The Impact of Universal Credit on Mental, Physical, and Financial Well-Being: Longitudinal Evidence from the UK Household Longitudinal Survey
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Background Universal Credit (UC) is a major UK welfare reform that consolidates six means-tested benefits into a single monthly payment, aiming to simplify benefits delivery and incentivize labour market participation. However, concerns have emerged regarding its potential adverse consequences on recipients’ mental and physical well-being. Existing evidence is limited by methodological weaknesses, short follow-up time, and a narrow focus on psychological distress. Methods Applying the heterogeneous difference-in-differences approach developed by Callaway and Sant’Anna, we used waves 6–14 of the UK Household Longitudinal Survey (UKHLS), focusing on working-age individuals receiving social benefits to evaluate the short and long-term effects of that welfare reform on psychological distress (GHQ-12), mental functioning (SF-12 MCS), physical functioning (SF-12 PCS), but also employment, perceived financial outlook, benefits income, and total income. Results Transitioning to UC significantly increased GHQ-12 scores by 1.20 points (95% CI: 0.33 to 2.07) and decreased SF-12 MCS scores by 2.19 points (95% CI: − 3.79 to − 0.59), indicating deteriorating mental health. No significant effect was observed for SF-12 PCS. UC was also associated with a £93.05 reduction in monthly benefit income, a borderline significant decrease in total income of £222 and an 8 percentage-point decrease in perceived financial optimism. No significant effect on employment status was detected. Conclusions Our findings suggest that the transition to UC adversely affected mental health and financial well-being, while yielding limited employment benefits. These adverse impacts appear to reflect both implementation challenges, such as payment delays and benefit deductions, and structural design flaws, including rigid conditionality and reduced income security for vulnerable groups. The results underscore the need for welfare reforms that integrate health considerations and provide more flexible, targeted support to mitigate unintended harms.
