Do the UK Government’s welfare reforms make work pay

The UK government is in the process of introducing a radical package of welfare reforms that it hopes will encourage more people to work as well as reducing government expenditure. The largest structural change planned is the introduction of universal credit to combine six existing means-tested benefits for those of working age into a single payment, which is intended to reduce administration costs and errors, simplify claims, encourage take-up, and increase the incentive to work for those currently facing the weakest incentives. But the deficit reduction package has also involved tax changes and large benefit cuts that have an impact on financial work incentives. At the same time as these reforms have been introduced, weakness in the economy has meant that earnings have increased less quickly than benefit rates, which tends to make working less attractive. In this paper, we use micro-simulation techniques to investigate whether financial work incentives will indeed be stronger in 2015-16 than they were in 2010-11 and to separate out the impact of changes to taxes, benefit cuts and the introduction of universal credit from the impact of wider economic changes.