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Britain’s worklessness crisis is being fuelled by a benefits system anomaly that encourages people to work just two days a week, it can be disclosed.
The Telegraph understands there is deep concern inside the Treasury that the current system allows claimants to unlock thousands of pounds in extra benefits if they earn as little as £658 a month.
An anomaly in the welfare programme means someone on Universal Credit could receive a total income of nearly £45,000 a year for doing the equivalent of two days’ work in a low-paid job.
To take home the same amount after tax, someone not on benefits would have to earn nearly £62,000 a year.
MPs have raised concerns with Jeremy Hunt, the Chancellor, and it is understood that Treasury officials are looking at closing the issue identified by The Telegraph.
One Cabinet minister said: "We are aware of this issue and it is a matter of concern. We are determined to address the workless problem and closing this loophole is a top priority."
The Telegraph has also seen messages on online forums where benefits claimants are advising each other to work no more than two days a week.
One person wrote: “I normally work 16 hrs a week, but did 32hrs a week for a month … I won’t be doing it again.”
Number on benefits on the rise
It comes at a time when there are more than 1 million job vacancies and amid concern over the number of people claiming out-of-work benefits rising to 5.3 million.
MPs have approached the Chancellor with concerns that the anomaly is fuelling the number of people content to remain on benefits rather than take on more work.
Lee Anderson, the MP for Ashfield, said that when he raised the issue, the Chancellor “listened very carefully to what I had to say and I am convinced that he will act on this unfairness”.
Mr Hunt has already promised to force more people on Universal Credit to meet work coaches, in order to help them get better jobs – as well as to fuel economic growth and help Britain recover from the financial cost of the pandemic.
Three quarters of British businesses said that they have been hit by labour shortages over the 12 months to October, a survey by the Confederation of British Industry found.
Claimants have their benefits capped at £13,400 for a single person outside of London and £15,410 in the capital. For couples and single parents, the figures are £20,000 or £23,000.
The benefit cap affects payments including Universal Credit, child and housing benefit.
Some households are exempt from the cap, such as those with carers or people with disabilities.
Even where the cap applies, money for childcare costs is "protected", meaning that people in receipt of these get a higher amount overall.
Alongside the benefit cap is a “tapering” system, which reduces claimants’ Universal Credit by 55 pence for every pound they earn.
Households with children, or where one partner is disabled or sick, can take home 100 per cent of their earnings up to £573 a month - or £344 for those receiving housing support - before the “taper” kicks in. Anyone doing two days’ work a week could surpass that trigger point.
People working more 'not much better off'
Comments on social media show that the two measures appear to put many people off working more than they need to.
One said: “I normally work 16 hrs a week but did 32hrs a week for a month. But my UC came right down, I worked 32hrs a week and was not much better off. No point in killing yourself to be very little better off. I won’t be doing it again.”
“You will be better off staying on UC,” says another. “Are you able to find cash-in-hand work that you don’t declare, or sell on eBay?”.
To see how much of a disincentive from working there is, The Telegraph analysed how much some benefits claimants stood to make if they increased their work hours from two to three days a week on the National Living Wage.
This showed that a single-mother-of-two, paying £2,000 a month in rent in London, would receive £36,663 a year in tax-free Universal Credit if she worked 16 hours a week at £9.50 an hour – bringing her gross income to £44,567.60.
But if she decided to work three days a week instead of two, because she would lose some of her Universal Credit entitlement, her gross income would only edge up by £2,172 a year to £46,348 - equivalent to £34 extra a week. Add in childcare and transport costs, and the money she earned from that third day of work would be wiped out.
The disincentive to work is almost as strong for couples with children. If each parent works for one day a week, they could expect to take home a joint income of £46,856, of which almost £39,000 would be paid from the public purse. But if those parents worked three days a week between them, their gross income would also only increase by £34 a week.
In both these cases, if they had earned less than £658 a month, the families Universal Credit would have been subject to the cap, excluding the contribution they receive to childcare costs which is "protected"
MPs also told The Telegraph that some of their constituents had told them it was not “worth” them doing more than two days a week.
Marco Longhi, the Conservative MP for Dudley North, said “I’ve had several constituents tell me it is not worth them working more than 16 hours work a week”.
Mr Anderson said: "When I first raised this issue two years ago, I was ridiculed by the Left and mainstream media.
"In my time working for Citizens Advice I saw on a daily basis how unfair the benefits system was by allowing claimants to be far better off working for a few hours on entry level jobs rather than having a full-time job with proper career progression”.
A spokesman for the Department of Work and Pensions, said: “Universal Credit offers a vital safety net to millions of people, enabling them to support themselves and their families while moving towards financial independence through work.
They said the examples highlighted were “selective, not representative and don’t reflect the wider work incentives in the Universal Credit system – incentives which we continue to build on”.
“This includes announcing in the Autumn Statement that over 600,000 more working Universal Credit claimants will be required to meet with a dedicated work coach to increase their hours or earnings.”
Iain Duncan Smith, who launched the Universal Credit system when he was work and pensions secretary, said that the key to making it work was rigorous sanctions. “That's the stick. The carrot is actually you advance out of the hours, you get more income, and in due course, you take control of your life.”
But judging by the comments in the social media forums, not everyone feels that they are a real threat.
“They will tell you to look for more hours and or another job,” wrote one man. “Doesn’t matter. Just smile and wave.”
CORRECTION: The original article said that the fictional case studies "would be subject to the cap" when it should have read: "if they had earned less than £658 a month, the families Universal Credit would have been subject to the cap, excluding the contribution they receive to childcare costs which is "protected". The article has been amended and we are happy to correct the record.