Families 'to lose out in welfare reforms'

More than one million families are set to lose out under the Government's flagship welfare reforms, a leading financial think tank warned yesterday.

The Institute for Fiscal Studies (IFS) said the planned "universal credit" set to replace a raft of existing benefits and tax credits would create clear winners and losers. Among those who will be worse off under the new system will be lone parents and families with savings of over 16,000 who will, on average, lose in the long run, the IFS said.

The universal credit is the centrepiece of Work and Pensions Secretary Iain Duncan Smith's plans to streamline the welfare system, while creating incentives for claimants to get into work.

In its analysis, the IFS calculated that under the new system 2.5 million families would gain in the long-run and 1.4 million would lose, while 2.5 million would see no change to their benefit and tax credit entitlements.

The changes will benefit poorer families more than those who are better off, with the bottom six tenths of the income distribution gaining on average while the top four tenths lost out slightly.

Couples with children will gain more than couples without children who will, in turn, do better than single adults without children. However, lone parents will, on average, be worse off.

The IFS stressed that within all family types some people would be worse off, with couples with children who have savings of more than 16,000 among the losers.

Overall, the IFS estimates that the universal credit will cost around 1.7bn, although that could rise if the simplified system results in a higher take-up rate.

Equally, the costs could fall if, as intended, the system encourages more people to take jobs.

The IFS said that while the universal credit would create stronger incentives for single adults and the main earners in couples to work, it would weaken the incentives for both partners in a couple to find jobs.