Universal credit will increase for some people based on the plans announced by the chancellor in his balance sheet.
Rishi Sunak has reduced the “taper rate” – this affects the amount of money lost by applicants who work if they earn more.
What is universal credit?
Universal credit is a single allowance for people of working age, introduced to replace a range of different benefits for the unemployed and the low-paid and make the system simpler.
It is claimed by over 5.8 million people in England, Scotland and Wales, both in and out of work: 40% of universal credit applicants are workers.
The applicants received an extra £ 20 a week during the pandemic, but this ended earlier this month.
What is the reduction rate?
Most universal credit applicants lose some of their benefits if they make more money.
The rate at which they lose the benefits is known as the reduction rate.
At the moment the reduction rate is 63% which means that if you earn an extra pound you lose 63p of benefits.
Workers with child responsibilities or disabilities that limit their ability to work can earn a certain amount before they start losing their universal credit, which is called a work allowance.
The work allowance means these people can earn up to £ 515 per month without losing benefits. Applicants who receive help with housing costs have a lower work allowance.
How is it changing?
The chancellor has announced that in the coming weeks the tape rate will be reduced to 55p, which would mean that workers would bring home an extra 8p of an extra pound earned.
In addition, the work allowances for those eligible will increase by £ 500 per year.
For some workers that will compensate for the loss of the £ 20 per week increase in universal credit.
Employees claiming universal credit who earn enough to pay national insurance (£ 9,564 per year) will also see an increase in the amount of tax they have to pay next April. This will affect someone who works more than around 20 hours a week on the minimum wage.
How would it affect people?
Take for example someone childless, who works 10 hours a week with the National Living Wage, which rises to £ 9.50 an hour in April.
They would earn £ 95 a week, which means that – at the current 63% reduction rate – they would lose £ 59.85 of their universal credit. If the reduction rate were reduced to 55%, they could bring home an extra £ 7.60 per week.
However, most universal credit applicants don’t work, so they wouldn’t get any extra money.
The Joseph Rowntree Foundation (JRF) says 1.4 million households still claim a functioning tax credit and haven’t switched to universal credit, so they wouldn’t benefit either.
What has been the effect of the recent £ 20 per week cut?
The cut in universal credit has been opposed by many charities, opposition parties and even some conservative MPs.
Write on Twitter, resolution chief executive Torsten Bell said removing the increase would mean “4.4 million households, with 5.1 million adults and 3.5 million children, will see their incomes drop by £ 1,000 during the night.
The charity Citizens Advice warned that a third of people with universal credit would end up in debt when the extra payment is removed.
He said the average deficit would be between £ 51 and £ 55 per month.
The government defended its decision, saying the £ 20 increase was always meant to be temporary and that people returning to work are the best way to tackle poverty.
Why has universal credit proved controversial?
It is difficult to calculate exactly how much universal credit you could receive. Some people, such as those with savings of £ 16,000 or more, are not eligible.
Others may find that what they receive depends on their circumstances, including their family’s income, as well as the costs of housing and childcare.
It usually takes five weeks from the date of the request to the receipt of the first payment, although an early loan may be possible.
A universal credit application can end any tax credit you receive, even if it turns out to be unsuccessful.
You may be able to claim a reduction of the municipal tax when you have universal credit and get childcare cost assistance. There is also support for paying rent, which works in different ways across the UK.
Over time, it may even be there assistance in paying the mortgage, although some strict criteria are involved.
What other benefits are still available?
The main benefit for anyone who loses their job after a stint is new type of allowance for job seekers (JSA).
This is worth £ 59.20 per week if you’re under 25, or £ 74.70 per week if you’re 25 or older.
You can get it for up to six months and it will be paid into your bank account, real estate company or credit union every two weeks. Unlike universal credit, your partner or spouse’s income will not affect your application.
You may be able to apply for a new style JSA and universal credit.
Where can I ask for help?
Universal credit may not be appropriate or available to everyone. Claiming it can affect other benefits, and it’s vital that you get some advice, available for free, before applying.
Places that offer guidance on this and other benefits questions include:
- The Money Navigator Tool from the Money and Pensions service refers to monetary issues related to the coronavirus
- Personal finance
- Universal credit
- Housing subsidies
- Coronavirus pandemic
What happens when the license ends?
- September 30th
How many people could lose their jobs?
- May 18
“There is help out there if you ask for it”
- April 20, 2020
Why do some people with universal credit struggle to plan their monthly budget?
- 18 October 2018
“One click and I was worse” from the claim
- May 18, 2020
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