Welfare integration, labour supply and take-up

Lead Research Organisation: Institute for Fiscal Studies
Department Name: IFS Research Team

Abstract

Context

Benefits systems are crucial in protecting families and individuals from deprivation, supporting those with health conditions, and reducing inequality, as the covid-19 crisis underlines. As in many other countries, the UK benefits system has been comprised of several benefits - e.g. for unemployment, housing, and children. This system is in the midst of a radical overhaul where many of these are brought together into a single integrated payment - Universal Credit (UC). When rolled out this will be received by a quarter of working-age households at any one time. Other countries are considering similar moves. Understanding the impacts of welfare integration is thus crucial to the future of welfare policy design.
There are potential drawbacks of non-integrated welfare systems. First, families might not understand all the benefits that they are entitled to, or find it difficult or time-consuming to claim them all. Those that become entitled to a different benefit after their circumstances change - e.g., after a child is born - have to jump through new hoops to get it. This could make it harder for the system to help those it is intended to. Second, multiple parallel programmes mean that if a family increases its earnings, it can lose several benefits at once. This creates so-called poverty traps where increased earnings do little to raise household incomes overall, discouraging employment or extra work.
These are important possibilities, yet very little concrete is known about the actual pros and cons of welfare integration. This is the issue our research will tackle.

Aims

We will examine how a system of multiple benefits affects what families claim and the amount they work, and how this varies for different types of families. Understanding the relationship between claiming benefits and work is important because families often do not claim the benefits they are entitled to, with take-up rates as low as 55%. Our analysis will cover the whole tax and benefit system and the bulk of the working-age population. This is crucial for understanding the impacts of welfare integration.
We will study the extent to which having multiple programmes causes families to not claim newly entitled benefits after circumstances change (e.g. a child being born), and how prior and expected future claiming affects this. Prior receipt of a benefit can affect how well a family understands the system, the stigma they would perceive if they claimed, and the effort it would take them to start a new claim. Expectations about how long they will remain entitled to that benefit are also likely to affect whether they think it is 'worth' making a new claim. This is important when thinking about welfare integration, since integration means that when circumstances change benefit entitlements also change automatically, without the need for a new claim. Our work will help us to understand how previous and expected future receipt of a benefit affects whether or not a family claims today.
We will apply all these results to understand how UC affects employment, hours worked, benefit take-up, families' incomes, and government finances. We will also be able to use our research to examine how changes to the design of UC could affect these outcomes.

Applications and benefits

UC is a vital policy area, and our work will be of use for policymakers seeking to understand its effects or consider changes. More generally, our results will highlight the advantages and drawbacks of welfare integration, which is relevant for policymakers in other countries contemplating similar reforms, and for other kinds of integration such as 'basic income' proposals.
Moreover, because our analysis will cover the whole of the benefit system and a large share of the working-age population, we and other researchers will be able to use it in the future to analyse how other proposed tax and benefit policies might affect the labour market, incomes, and government finances.

Publications

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