Two major rule changes to Universal Credit are coming into effect.
Following Chancellor Rishi Sunak’s Autumn Budget, new regulations that allow around two million claimants to keep more of their benefit payments will kick in this week.
But will it be enough to offset the Universal Credit cut, which saw the coronavirus top-up removed in October after 18 months?
The Department for Work and Pensions today confirmed to Birmingham Live that the changes become official on Wednesday, November 24.
The first change is that the work allowance – the amount a working claimant can keep before any deductions are applied – will go up by £500.
The second change is that the ‘taper rate’ – the amount of Universal Credit deducted for each pound earned through work above that allowance – will be reduced from 63p to 55p.
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The changes to DWP rules mean that nearly two million families will keep on average an extra £1,000 a year, Mr Sunak said.
But this is less than a third of the 5.2 million households hit by the removal of the Universal Credit top-up of £1,040 a year (equating to around £20 a week).
Mr Sunak said a single mother-of-two renting and working full time on the national living wage would be better off by around £1,200.
And he said a couple with two children, renting their home with their two children, where one partner works full time and the other works part-time on minimum wage would gain £1,800.
There are around 5.8 million Universal Credit claimants, according to the latest figures. The number on the scheme had doubled as Covid hit the economy during the pandemic.
But changes to the taper rate will only affect claimants who have a job.
Although 2.2 million people receiving UC are in work, the other 3.6 million people are not in work either because they are unemployed and looking for a job or because they have health problems and are not required to search for work.
Not all of those who are working will benefit either.
The DWP has confirmed 1.9 million low-income working households on Universal Credit will be helped by the taper rate change. The rest of those who are working earn less than the work allowance – so a change to the taper rate won’t give them anything unless their wages go up anyway.
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.”
The Institute for Fiscal Studies pointed out that the gains will be larger for those who also stand to benefit from increases to the National Minimum Wage to £9.50 an hour from April 2021.
Researchers at the IFS said: “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 [in the Autumn Budget]”
The Resolution Foundation said: “Three-quarters of families on UC will lose more from the £20 cut than they gain from the Budget changes.
“Even if we also take into account the impact of the faster-than-average-earnings increase to the National Living Wage, the poorest fifth of households will still be an average of £280 a year worse off overall.”
Peter Tutton, Head of Policy, Research and Public Affairs at StepChange Debt Charity, said: “Among our clients, lower-income households are disproportionately represented among those experiencing problem debt, and today’s measures – while helpful – won’t shift the dial on this much.
“The improvement to the Universal Credit taper is very welcome – although while two million working households will benefit, millions of others will not. A third of our clients experiencing problem debt claim Universal Credit, and they are already experiencing the rising costs of fuel, energy and food, together with the Covid backlog of rent and council tax arrears, and unaffordable deductions from their payments which push them further into debt.
“Of course we welcome the incremental improvements to increase the minimum wage and address some of the structural flaws of Universal Credit, as well as the recognition that rent arrears will not resolve themselves and will lead to a significant rise in evictions without support.
“The big picture, though, is that social security safety nets are simply not adequate to ensure that people who are forced to rely on them are able to make ends meet. Alongside longer term reform, we would urge the Government to stand ready to offer further support, beyond the Budget measures announced today, to those who need it most.”
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