Government announces reforms to ill-health test in Universal Credit

The Government has announced reforms to the test for ill-health in Universal Credit, according to a Resolution Foundation assessment of the benefit published on 15 April 2024¹. The same assessment states that the final stage of Universal Credit's roll-out is due to end with a system covering 7 million families by 2029, and that it is nearly 14 years since Universal Credit was first proposed¹.

The Resolution Foundation reports that seven in ten (71 per cent) of the 9.8 million families eligible for either Universal Credit or legacy benefits are worse off in real terms on Universal Credit in 2024-25 than they would have been under the legacy system in 2013-14, with an average difference among all eligible families of -£1,400 per year¹. It attributes this largely to cuts in overall levels of working-age support rather than the design of Universal Credit¹. The total modelled cost of Universal Credit at full roll-out and full take-up is put at £85 billion per year in 2024-25, against £100 billion in current prices for the legacy system in 2013-14 and £90 billion for the legacy system in 2024-25¹.

On entitlement thresholds, the assessment says a couple with two children paying rent at the average Local Housing Allowance on a two-bedroom property will be entitled to Universal Credit up to gross annual earnings of £67,000 in 2024-25, compared to £42,000 for legacy benefits, the largest such gap recorded, following cuts in the rate at which Universal Credit is withdrawn in 2017 and 2021¹. It also reports that the proportion of expenditure on Universal Credit and working-age legacy benefits going to London and the South East rose from 28 per cent in 2017-18 to 31 per cent in 2022-23, contributing to what it describes as a £2.1 billion shift in benefit entitlement towards London and the South East and away from the rest of the country¹.

On work incentives, the assessment says the number of workers facing marginal deduction rates above 70 per cent fell from 1.4 million to 165,000, while the number with rates above 50 per cent rose from 3.7 million to 4.3 million¹. It adds that median participation tax rates are 14 percentage points higher for second earners on Universal Credit than under legacy benefits¹. It reports 2.7 million people on Universal Credit subject to some form of conditionality, including 840,000 in work, compared with 1.1 million out-of-work Jobseeker's Allowance claimants in 2013-14¹.

On health, the assessment states that in May 2019 there were 2.3 million families claiming Universal Credit with a health element, or an equivalent legacy benefit, rising to 2.8 million by August 2023¹. The proportion of the total Universal Credit caseload subject to conditionality rules fell from 65 per cent in April 2019 to 44 per cent in November 2023¹.

Why it matters for households

The figures describe how entitlement and conditionality differ between Universal Credit and the legacy benefits it replaces, including for families in work. The assessment puts the average difference for all eligible families at -£1,400 per year in 2024-25 compared with the legacy system in 2013-14¹, and identifies working renters as the biggest average winners from the reform in isolation and disabled people, particularly single people with a disability that prevents them from working and without a full-time carer, among the biggest losers¹. It also reports that conditionality now reaches 840,000 people who are in work¹, and that the share of the caseload subject to conditionality rules has fallen as health-related claims have risen¹. For couples, the assessment reports weaker incentives for second earners, with median participation tax rates 14 percentage points higher than under legacy benefits¹. The detail of the announced ill-health test reforms, including their timing and effect on individual awards, has not been reported in the assessment.

What happens next

The assessment states that the final stage of Universal Credit's roll-out is due to end with a system covering 7 million families by 2029¹. It says policy makers must adapt Universal Credit to the labour market challenges of the 2020s, in a country it describes as older and sicker, and warns against using thinking from the late 2000s to drive policy decisions in the late 2020s¹. No further dates for the ill-health test reforms are given¹.