The introduction of universal credit (UC) has been the most significant reform to the working-age benefits system in the United Kingdom since the reforms following the post-war Beveridge Report. When fully rolled out, around 8 million families – 29% of all working-age families – will be entitled to the benefit. UC is an integrated, means-tested benefit, that is replacing six ‘legacy’ benefits, combining out-of-work support with support for housing costs, incapacity and children. This report assesses the impact of the UC reform on households’ incomes and their financial incentives to work, as well as the practical experience of applying for and getting means-tested benefits. The authors also briefly review the issues around the rest of UC’s roll-out.

Key findings:

• Nearly half (47%; 3.7 million) of all households affected by the UC reform gain at least £200 per year. One-fifth of affected households (21%; 1.7 million) see their income change by less than £200 per year, while nearly a third (32%; 2.5 million) are worse off by at least £200 per year.
• Many see considerably more substantial income changes. 25% (2.0 million) of affected households are better off under UC by at least £2,000 per year, with half of those better off by more than £4,000 per year.
• Couples with children are the most likely to gain under UC compared with the legacy system. 72% gain by at least £200 a year, compared with just 22% who lose out by at least that much.
• Taken as a whole, UC represents a net giveaway of about £2.5 billion compared with the legacy system. Households in the second to fourth income deciles benefit most on average, while middle-income households are worse off.
• UC also changes the practical experience of getting the benefit. For many, it eases the burden of applying and allows the system to respond more flexibly to changes in families’ circumstances.