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Friday, December 3, 2021

Universal credit boost for workers takes effect


Budget changes that boost the income of some working people on universal credit come into force from now, the government has announced.

Workers will now receive 8p more for every extra pound earned as a result of a change in the so-called taper rate.

In October’s Budget, Chancellor Rishi Sunak stated that the change would go into effect “within weeks” and no later than December 1.

The policy was announced amid debate over the suitability of the benefit.

According to the government, the move will benefit approximately two million people by an average of £1,000 each.

However, the Resolution Foundation think tank estimated that 3.6 million families will be worse off as a result of the changes failing to offset the loss of a £20 weekly increase in universal credit provided during the pandemic.

How the changes affect you

If they earn more money, most universal credit claimants lose some of their benefits. The taper rate is the rate at which they lose benefits.

The taper rate is now 55%, which means that if you earn an extra pound, you will lose 55p in benefits.

Previously, the rate was 63 percent, so workers will now receive 8 cents more for every £1 earned.

Workers with child care responsibilities or disabilities that limit their ability to work are allowed to earn a certain amount before losing their universal credit, which is known as a work allowance.

The work allowances for eligible claimants has also now gone up by £500 a year.

They include two million households which are dependant on benefits and have nobody in work.

Political pressure

Mr Sunak had been pressed by MPs, including some Conservatives, about the withdrawal of the temporary £20-a-week universal credit uplift in October, and the impact on the finances of financially stressed families.

In his Budget, he announced a plan to reward those who worked and earned more while still receiving universal credit.

“These changes will mean that, with Christmas approaching, hard-working families will keep an extra £1,000 a year of what they earn,” the chancellor said on Wednesday.

The Department for Work and Pensions is encouraging people to check online benefit calculators to work out how their income could be boosted.

The changes mean that an extra 600,000 families, all in work, will become entitled to some universal credit payments, according to economists at the Institute for Fiscal Studies (IFS). That takes the total to seven million, or 26% of working-age families.

As a result, those earning a significant income, perhaps even at the level of a higher-rate taxpayer, may still be eligible for some assistance through universal credit, according to Tom Waters, senior research economist at the IFS.

A lone parent with two children and a monthly rent of £750, for example, can now earn up to £51,900 per year before losing their entire universal credit entitlement.

“When combined with other recent reforms, it means that 2.7 million working households on benefits will be better off than under the 2015 tax and benefit system,” Mr Waters explained.

“However, 2.1 million people will still be worse off, as will nearly all of the two million benefit-dependent working-age households with no one working.”

The changes to universal credit take effect against a backdrop of rising living costs – with inflation expected to peak next year – and tax increases in April.

This would negate any wage increases, particularly for middle-income earners. According to the IFS, low-income households will also experience “real pain” as the cost of living rises faster than benefit payments.

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