The Chancellor has announced a change in the Universal Credit taper that will allow people to keep more of their benefits as they increase their income from working.
The move, unveiled today by Rishi Sunak in his Autumn Budget, is aimed at supporting 1.9million working households on low incomes at a cost of around £2billion.
However, it will only help those in work, not those who aren’t. And many people claiming Universal Credit will still lose out after the Government’s recent removal of the £20-a-week ‘uplift’ that it introduced at the onset of the pandemic last year.
Here we look at the latest changes to Universal Credit and how they will affect you.
What is universal credit?
Universal Credit aimed to replace six existing benefits with one monthly payment.
Those benefits were child tax credit, housing benefit, income support, jobseeker’s allowance, employment and support allowance and working tax credit.
You can apply if you’re out of work or on a low income, live in the UK and are 18 or over, either you or your partner are under the state pension age of 66, and you have £16,000 or less in savings.
What do people get?
Universal Credit is made up of a standard allowance and extra measures if you have children, a disability or need help paying rent.
This monthly standard allowance depends on your age and your relationship status and it’s not contingent on what you were earning before.
You can see what the standard allowance is currently in the table below.
The extra money you can get on top of the standard allowance can go down or up, also depending on what income you get from working, a pension, other benefits and savings and capital above £6,000.
There are no limits on how many hours a week you can work if you’re claiming Universal Credit.
But the amount you get will gradually reduce as you earn more – which takes us on to the next question.
|Circumstances||Current monthly benefit|
|Single and under 25||£257.33|
|Single and 25 or over||£324.84|
|In a couple and you’re both under 25||£403.93 (for you both)|
|In a couple and either of you are 25 or over||£509.91 (for you both)|
|Source: Department for Work and Pensions|
What has the Autumn Budget changed?
The Chancellor has announced changes to the Universal Credit taper rate, which reduces the amount a benefit claimant can earn from work.
The £2billion tax cut is to help low-paid families with the cost of living and ‘reward work’, Sunak said.
Currently that taper rate starts at 63 pence, which means that for every £1 a person earns, their UC payment is reduced by 63 pence – meaning they effectively take home just 37p in every pound.
Under the changes announced, the taper rate will be cut by 8p from 63p to 55p ‘no later than 1 December’, meaning households will keep more of their benefits.
The Government is also increasing the so-called ‘work allowance’ – or the amount that households with children or a person with ‘limited capability’ for work can earn before their Universal Credit benefit begins to be reduced.
Work allowances are currently set at £293 a month if the household receives housing support, or £515 if they do not receive housing support. These are both being increased by £500 per year.
Researchers at the Institute of Fiscal Studies have pointed out that the gains will be larger for those who also stand to benefit from the increases to minimum wage to £9.50 an hour from April next year.
‘A full-time minimum wage worker who is also on universal credit will have their disposable income increase by around £250 per year as a result of next April’s increase in the minimum wage, and an additional £1,000 per year or more (depending on precise circumstances) as a result of the increases in universal credit announced today,’ IFS researchers said.
However, the 8 per cent cut in the taper rate does not do anything to help people who are not in work.
Morgan Wild, head of policy at Citizens Advice, welcomed the change to the taper, but said 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’.
What was the recent £20 uplift removal?
In March last year, Sunak increased the standard Universal Credit allowance by £20 a week for all new and existing claimants.
However, the Government decided to scrap the increase worth about £1,000 a year earlier this month on 6 October.
That move came despite being strongly criticised by charities and politicians for cutting help for those who need it most at a time when living costs are soaring.
When cutting the ‘uplift’, ministers argued claimants could replace the money by taking on extra hours of employment.
But it was pointed out that, for every £1 extra earned by Universal Credit claimants, the taper rate meant their welfare was reduced – hence today’s announcement aimed at softening the squeeze on families.
What is the £16,000 savings limit?
Universal Credit is not open to those who already have £16,000 in savings, which includes how much your partner has in savings, if you have one.
The message from the DWP is that those who have that much should rely on those savings first before turning to the benefit system.
But those with savings of £6,000 or more will also have the amount they receive reduced by £4.35 a month for every £250 they have saved up to that £16,000 cut-off.
This is Money previously asked the DWP what is counted towards this £16,000 sum.
It said as a general rule assets which are accessible or could be sold – i.e. stocks – to support someone would be classed as ‘capital’ and count towards the cut-off.
Pensions would be discarded from this unless a 25 per cent lump sum had been taken or they were being used for income, the DWP said.
Sums saved in two tax-free savings accounts aimed at first-time buyers, the Help to Buy and Lifetime Isas, would also be taken into account.
How do I apply?
Universal Credit is a two-stage application process. Firstly, you must make an application on the website of the DWP.
To verify your identity, you’ll need some kind of photo ID like a passport or driving licence, as well as a debit or credit card.
Meanwhile, you’ll also need bank account details for the money to be paid into, an email address, and then details including your housing situation, income details, details of any savings and investments you have, and how much you pay for childcare if you’re applying for help with that.
Once you’ve set up your account online, you have 28 days to make a claim.
Then, the Department for Work and Pensions will make an appointment to talk to you, either over the phone or face-to-face at a job centre.
This meeting would determine whether you would be accepted for Universal Credit and how much you would get.
While the payment comes through in one go if you’re applying as a couple who live together, married or not, and Universal Credit applications take into your partner’s income and savings even if they aren’t eligible, you must both apply separately.
You’ll be given a code used to link the accounts together so the payments are correct.
Even if your partner is at state pension age you can still apply if you are eligible for Universal Credit.
Provided you’re accepted, you will receive the first payment in around five weeks, and after the first payment you’ll be paid on the same date of every month. It will be paid into your bank account like a salary.Internet Explorer Channel Network