OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

Work Incentives and Universal Credit

Reform of the Benefit System in the United Kingdom

Under the Universal Credit reform, the main means-tested benefits except the Council Tax Benefit will be pooled into one single benefit with one single taper rate. The reform will give people better incentives to work, reduce complexity and contribute to reducing poverty. The reform could reduce the number of workless households by between 45 000 and 240 000 and increase labour supply by the equivalent of 15 000-85 000 full-time employees. Increased take-up and increased entitlements for low income families will further reduce poverty and increase equality. However, the cost of childcare remains high even after taking childcare benefits into account. Despite significant improvements, childcare expenses will continue to be a hurdle to progress in work for second earners and lone parents, even after the Universal Credit reform.


Keywords: benefit system, inequality, welfare reform, work incentives, poverty, United Kingdom, second earners, Universal credit, lone parents, child care
JEL: I38: Health, Education, and Welfare / Welfare, Well-Being, and Poverty / Welfare, Well-Being, and Poverty: Government Policy; Provision and Effects of Welfare Programs; H55: Public Economics / National Government Expenditures and Related Policies / Social Security and Public Pensions; D31: Microeconomics / Distribution / Personal Income, Wealth, and Their Distributions; H31: Public Economics / Fiscal Policies and Behavior of Economic Agents / Fiscal Policies and Behavior of Economic Agents: Household
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error