Universal Credit changes explained: How the work allowance and taper rate are changing after the 2021 Budget

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Universal Credit rules are changing, and this will affect millions of households across the UK.

The most recent Department for Work and Pensions statistics state that five million households relied on Universal Credit in England, Wales and Scotland as of May 2021.

But how does it affect your payments? Here’s everything you need to know.

What is the Universal Credit taper rate?

When you start work, the amount of Universal Credit you get will gradually reduce as you earn more. But unlike Jobseeker’s Allowance, your payment won’t stop just because you work more than 16 hours a week.

The taper rate is how your maximum Universal Credit award is reduced when you start earning again. This is directly related to how much you earn.

Once you earn more than your work allowance your Universal Credit payments will be reduced at a steady rate.

Until now, the Universal Credit earnings taper rate was at 63 per cent. This meant that for every £1 you earn over your work allowance (if you are eligible for one) your Universal Credit will be reduced by 63p. This amount is deducted automatically from your Universal Credit payment.

Universal Credit changes explained: How the work allowance and taper rate are changing after the 2021 Budget
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Your earnings will be assessed monthly.

For some people, you may be eligible for a work allowance, which means you can earn a certain amount before your Universal Credit payment is affected.

You will be eligible for a work allowance if you (and/or your partner) either have:

  • responsibility for a child
  • limited capability for work

Monthly allowances are currently set at: £293, if your Universal Credit includes housing support, and £515, if you do not receive housing support.

How is it changing?

Chancellor Rishi Sunak announced he was changing the taper rate and work allowance, resulting in higher welfare payments for in-work claimants.

This is thought to be a way of softening the blow after the £20 uplift was scrapped.

He said the previous taper, brought in under his Conservative predecessors, was “a tax on work” and pledged to do more to support families.

Mr Sunak announced that the Universal Credit taper rate will be cut by 8 percentage points no later than 1 December, bringing it down from 63 per cent to 55 per cent.  

This will save claimants about £9 a week.

Universal Credit changes explained: How the work allowance and taper rate are changing after the 2021 Budget
© Provided by The i Universal credit rules have changed (Photo: Yui Mok/PA Wire)

In response to the pandemic, which saw large parts of the economy effectively shut down for several months, a temporary £20 increase to Universal Credit payments was introduced. The scheme officially ended on 6 October.

The Joseph Rowntree Foundation (JRF) estimated that 5.5m families would suffer because of the end of the uplift. Citizens Advice has put the number at close to 6 million.

Mr Sunak bowed to pressure from some of his own Tory backbenchers and confirmed he would be changing the taper rate to allow claimants to keep a higher proportion of their welfare payments whilst also working.

For example, on Wednesday morning, former housing secretary Robert Jenrick had told LBC that slashing the taper rate would be a “very sensible step” and an “attractive option”.

Will this help people?

Changes to the universal credit allowances and taper rate will only help a third of the households that have been relying on the axed £20-a-week uplift.

Treasury documents reveal the new measures will only help 1.9million households – around a third of the 5.5 to 6 million estimated to have been claiming universal credit in recent months.

Changes to the work allowance will apply to people living with a dependant and both exemptions will only benefit people in work.

There are concerns that millions of adults living without children or currently out of work will have no – or limited – additional support, despite a looming cost of living crisis.

Universal Credit changes explained: How the work allowance and taper rate are changing after the 2021 Budget
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Morgan Wild, Head of Policy at Citizens Advice, said: “Today’s welcome announcement will ensure working people on Universal Credit can keep more of their hard-earned cash.

“But it doesn’t cushion the blow of the £20-a-week cut for those still looking for work or the 1.7 million unable to work because of disability, health issues or caring responsibilities.

“Given the cost of living crisis, the government must ensure every family is able to access the support they need this winter.”

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