Budget 2021: what do the Universal Credit rule changes mean for me?


Today’s Autumn Budget announcement included Universal Credit rule changes that are good news for low-income families. It could mean more money in your pocket if you’re on Universal Credit and hoping to get back into work.

Here, I take a look at the rules changes in more detail and investigate what the changes could mean for you.


What are the Universal Credit rule changes?

Rishi Sunak has announced in his Autumn Budget that Universal Credit’s complicated taper rules will be changing. The taper of 63% will be reduced to 55% by December 2021. This means that if you claim Universal Credit and you work or are going back to work, then you could end up with more money in your pocket.

The changes mean you can keep more of your cash because you won’t lose as much Universal Credit when you start to earn money.

Under the old system, you would only get an extra 37p in your pocket for every £1 you earned. That’s because 63p would be taken away for every £1 you earned (after Income Tax, National Insurance and pension contributions). With the rule changes, you will keep 45p of every £1 you earn, so you’ll get to keep more of your money.

How does the Universal Credit taper work?

The Universal Credit taper works like this:

Once you earn over £293 per month, you start to lose Universal Credit. You can earn up to £515 per month before you start losing Universal Credit if you don’t get housing support.
The amount you will currently lose is 63% of your earnings above £293 per month. This is changing to 55% in December.
You will receive less money in your Universal Credit payment as the taper amount will be deducted from this.


How could the Universal Credit changes affect you?

The amount of Universal Credit you get depends on a variety of factors, such as whether you are in a couple, whether you have children, whether you are disabled and the level of your savings. Let’s take a look at a couple of examples.

If you get Universal Credit of more than £445 per month and you currently take home £1,000 per month (after tax, National Insurance and pension contributions) you could end up with £56 more per month after the rule changes. That’s because under the current taper rate you lose £445 per month (£1,000 minus £293 = £707; £707 x 63% = £445). Under the new taper rate, you will lose £388 per month (£1,000 minus £293 = £707; £707 x 55% = £388).

If you get Universal Credit of more than £760 per month and currently take home £1,500 per month, you could see an even bigger cash boost of £97 per month. That’s because under the current taper rate you lose £760 per month (£1,500 minus £293 = £1,207; £1,260 x 63% = £760). Under the new system, you will lose £663 per month (£1,500 minus £293 = £1,207; £1,207 x 55% = £663).

Who will the Autumn Budget changes benefit most?

The Autumn Budget changes will benefit low-income families the most. This is because they have the highest level of Universal Credit and will not lose so much of this benefit when they see their wages increase.

The changes will not benefit people who are out of work as the amount of Universal Credit they receive is unaffected. For people who can’t work, it won’t make up for the recent £20 per week reduction in Universal Credit.

Please note that tax treatment depends on your individual circumstances and may be subject to change in the future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

The post Budget 2021: what do the Universal Credit rule changes mean for me? appeared first on The Motley Fool UK.

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