Universal credit is making children hungry

Children on low incomes will have a better summer this year thanks to Marcus Rashford’s inspiring school meal voucher campaign. The weekly allowance of £15 per child will be available to all families with school-aged children who are currently eligible for free school meals, because they are receiving benefits while out-of-work or on very low earnings.

New analysis from the Fabian Society reveals why the vouchers are so necessary – but also why they are only a sticking plaster. The society has calculated the value of social security benefits for families without work and compared it to a projection of the 2020 poverty line for different family compositions. We reveal there is a huge gap between benefit levels and the poverty line even after taking account of the temporary increase in universal credit announced by the chancellor in March.

• A lone parent without work with one child is left £68 per week below the poverty line; with three children the shortfall is £142 per week
• A couple without work with one child is £93 below the poverty line; with three children the shortfall is £175 per week

Families with children losing their jobs during the Covid-19 crisis are finding to their horror that universal credit does not provide enough to meet even basic needs. Our figures are in fact the ‘best case’ because they assume that families’ housing and council tax costs are fully covered by other benefit payments, which is actually almost never the case.

Figure 1. Financial shortfalls for families: the gap between social security payments for out-of-work families with children and the 2020 poverty line for each family formation (for adults aged 25 to pension age, excluding support for rent, council tax and childcare)

The universal credit available for families without work is worth between 55 per cent and 79 per cent of the poverty line for each type of family (ignoring housing costs and associated benefit payments). These poverty lines are calculated to reflect the costs of bringing up children with different ages and family contexts, by scaling up from our projection for the 2020 poverty line for a single adult (£160 per week, after housing costs).

The Fabian Society analysis also compares the income provided to out-of-work families with the amount provided to low income pensioners through pension credit, again by making an adjustment to take account of different family compositions. Universal credit provides non-working families with children a standard of living that is between 51 per cent and 73 per cent of that available through pension credit to a single pensioner with no other income.

Figure 2. Basic out of work payments in 2020 for adults aged 25 to pension age in different household formations (excludes support for rent, council tax and childcare), as a percentage of the poverty line and the amount single pensioners receive

There are two reasons why universal credit is failing families with children, both caused by cuts made by George Osborne in his 2015 summer budget. First the benefit does not include a higher allowance for the first child in each family. This is required to protect families with children because the basic benefit for adults is far lower than a parent needs to meet the needs of a household with children.

Second universal credit includes the controversial ‘two child limit’ which means the only help parents receive for their third or subsequent child is child benefit of £13.95 per week. During the Covid-19 crisis there can be no possible excuse for punishing families with three children who have just lost their jobs and have no wish to be out of work.

The Fabian Society proposes two immediate emergency measures (to sit alongside the universal credit package announced in March):

1. Increase the UC payment for a first child by at least £10 per week (the amount cut in 2015)
2. Scrap the 2 child limit within universal credit

This package would ordinarily cost in the region of £2 billion for a full year. This is the saving the Treasury said would be realised in 2020/21 by the implementation of these two reforms at the 2015 Summer Budget. Additional costs will arise as a result of the huge rise in the number of families eligible for universal credit due to joblessness or low earnings during the coronavirus crisis. This expenditure needs to be seen as one part of the essential safety-net required to protect individual households and overall consumer spending during an unprecedented global crisis.

Notes

This article updates analysis first carried out using data for 2019/20 and published in the Fabian Society’s 2019 report Where Next? Reforming social security over the next 10 years

Payment levels include child benefit and universal credit (including temporary increases to universal credit during the Covid-19 crisis) and assume recent cuts to children’s social security are fully implemented (ignoring transitional protections).

In many cases the reported payment values exceed actual after-housings-costs disposable income because some of the money needs to be spent on rent and council tax following recent benefit cuts. The percentage values are therefore upper limits and many households will have incomes even further from the benchmark levels.

The value for the poverty line, and for living standards compared to those of a single pensioner, are calculated individually for different family compositions. Adjustments are made using data on the costs of the minimum needs of children in different household formations (The cost of a child in 2018, CPAG, 2018). This produces multipliers to scale-up the value of the pension credit payment for a single adult, and the poverty threshold for a single adult, to reflect the composition of the household.

The poverty threshold for a single adult (60 per cent of median income, after housing costs) is projected using the 2018/19 poverty line, adjusted to 2020/21 prices. There has been little change in the real value of the poverty line in recent years so this is a reasonable assumption, given that no data is available to forecast changes in median real household income between 2018/19 and 2020/21.