In total, it is estimated that Universal Credit will help more than 250,000 people move into employment.
There are a number of features of Universal Credit (UC) which we estimate will drive this increase in participation:
1. Increased financial incentives to move into work – UC has better incentives to increase hours of work, meaning workers keep a higher proportion of their additional earnings, with a guarantee that work always pays.
We have estimated the impact of financial incentives by combining academic evidence on people’s responses to previous welfare system reforms, and the Department’s Policy Simulation Model. The Policy Simulation Model was used to estimate changes in gains from work and disposable income (i.e. drivers of income and substitution effects) for different groups due to the introduction of Universal Credit.
We estimate that increased financial incentives will result in around 150,000 more people in employment under UC in steady state.
2. Increased intensity of work search under Universal Credit. Conditionality is extended under UC to certain groups that were not subject to conditionality under the legacy system, meaning they will get work coach support and encouragement to seek work, and will sign a claimant commitment to spend up to 35 hours (depending on their circumstances and any caring responsibilities) a week seeking work.
The conditionality regime in Universal Credit has a wider reach than the equivalent JSA regime in the legacy benefit system. We use evidence of the employment impacts from trials of labour market interventions to estimate the increase in employment for these groups experiencing conditionality for the first time. We estimate that extended conditionality under UC will result in around 50,000 additional people moving into employment.
3. A smoother and simpler transition into work under Universal Credit. Universal Credit places less administrative burden on the claimant and has a clearer system of allowances and tapers that allow claimants to more easily see the financial benefits of moving into work or increasing their hours.
The estimated employment impacts of UC due to its simplicity are based on research and evaluation evidence of similar reforms in the past. In particular, it draws on evidence from the:
a) quantitative and qualitative evaluations of mandatory work-focused interviews for lone parents and Better Off Calculations; and
b) evaluation of In-Work Credit.
We estimated that the move to a single system of working-age benefits, in the form of Universal Credit, will result in around 60,000 more people in employment under UC in steady state.