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Making universal credit work for London

Released on 13 June 2011

SINGLE parents and families with two or more children in London who are starting work are likely to be worse off from an overhaul of the benefits system, according to research commissioned by London Councils.

The organisation which represents London’s 33 local authorities is concerned that the proposed system of universal credit may not be a sufficient incentive for unemployed parents in London to seek work because of high childcare, housing and transport costs in the capital.

London Councils supports the aim of simplifying what is currently a complex benefits and tax credits system especially as there is a much higher unemployment rate in the capital city than elsewhere, with one fifth of London’s children living in a workless household.

Research carried out by the Centre for Social and Economic Inclusion has found that compared with the current system most London households will be left with less spending power under Universal Credit,  with single parents and families with two or more children hardest hit.  The only exception is parents who work for less than 16 hours a week.

For example, a single parent with two children will be more than £5,000 a year worse off under universal credit if in a full time job on a minimum wage, using childcare, than under the 2011 system. Nationally a lone parent in the same situation would be £4,300 a year worse off.

The research shows that for some income groups, adults will only be marginally better off in work rather than out of work under the proposed Universal Credit, as childcare costs are so high. The report recommends that the universal credit calculation needs to recognise that there are different “childcare markets” across the country.  The welfare reforms should also include provision for holiday and wrap around child care. 

It also recommends that the government considers the option of raising the overall benefit cap for London or raising the housing element of the cap for London, which is currently proposed to be a total of £500 a week.

London Councils’ Executive Member for Skills and Employment, Councillor Steve Reed said:

“Our analysis shows all London households are set to be worse off under universal credit and families with two or more children will be considerably worse off.

“We support the aim of delivering a simplified benefits system and we want to see more Londoners getting back into work. 

“This is a real priority so we need to see a system that really makes work pay and helps families out of poverty. 

In December 2010, Work and Pensions Secretary Iain Duncan Smith announced that the government wanted to move to a single benefits scheme known as universal credit. This is part of the Welfare Reform Bill which is at Report Stage in the House of Commons today (13 June). Universal Credit is set to come into effect over a four-year period starting in 2013.

London Councils commissioned the Centre for Social and Economic Inclusion (CSEI) to assess the impact of universal credit.


Notes to editors

Research report: Making work pay in London under Universal Credit Opens in a new window

In this context, spending power is the money that a family has available to meet their living expenses once they have paid for their housing costs, fares and childcare - money for food and clothing.

CSEI estimates that in London there are 78,000 lone parents with two or more children under the age of 16 who are not in work – a quarter of the total number of all single parents in the capital.

It calculates there are 33,000 families with two or more children under 16 where neither partner is working and a further 156,000 families with at least two children where one of the two parents is working.

According for data from the Department for Communities and Local Government, In London the average weekly rent for a three bedroom house from a private landlord is £265.90, compared to £164.55 nationally. The same house rented from a registered social landlord in London costs £98.22 a week, compared to £76.51 nationally. 

The Daycare Trust calculated that the average weekly cost of a childminder for children aged two and over is £103 in London, compared with the English average of £83. The weekly cost of a nursery place in London for a child under two is £109 while the English average is £88.

Examples of different households: Two case studies

Couple with two children living in a 2 Bedroom property on private rent, both working full time (35 hours) on London median earnings for an entry level job (elementary occupations):

  London National
Spending power under Universal Credit £13,088 £15,088
Spending power: difference between out of work to in work under Universal Credit £569 £2,568

 

Lone parent with two children living in a 2 Bedroom property on private rent, working full time (35 hours) on minimum wage:

  London National
Spending power under Universal Credit £8,442 £9,921
Spending power: difference between out of work to in work under Universal Credit -£2,136 -£657
Difference in spending power: present system (April 2011) compared with Universal Credit (2013-14) -£5,168 -£4,364