Benefit changes 'will leave 2.6 million families £1,600 a year worse off'
The new Universal Credit system will mean a less generous benefit entitlement for working families, a respected economic think tank has said.
An estimated 2.6 million working families can be expected to be an average £1,600 a year worse off under UC than they would have been under the existing system, said the Institute for Fiscal Studies.
Transitional protections mean that no existing claimants will lose out in cash terms when the new system comes in, but new claimants and those whose circumstances change will lose out in the long run, the IFS said.
Despite Chancellor George Osborne's decision in Wednesday's Autumn Statement to scrap cuts to tax credits proposed for next April, the IFS said that his plans still envisage reducing non-pension benefits to their lowest level as a share of national income for 30 years.
Research economist Andrew Hood said: "No existing claimants will see a cash fall in their entitlements.
"Previously, in April 2016, some people were going to see less money than they previously had. That's no longer going to be the case. Even when existing claimants are rolled on to universal credit their entitlements are protected in cash terms.
"The point we are making is the system is still less generous in the long run, so new claimants and claimants whose circumstances change and lose that transitional protection, will lose out in the long run."
Mr Hood said the transitional protection meant that there could be "potentially very different amounts of benefit" for people in similar circumstances, depending when their universal credit claim started.
Among factors which could trigger a new claim, losing the transitional protection, was gaining a partner - swiftly dubbed a "love tax" by Labour critics.
Transitional protection means a claim is protected in cash terms until the annual rise in universal credit in line with prices means there is no longer any requirement for it.
Mr Hood said: "The things that lose you transitional protection are acquiring or losing a partner - so if I move from being a single to a couple in the system - that loses you transitional protection.
"Obviously if I move off universal credit entirely, so if one month I got a lot of earned income, that took me off the top of the taper, I would have to make a new claim the next month and that would mean I lost my transitional protection.
"Thirdly, if my income falls, my universal credit entitlement does not rise to offset that until I have exhausted the transitional protection."
After transitional protections had expired, "once universal credit has taken its full effect, 2.6 million working families will be worse off as a result", Mr Hood said.
The IFS modelling suggests that in the long run, as well as 2.6 million working families being an average of £1,600 a year worse off than they would have been under the current system, some 1.9 million will be £1,400 a year better off.
IFS director Paul Johnson said Mr Osborne was "lucky" to receive a £27 billion windfall which allowed him to perform his U-turn on tax credits.
And he said the Chancellor will "need his luck to hold out" if he is to meet his target of a surplus by 2019/20 without raising taxes or imposing further spending reductions.
While Wednesday's Autumn Statement and Spending Review has resulted in cuts "less severe" than envisaged in July's post-election Budget, Mr Johnson cautioned that it was "absolutely not the end of austerity".
The Spending Review settlement is "one of the tightest in post-war history" and a swathe of government departments will face real-terms cuts.
Even the NHS, which had its budget protected, will receive only a total increase of 3% over the next five years - close to the annual average over the past half-century - he said.
Mr Johnson said the Chancellor had effectively abandoned his cap on annual spending on welfare, which will be breached in each of the next three years.
And while the ditching of tax credit cuts means no family will take an "immediate cash hit", the long-term generosity of the welfare system "will be cut just as much as was ever intended, as new claimants will receive significantly lower benefits than they would have done before the July changes," said Mr Johnson.
A Treasury spokesman said it was "not legitimate" to compare the payments received by a new claimant under the Universal Credit system with the amount the same person would receive under the current system.
"As the IFS said today, no existing claimants will see a cash fall in their entitlements," said the spokesman.
"Universal Credit is designed to ensure that work always pays. It is an entirely different system to the current one, taking in six different tax credits and benefits - with none of the cliff edges of tax credits.
"So comparing what someone making a new claim would receive under the new system in 2020 to what they would be eligible for now is not legitimate.
"As the Chancellor set out, for current tax credit claimants, because of the Government's economic plan, we can now help with the transition to Universal Credit by avoiding changes to tax credits altogether.
"This means there will be no losses in tax credits and the suggestion that tax credit cuts have somehow been postponed or transferred into Universal Credit is completely misleading."
Shadow chancellor John McDonnell said: "The day after the spending review, the Tory spin is unravelling.
"We said this was a smoke-and-mirrors spending review and we were right.
"IFS research today shows that George Osborne has not reversed his welfare cuts, he has just delayed them, and 2.6 million families will still be on average £1,600 worse off by 2020."