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Benefits that work

Research overview

The UK spends billions of pounds every year on tax credits to support working families and tackle poverty. But do these benefits work? Research using linked data from two UK government departments has looked at benefits aimed at helping lone parents into work and has found that they do. The work has also provided policymakers with evidence on how best to encourage people to stay in work, and progress.

Key findings

The research has provided evidence for policymakers at the Department for Work and Pensions and others interested in in-work progression and retention, showing that both of the credits examined:

  • Helped more lone parents into work
  • Helped more lone parents to stay in work even after their credits stopped
  • Were most effective where receipt of the credit was conditional on the work being full-time
  • Increased only part-time work where they were paid to people working as few as 16 hours a week, whereas conditioning on full-time work reduced part- time work and increased full-time work
  • Were most successful for older people with older children, those who had been on welfare for fewer months, and those in areas with lower unemployment

How the research helps

Before this research, what little evidence there was on so-called time-limited tax credits was largely pessimistic about their ability to have any long-lasting impacts. By contrast, this study provides clear and robust evidence of the advantages of two of these benefits piloted in the UK in the mid-2000s: In Work Credit (IWC) and the Employment, Retention and Advancement Demonstration (ERA).

Because these benefits are paid for only one or two years rather than indefinitely, they are relatively cheap to provide and have the potential to help the Government make considerable savings whilst providing appropriate and effective support to a vulnerable group – in this case lone parents.

Impact

The research provides new evidence in an area where we know very little: how to encourage people to stay in work or progress. It will therefore help the Government decide how best to encourage Universal Credit recipients not just to look for work, but how to look for more or better paid work.

The research

Using the rich administrative data, the researchers were able to look at when lone parents moved into and out of work, and when they claimed key benefits and tax credits.

IWC was paid to lone parents who had been on welfare for at least a year if they moved into work of 16 or more hours per week. The credit was worth £40 per week and was paid for a maximum of 12 months. ERA paid £400 for every 17 weeks of full-time work (short gaps out of work were disregarded), for a maximum of 6 payments (or 2 years).

A model was developed to examine what, if any, impact IWC and ERA had on lone parents:

  1. Securing a job
  2. Moving between part-time and full-time employment
  3. Leaving work and going back on benefits

Critical to comparing the two programmes was the ability to estimate the impact on part-time and full- time work separately, and isolate the way in which they affected the likelihood of an individual remaining in employment, once they moved into work.

Further information and links

IZA Institute of Labor Economics Discussion Paper 10414.

Lone parents, time-limited in-work credits and the dynamics of work and welfare.

The data

The research uses rich administrative data linking information from Her Majesty’s Revenue and Customs (HMRC) and the Department for Work and Pensions (DWP). The data, a joint initiative by the Departments, contains details of spells where individuals were receiving benefits or tax credits, and this includes details of how many hours were worked each week.

The data was linked with the specific aim of improving the available evidence and targeting resources more effectively. 

Work and Pensions Longitudinal Study (WPLS)

Project team

Professor Mike Brewer, Deputy Director, Institute for Social and Economic Research, University of Essex

Jonathan Cribb, Institute for Fiscal Studies and University College London

Download this case study (PDF) (951Kb)

Page last updated: 06/09/2017