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Major Universal Credit change to give 1.2million households a £420 pay rise in Budget boost
We've explained when claimants will start to benefit
A MAJOR change to Universal Credit, set to be unveiled in the Chancellor's Autumn Statement, will provide more than one million households with a £420 pay rise.
Rachel Reeves is set to lower the cap on the maximum level of deductions that can be taken from a claimant's benefit payments.
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The Department for Work and Pensions (DWP) can deduct money from a Universal Credit claimant's allowance to help them make debt repayments.
These deductions can cover a range of debts, including benefit advances, historical overpayments of child tax credits, rent and council tax arrears, as well as outstanding water and utility bills.
The amounts are subtracted from a claimant's Universal Credit standard allowance each month until the debt is fully repaid.
Currently, the DWP and third parties can typically deduct up to 25% of a claimant's standard allowance to manage their debt repayments.
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However, Rachel Reeves is expected to reduce this cap to 15% when she delivers her Autumn Statment on Wednesday, .
A Whitehall source said: "It's a downpayment on poverty reduction.
"It is unacceptable that people are in this kind of deep poverty, and this is a small victory for people in deep poverty."
The measure, dubbed the Fair Repayment Rate, is expected to come into force next April.
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The change is projected to benefit 1.2 million households, including 700,000 families with children, boosting their incomes by up to £420 a year.
However, some Universal Credit claimants still have more than 25% of their standard allowance taken off if they pay what's known as a "last resort deduction".
How does work affect Universal Credit?
Whether the new cap will apply to those with such deductions remains unclear.
The DWP has been contacted for comment.
How will the cut work in practice?
THE Universal Credit standard allowance is paid at four different rates:
- Single and aged under 25: £311.68 per month
- Single and aged 25 or over: £393.45 per month
- Joint claimants both aged under 25: £489.23 per month
- Joint claimants where one is aged 25 or over: £617.60
Therefore, if an individual under 25 faces a 25% deduction, their standard allowance will decrease by £77.92 per month, reducing their payment to £233.76 per month.
However, if the same individual faces a 15% deduction, their standard allowance will decrease by £46.75 per month (£31.17 less than a 25% deduction), reducing their payment to £264.93 per month.
TYPES OF UNIVERSAL CREDIT DEDUCTIONS
There are a number of reasons why the Department for Work and Pensions (DWP) will deduct money from your Universal Credit allowance to help pay off any debts.
Conor Lawlor, benefits expert at Turn2us, says: "These debts can accrue in several ways, including for Universal Credit and other benefit overpayments (even if the overpayment was made in error by DWP), benefit advances and recovering hardship payments.
"The DWP can also deduct on behalf of third parties if a claimant is in debt to them, including for rent and service charge arrears, council tax arrears, court fines, child maintenance, and for utilities like electricity, gas and water."
However, it's important to note that not every deduction is compulsory, and some are voluntary.
Here are the six main forms of deductions you could be affected by...
1. ADVANCE PAYMENTS
One of the most common reasons for a Universal Credit deduction is because a claimant applied for advance payments.
When you make a new claim for Universal Credit, you will normally receive your first payment seven days after the end of your first assessment period (four weeks) - this is known as the "five-week wait".
You can apply for an advance payment of your Universal Credit if you are in financial hardship while you wait for your first payment, for example, if you can’t afford to pay your rent or buy food.
However, as this is a loan, you will be expected to pay it back.
The first deduction is made on the day you get your first payment.
You must usually pay back the advance within:
- 24 months if you apply for the advance if you've made a new claim for Universal Credit
- Six months if you apply for the advance because of a change of circumstances
2. BUDGETING ADVANCE
The budgeting advance should not be confused with an advance payment.
Instead, this is an interest-free loan that can be used to cover certain expenses like household furniture, equipment, and clothing.
What you get will depend on how much you need.
The smallest amount you can borrow is £100. You can get up to:
- £348 if you’re single
- £464 if you’re part of a couple
- £812 if you have children
The budgeting loan repayments will be taken automatically from your benefits.
The amount you repay is based on your income.
A budgeting advance should normally be repaid within one year, but this is extendable to 18 months in exceptional circumstances.
3. UNIVERSAL CREDIT OVERPAYMENTS
If you've been paid too much Universal Credit you'll accure an overpayment.
To learn more about an overpayment, sign into your online Universal Credit account, go to your journal, and look for a message about overpayments.
If money is being deducted from your Universal Credit to pay back the overpayment, the amount deducted depends on your circumstances.
If you are receiving Universal Credit and have no earned income, the maximum amount that can be deducted from your Universal Credit for overpayments is 15% of your standard allowance.
If you are receiving Universal Credit and have some earned income, the maximum amount that can be deducted from your Universal Credit for overpayments is 25% of your standard allowance.
How many claimants are affected?
According to the latest statistics as of February 2023:
- 730,000 households (16%) lost money to pay back an advance from the DWP to cover the five-week wait to receive the first UC payment.
- 910,000 households (20%) lost money to pay back a budgetary advance from the DWP to meet emergency costs
- 640,000 households (14%) lost money to pay back tax credits previously erroneously overpaid by HMRC
Hundreds of thousands more claimants are losing out from other deductions issued to local authorities, energy suppliers and water companies.
4. TAX CREDIT OVERPAYMENTS
If you are getting tax credits and you claim Universal Credit, HMRC will be told to stop your tax credits.
However, if you receive tax credits after you have made your claim to Universal Credit this could result in you being paid too much tax credits.
Universal Credit will take action to get this money back as well as any other tax credit over-payments you have.
HMRC will send you a letter called "Your Tax Credits over-payments (TC1131)".
This will tell you about any tax credit repayments that will be taken out of your Universal Credit payments.
5. FRAUD AND SANCTIONS
If you deliberately do not provide details about a change in your circumstances that could affect your Universal Credit payments or you give false information, this is fraud.
A fraud penalty or sanction will reduce your Universal Credit standard allowance.
This can be up to 100% of your standard allowance if you are single, or up to 50% for each person in a joint claim.
If a fraud penalty or sanction is being taken from your Universal Credit payments, no other repayment or deduction will be taken, except for last-resort deductions.
6. THIRD-PARTY DEDUCTIONS
A third-party deduction is an amount that is taken from your Universal Credit payments and paid direct to the person or organisation you owe money to, such as your landlord or your gas or electricity supplier (Fuel Direct).
Third-party deductions can also be taken, without your permission, for things like:
- Housing costs (for example, rent arrears for your current address)
- Unpaid rates
- Child maintenance
Only three third-party deductions can be taken at any one time.
Universal Credit will send you a message in your online journal when a third-party deduction starts.
Third-party deductions are fixed at 5% of your Universal Credit standard allowance for each third party.
However, for rent, deductions are fixed between 10% and 20%.
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Unlike the other non-voluntary deductions listed above, claimants can initiate deductions for certain bills to help better manage their costs.
For example, you can contact your energy supplier to set up deductions for your ongoing bills through the Fuel Direct scheme.
How to get free debt help
There are several groups which can help you with your problem debts for free.
- Citizens Advice - 0800 144 8848 (England) / 0800 702 2020 (Wales)
- StepChange - 0800138 1111
- National Debtline - 0808 808 4000
- Debt Advice Foundation - 0800 043 4050
You can also find information about Debt Management Plans (DMP) and Individual Voluntary Agreements (IVA) by visiting MoneyHelper.org.uk or Gov.UK.
Speak to one of these organisations - don't be tempted to use a claims management firm.
They say they can write off lots of your debt in return for a large upfront fee.
But there are other options where you don't need to pay.
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