Universal credit £20 uplift had a far greater impact on reducing poverty rates than increase in work allowances and reduction of taper rate that followed its withdrawal

New analysis finds that more than 100,000 more people are expected to have been in poverty in 2022/2023 compared to the previous year as a result of changes in the policies

The universal credit £20 uplift had a far greater impact on reducing poverty rates than the increase in work allowances and reduction of the taper rate that followed its withdrawal, according to new research from the Institute for Fiscal Studies (IFS).

Using its tax and benefit simulation model, the IFS compares the impact on absolute poverty (defined as a household with less than 60 per cent of the UK’s 2010/2011 median income, adjusted for inflation) of key policies introduced since the Covid-19 pandemic –

• the £20 a week uplift to universal credit introduced in March 2020 that continued until October 2021; and
• the £500 increase in work allowances and the reduction of the taper rate at which benefits are reduced above this point from 63 per cent to 55 per cent, introduced in November 2021 (for brevity the IFS refers to these two changes as the 'taper rate reduction').

Presenting both the annualised impact of each policy – the effect of each policy if it was in place for a full year or if it was made permanent – and the impact in 2021/2022 taking into account the number of months the policies were actually in place (six months in the case of the £20 uplift and four months in the case of the taper rate reduction), the IFS finds that –

• the impact of the uplift being in place for six months of 2021/2022 until its removal in October 2021 was to reduce absolute poverty among the whole claimant population by 0.3 percentage points (ppts), equivalent to 0.6 ppts on an annualised basis (379,000 individuals); and
• the taper rate reduction had a more muted effect, reducing poverty by 0.1 ppts across 2021/2022, equivalent to 0.2 ppts (133,000 individuals) on an annualised basis.

Having noted that the different impacts on poverty rates are in part due to the nature of the two policies – the uplift applied equally to all recipients (except those on the benefit cap) while the taper rate reduction changes only helped working households – and partly due to the larger policy costing of around £6 billion for a full year of the uplift compared with £3 billion for the taper rate reduction, the IFS highlights that –

'Nonetheless, on a per-pound basis, the uplift had a roughly 40 per cent larger impact on poverty than the taper rate reduction.’'

The IFS concludes by saying that –

'These results suggest that the total impact of the two policies in 2021/2022 on poverty was around 0.4ppts. They therefore explain about half the decline in overall poverty between 2019/2020 and 2021/2022. Looking forward, the taper rate reduction was a permanent reform, while the uplift has expired. We would therefore expect the absolute poverty rate to be 0.16ppts (106,000 people) higher in 2022/2023 than in 2021/2022 as a result of changes in these two policies.'

For more information, see Recent changes to universal credit have much smaller effect on poverty than £20 uplift from ifs.org.uk