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The impact of reversing Universal Credit and Working Tax Credit uplifts

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Research commissioned by the Greater London Authority and performed by the Centre for Microsimulation and Policy Analysis (CeMPA) at the University of Essex using the UKMOD tax-benefit model, shows that prolonging the £20 a week uplift in Universal Credit and Working Tax credit would reduce the poverty rate in the UK from 16.3% to 15.1%, keeping 780,000 people out of poverty in 2021. This effect will grow stronger over time as Universal Credit gradually replace legacy benefits, helping to keep more than 900,000 people out of poverty by 2024. Proposals to extend the policy for 6 months only would roughly speaking only achieve half of the effects.

The proportional decrease in poverty rates, if the uplift is not cancelled as currently planned, will be stronger for more vulnerable groups: while overall poverty rates would decrease by 7.3% in 2021 (before housing costs) – that is, one in 14 of those classified as poor would become non-poor – the decrease would amount to 12% for people with disabilities and lone parents (one in 8 classified as poor being lifted out of poverty), 11% for children and teenagers, 10% for renters. Black, Asian and minority ethnic (BAME) groups would benefit proportionally more than white. The policy would also contribute to levelling off regional inequalities, with Northern Ireland (-8.2%) benefiting the most, and London (-6.9%) the least.

Considering income after housing costs, prolonging the £20 a week uplift would have an even stronger effect, keeping 890,000 people out of poverty in 2021 (over one million people in 2024). The number of people in deep poverty, defined as disposable income below 50% of the poverty line (below £416 per month after housing costs) would go down by 226,000 individuals after housing costs are considered, with the biggest relative gains for deep poverty would be concentrated in Wales and Scotland. In London alone the policy would lift 50,000 people out of deep poverty.

The cost of extending the measure would amount to £5.7 billion in 2021, increasing to £6.6 billion by 2024, when the transition to Universal Credit will be completed. Extending the uplift to legacy benefits, hence eliminating a discrimination in the emergency measures adopted last year, would lift the full set of 900,000 individuals out of poverty starting from 2021, with the full cost identified above for when UC will get up to speed to be sustained starting in 2021. Disabled people would particularly benefit from this extension as they rely more on legacy benefits.