One of the major announcements in Rishi Sunak's October Budget was the Universal Credit taper rate would be reduced by 63% to 55%, meaning those claiming the benefit will take home some more money each month.
The changes came into effect from Wednesday November 24 and are predicted to help around two million working people across the country, as workers will now take home 8p more of any extra pound earned.
These workers will benefit by an average of £1,000 following the move, the government said.
However, the Resolution Foundation think tank estimates millions of families will remain worse off, as the changes did not offset the loss of the £20 per week uplift in universal credit introduced during the coronavirus pandemic.
Here's what the taper rate taking effect means for you if you're claiming Universal Credit.
What is the Universal Credit taper rate mean and how does it affect benefit payments?
The taper rate is the amount of Universal Credit payments that claimants lose, as they work and earn more above a certain threshold - known as the work allowance.
The current Universal Credit taper rate is 55%. That means for every £1 earned over that work allowance, the amount of UC paid to the claimant is reduced by 55p.
For example, if someone earned £100 in a month above their work allowance, they would lose £55 from their monthly UC claim due to the 55% taper rate.
Following Wednesday's announcement, which came a week earlier than expected, Mr Sunak said: "These changes come into force today and will mean that with Christmas approaching, hard-working families keeping an extra £1,000 a year of what they earn."
How can I check if my income will be boosted now the taper rate has come into effect?
The Department for Work and Pensions is advising people to check online benefit calculators to find out how their income could be increased.
Claimants will be notified how much Universal Credit they will be awarded in their usual monthly statement, with the first of those to reflect the changes being issued on Wednesday.
How have experts reacted to the taper rate changes?
Karl Handscomb, a senior economist at the Resolution Foundation think tank, praised the changes made by government but warned that some families would still be “worse off overall” due to recent policy decisions. He said: “This represents a major living standards boost to low-income families, by improving people’s incentives to enter work, and allowing them to keep more of their earnings. “But while these changes mean more support for higher-earning families on Universal Credit this winter, the recent £20 a week cut in support means that 3.6 million families will still be worse off overall, particularly those who have lost their jobs, or who are unable to work.” The Institute for Fiscal Studies, meanwhile, said the reforms would widen the net for how many families are entitled to UC. Senior research economist Tom Waters said: “Another 600,000 families will become entitled to at least some Universal Credit, bringing the total to seven million – a quarter of working age families. “It means that UC will now reach a long way up the earnings distribution – some families would still be entitled even if they became higher rate taxpayers.”
What is Universal Credit?
Universal Credit is a benefit for working-age people, which helps with living costs and is often claimed by those who are on low incomes, out of work or cannot work.
The payment counts almost 40% of its recipients as being in employment.
UC was introduced in 2013 in an attempt to simplify the welfare system by merging six benefits into one payment.
The replaced benefits were:
income-based jobseeker's allowance (except for some people with severe disabilities)
income-related employment and support allowance
child tax credit
working tax credit
A single universal credit payment is paid directly into claimants' bank accounts, which occurs on a monthly basis in England and Wales.
In Scotland and Northern Ireland there is the choice of payment every two weeks.
The payment will take into account: your earnings if you are in work, your partner’s earnings if they are working and any other household income.
Where can I get financial advice and help if I am struggling?