Reduction of the degressivity rate of universal credit to “reward the work” of low-income families

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Universal Credit applicants will be able to retain more of the benefit as they earn more, as part of a £ 2.2bn tax cut to help low-income families reduce the cost of living and to “pay for work”.

The degressivity rate will be reduced by 8% “in a few weeks”, bringing it down from 63% to 55%, Chancellor Rishi Sunak announced, denouncing the “hidden tax on labor”.

The declining rate is the benefit amount taken out of every £ 1 earned above the claimant’s working allowance – meaning claimants will now be able to keep an additional 8 pence for every £ 1 of net income.

The move, which will take place no later than December 1, will ease the burden on working claimants by giving them more incentive to increase their hours.

But that doesn’t make up for the £ 20 a week cut earlier this month or does anything to help people who aren’t working.

Mr Sunak said the current cut represents a “hidden tax on labor” for many of the lowest paid people in society and a “high tax rate on top of that.”

The amount that households with children or a member of the household with limited working capacity can earn before their Universal Credit (UC) payments are reduced will also be increased by £ 500 per year.

Announcing the changes to the cheers of the Commons, he said: “This is a £ 2 billion tax cut for the lowest paid workers in our country.

“It supports working families, it helps lower the cost of living and it rewards hard work. “

The changes mean nearly two million families will keep an average of an additional £ 1,000 a year, he said.

This is less than a third of the roughly six million households affected by the removal of the £ 20 per week UC increase which took effect this month.

Also in the spending review, Mr Sunak said the national living wage would rise 6.6% to £ 9.50 an hour from next April.

And he said the government will invest an additional £ 170million by 2024/2025 to pay for child care.

Stacey, a full-time sales manager from Yate, near Bristol, started claiming UC three years ago when her fiance and father of her two young daughters died in a car crash.

The 35-year-old said the gradual rate change would help her “massively” but would not help claimants who cannot work or who want to work but cannot due to factors such as fees. child care.

She told the PA News Agency: “For me, with caution, that’s fine, but as far as others are concerned, it doesn’t go far enough to help them.”

She added: “It just means that you can keep more of your money, which if you work and earn enough will be useful moving forward, and it will help to ease the burden to some extent. to lose £ 20 pounds per week.

“Unless you put in a decent amount of time, I don’t think that comes as much as £ 20 a week.”

Stacey is part of Covid Realities, a research project in the Nuffield Foundation-funded research program from the Universities of York and Birmingham, and Child Poverty Action Group, documenting low-income living.

Another participant, Jo, from Manchester, said she felt “condescending and marginalized” by the repeated emphasis on working families in the spending review.

The single mother was made redundant at the start of the pandemic and is unable to work as she has to support her son, who has special educational needs, throughout his schooling.

The 49-year-old told the PA News Agency: “It’s just not fair, there is no common thinking.

“I just feel like we’re an afterthought, and I felt the language used today was very much about supporting workers.”

She added: ‘I want this £ 20 back because I think we deserve a better standard of living.

“And if I could show you what we could get with £ 80, it’s not a lot, but it makes such a big difference when you have very little.”

Dr Ruth Patrick, senior lecturer in social policy at York University who is leading the project, said changes are welcome but more support is needed “to make our social security system worthy of the name “.

She added: “This support was not foreseen in this budget and will lead millions of families to feel anything but optimistic as they enter what is shaping up to be a very difficult winter.”

In response to the budget, fictitious Labor Chancellor Rachel Reeves said that “never has a Chancellor asked the British people to pay so much for so little”.

She said: “After taking £ 6bn out of the pockets of some of the poorest people in this country, he expects them to rejoice today to receive £ 2bn to compensate. “

Institute for Fiscal Studies Director Paul Johnson tweeted: “Big cut in universal credit cut. And increase in work allowance. Aimed at working job seekers. Job seekers without jobs get nothing.

“Compromises as always. Improves work incentives for current beneficiaries, but will drive more into the system.

Morgan Wild, head of policy at Citizens Advice, welcomed the change to the cone, but said it “does not cushion the blow of the £ 20 a week cut for those still looking for work or 1.7 million unable to work due to disability, health problems or family responsibilities ”.


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