It was initially introduced as a way to replace and combine six different benefits including Housing Benefit, Child Tax Credit, Income Support, income-based Jobseeker’s Allowance (JSA), income-related Employment and Support Allowance (ESA) and Working Tax Credit. It’s paid monthly – or twice a month for some people in Scotland – and can help significantly with living costs.
Universal Credit is claimed by more than 5.8 million people in England, Scotland and Wales, both in and out of work.
Forty percent of Universal Credit claimants are workers.
Claimants received an extra £20 per week during the coronavirus pandemic, but this ended in October 2021.
Universal Credit payments are made up of a standard allowance and any extra amounts that apply.
Individual circumstances are assessed every month, beginning on the first date of entitlement.
A change in circumstances can affect payments for the whole assessment period, not just from the date that they are reported.
Most Universal Credit claimants lose some of their benefits if they earn more money.
The rate at which a person’s maximum Universal Credit payments are gradually reduced as their earnings increase is known as the taper rate.
It means that for every £1 someone earns, their payment subsequently reduces by 55p.
The taper rate was previously set at 63% prior to 1 December 2021.
This change was announced as part of Rishi Sunak’s October Budget and came into effect in November last year, impacting around 2 million people across the country. Sunak has previously stated:
“The best way to support living standards is through a good job, so we’re committed to making sure work pays”.
Taken together with the increase in existing work allowances by £500 per year, the changes mean households will gain an average of £1,000 a year, helping the lowest paid families across the country.
In addition, some people can earn a certain amount of money before their earnings begin to affect their Universal Credit.
This is called a work allowance.
Universal Credit is reduced if a person or their partner are responsible for a child or young person or if they are living with a disability or health condition that affects their ability to work.
Hypothetically speaking, if a person has a child, receives money for housing costs in their Universal Credit payment and earns £500 by working during their assessment period, their work allowance would amount to £355.
They can, effectively, earn £335 without any money being deducted.
For every £1 of the remaining £165, they would get 55p taken from their Universal Credit payment.
This means that they would earn £500 and £90.75 is ultimately deducted from their Universal Credit.
As a person’s income increases, their payments will reduce until they’re earning enough to no longer be eligible for Universal Credit.
If their earnings decrease after this, they can claim Universal Credit again.
Work allowances increased from £293 to £335 per month and £515 to £557 per month on 1 December 2021.
As it pertains to surplus earnings, monthly earnings more than £2,500 over the amount where payments have stopped, are carried forward to the following month where they count towards earnings.
As such, if a person’s earnings (including their surplus earnings) are still over the amount where their payment stops, they will not get a Universal Credit payment.
The Resolution Foundation has criticised the changes, arguing that millions of families still remain worse off since the increase does not offset the loss of the £20 per week uplift in Universal Credit introduced during the coronavirus pandemic.