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London families will be 'significantly worse off' under benefit reform

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The pledge to ‘make work pay’ that lies at the heart of the government’s plan to introduce a universal benefit is unlikely to be realised in London with many households in the capital set to lose out through the reform, a report has found.

The impact analysis of the government’s plan to introduce a universal credit in place of the existing benefit system, undertaken by London Councils and the Centre for Economic & Social Inclusion (CESI), has found that Londoners will be “significantly worse off” through the reform.

The initial findings of the report, which were revealed to LGC, show that because of the higher cost of housing, childcare and transport in the capital, both lone parents and couple families will lose out when moving into work under universal credit.

The report, which is to be published this month, finds that all types of out-of-work household in London will have lower gains from moving into low-paid jobs than in the rest of the country, while some types of household will be significantly worse off.

It found, for example, that a single parent with two children entering into full-time employment on the minimum wage will be more than £5,000 a year worse off under universal credit than the current system.

The report also found that families in part-time work with two or more children will have less incentive to increase the number of hours they are working.

Gareth Morgan, managing director of Ferret Information System, who developed the modelling, said the analysis was based on “relatively conservative modelling, so we can certainly justify the figures we have come up with”.

Lovedeep Vaid, CESI senior labour market statistician, said the research showed that the key aim of the universal credit to make work pay “will not be achieved in the capital”.

He added that this also meant the savings the government hoped to realise through the universal credit would also not be achieved, which would in turn impact on the government’s deficit reduction plan.

Mr Vaid said ministers needed to develop a London adjusted universal credit that takes into account the higher housing and child care costs. He said this could be achieved by raising the benefit cap imposed through the new system to a level in London that takes account of the higher costs of living in the capital.

But he added that many of the negative impacts of the universal credit on Londoners could be eased if employers paid the London living wage.

The analysis of the impact of the reform on London follows a report by Gingerbread, the lone parent charity, and the Resolution Foundation, a think tank, which said the costs of child care could “shatter” the government’s commitment to make work pay through the universal credit.

Some parents could lose 94p in the pound as they increase their working hours, the analysis showed, with lone parents and second earners in low earning families particularly hard hit.

Gingerbread chief executive Fiona Weir said the universal credit plan was a “ticking time-bomb”. “David Cameron’s high profile pledge to single parents to make work pay will be broken unless the Treasury can find extra funding for childcare,” she said.

Gavin Kelly, Chief Executive of the Resolution Foundation, said that under the reform “doing more than part-time work just wouldn’t make you better off”. “Living standards are already severely squeezed and this would be a further hammer-blow to working families,” he said.

A Department for Work & Pensions spokesman said the cost of childcare was “one of the most important factors for parents when considering work”.

“Giving parents support with these costs will play an important part of universal credit.

“We are looking at how best this support can be allocated to individuals to ensure that parents have an incentive to work, whilst targeting support at those most in need.”

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