such support to make ends meet, whether they are in or out of work. To what extent will the new system meet their needs?

The new system has a number of features that could potentially help single parents. It will be simpler overall than the present system, reducing the confusing array of entitlements and forms to fill in. It will offer new opportunities to improve family income through part time work, allowing single parents to keep some or all of their out of work entitlements when they work a few hours a week. And it will reduce some of the most severe barriers to improving family income, in particular the most extreme situations where families can currently lose over 90 per cent of additional earnings through a reduction in benefits combined with higher income tax bills.

However, ultimately the extent to which the system helps single parent families lift themselves out of poverty and achieve an adequate standard of living will depend on the level at which entitlements are set. In the past two years, there have already been significant cuts to both benefits and tax credits, and many of these will be carried over into universal credit. The system is coming in when, like many people in Britain, single parents are generally seeing living costs rise at a faster rate than earnings (or state entitlements). The combination of these factors makes it inevitable that, even with the help of universal credit, many families will struggle to make ends meet.

This paper gives an initial snapshot of how provisional universal credit entitlements (announced as illustrative figures for 2012/13, the year before its introduction) compare to families’ needs. In particular we seek to illustrate the impact of universal credit on:

1. Work as a route out of poverty and towards an adequate income level – will it support working single parents to lift their families above the poverty line, and will it support them to reach an adequate level of income for their needs?
2. Work incentives – will it make a single parent better off in work than not, and will it be worthwhile to work additional hours?

Given that we do not yet know the exact level at which the credit will be set, it cannot project the precise outcomes of the system. Rather, it sets the scene for monitoring the adequacy of universal credit by doing three things:

• Looking at a general level at the ability of single parents with various hours of work and wages to escape poverty and reach a minimum acceptable income level
• Considering which factors will most affect the adequacy of universal credit. It makes comparisons between single parents with more or less expensive housing and childcare, and different numbers and ages of children
• Considering the effectiveness of different policy measures in improving the situation of single parents under universal credit, to help understand what future improvements could best produce stronger work incentives – and therefore a more adequate living standard – for single parents and their children.

Full text (PDF 18pp)

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