The health and economic costs of welfare reform: A quasi-experimental evaluation of the roll-out of Universal Credit in England

We provide new evidence on the mental health and healthcare utilisation impacts of the rollout of Universal Credit, one of the most significant welfare reforms in Europe in recent decades.Designed to simplify the benefit system and strengthen work incentives by merging six meanstested programmes into a single payment, Universal Credit also introduced features that mayadversely affect mental health. Exploiting the plausibly exogenous, staggered geographical introduction of Universal Credit across England between 2013 and 2018, we implement a staggereddifference-in-differences design using comprehensive small-area administrative data on clinicallyrecorded mental health and related healthcare utilisation. We find substantial adverse effects ofUniversal Credit exposure: a 0.10 standard-deviation increase in clinically diagnosed depressionprevalence, a 0.03 standard-deviation increase in mental health-related hospital admissions andattendances, and a 0.06 standard-deviation rise in antidepressant prescribing. In natural units,these correspond to approximately 113,742 additional cases of diagnosed depression, 29,993 extrahospital admissions and attendances, and 1.29 million additional antidepressant prescriptions annually by 2018. Results are robust across specifications, sensitivity analyses, spatial aggregation,and alternative estimators. Because outcomes are measured at the small-area level, our estimatescapture population-wide effects that combine direct impacts on Universal Credit recipients withspillovers to non-recipients. Indicative valuations imply sizeable associated quality-of-life lossesand direct healthcare costs of approximately £2.84 billion per year. These findings highlight thatwelfare reforms can generate substantial mental health externalities and underscore the importance of incorporating health and healthcare system consequences into social policy design andevaluation.