Universal Credit must change to tackle long-term sickness, report says

Universal Credit (UC) will need to change to meet the challenges of an older and sicker population, a new report suggests.

The number of benefit claimants who are out of work due to ill health has almost doubled since 2013, says the Resolution Foundation.

The government recently announced changes to UC aimed at encouraging people with ill health to seek work.

The Department for Work and Pensions says UC acts as a “vital” safety net.

Universal Credit is a single benefit payment for working-age people. It was introduced in 2013 to replace a range of different benefits for unemployed and low-paid people and the aim was to make the system simpler.

There were 6.4 million people on Universal Credit in January, according to official government statistics, while nearly 40% of claimants were in work.

The Resolution Foundation suggests that both the benefit system and the country have changed significantly since the Universal Credit system started to be phased in.

The report found that seven in 10 (71%) families who were eligible for either UC or legacy benefits were worse off in real terms on UC in 2024-25 than they would have been under the legacy benefits system in 2013-14.

But this was largely due to cuts in overall levels of working-age support, rather than the design of UC itself, the foundation said.

Alex Clegg, economist at the Resolution Foundation, said: “Whoever wins the next election will be governing a ‘Universal Credit Britain’, with seven million families eventually receiving the new benefit.

“It is vital that they understand both the system they will inherit and the population that relies on its support.”

The unemployment rate has fallen from 8.5% in 2011 to 3.8% in 2023, said the think tank, which focusses on improving the living standards for those on low to middle incomes.

But Mr Clegg said that while the problem of higher unemployment has faded in recent years, “Britain faces new challenges from an older and sicker population”.

The Resolution Foundation also looked at who had benefitted the most from the change to the benefits system and found this was working families renting their homes.

A renting single parent who works 30 hours per week on the National Living Wage is nearly £3,800 per year better off in 2024-25 than they would have been under the old benefits system, it said.

Across the 2.7 million families in the private rented accommodation that are eligible for UC, the average gain compared to the old system is £1,200.

However, the report also shows that the streamlining of disability premiums means that out-of-work claimants with disabilities are likely to be the worst off.

For example, a single person with a long-term disability that prevents them from working would now be £2,800 per year worse off, it suggested.

“Compared to the old system, Universal Credit offers greater support for renters and stronger incentives to enter work. But its original design did not anticipate there being over two million claimants with poor health or disabilities,” Mr Clegg added.

“Alongside efforts from the NHS, education, and labour market policy to address the drivers of ill health, UC will need to change to tackle Britain’s new challenge of long-term sickness.”

Concerns have been raised by business leaders and policymakers about worker shortages affecting the economy.

The number of people not employed or actively looking for work has remained at a persistently high level in recent years since it first surged during the pandemic.

Long-term illness has been cited as one of the main reasons for roughly a third of the working-age, inactive population not being in the labour force.

It saw Chancellor Jeremy Hunt announce in November that reforms including stricter fit-to-work tests and jobseeker support would get 200,000 more people into work. Under those plans, the government also wants to scrap the controversial Work Capability Assessment.

The Resolution Foundation projects that by 2028, entitlements to UC would work out as about £86bn a year, although this is £14bn less than if the government had kept the former system in place.

A Department for Work and Pensions spokesperson said: “Universal Credit has proven itself as a modern benefits system fit for the future, providing a vital safety net to millions while helping people move into work faster.”

It also pointed to the fact that the UC standard allowance – the basic amount before additional payments or reductions for things like savings are taken into account – went up earlier this month.

“Work is the best path to long-term financial security and through Universal Credit, our £2.5bn Back to Work Plan will help over a million people – including those with long-term health conditions – find, stay and succeed in work,” they added.