Universal Credit: What you need to know about the £20 monthly boost debate

Earlier in the week the Government lost a ‘vote’ 278 to 0 on the issue of extending a £20 a week uplift in Universal Credit, which is currently due to expire at the end of the current tax year in April.

While the Parliamentary vote was a symbolic one and does not require the Government to do anything, six Conservative MPs joined with Labour and other opposition parties to ask the Treasury to extend the benefit boost, and there is disquiet on the Tory backbenches over the issue, which currently affects close to 6million families.

But what are MPs calling for and why is the Treasury opposed to it? This is Money dives into the debate on Universal Credit and explains what you need to know.

Former Work and Pensions Secretary Stephen Crabb called for the Government to extend the £20 a week uplift in Universal Credit in a non-binding vote the Government lost 278 to 0

What is Universal Credit?

A multibillion pound revamp of the old-fashioned ‘dole queue’, Universal Credit replaces child tax credit, housing benefit, income support, jobseeker’s allowance, employment and support allowance and working tax credit with one monthly payment.

It was originally supposed to be rolled out over many years, with the implementation date repeatedly pushed back until as late as 2024, but the coronavirus pandemic has meant millions of first-time claimants are having to sign up for it.

Britons can sign up in a two-stage application process if they are over 18, are under the state pension age of 66, and have £16,000 or less in savings. 

If they are successful, they will receive their first benefit payment after around five weeks. Those who need the money sooner can apply for an advance, but this does need to be repaid over a period of up to 12 months.

This is Money wrote about six things newcomers to the benefits system needed to know last year.  

What did the Government do last year?

To go along with the shutdown of a large chunk of the country due to the pandemic, Chancellor Rishi Sunak last March announced multiple measures to support the finances of impacted Britons.

As well as the furlough and self-employed income support schemes, Sunak increased the basic Universal Credit allowance and the working tax credit element of Universal Credit by around £20 a week from 6 April 2020, the biggest boost to the benefit system since 1999.

This saw a single person aged 25 or over go from earning £317.82 to £409.89 a month, a difference of £23 a week or £1,104.84 a year. In that case, the £23 a week boost made up more than a fifth of the amount they were paid.

The Chancellor boosted the tax credit element of Universal Credit by around £20 a week in March last year to support those whose incomes were hit by the coronavirus pandemic

The Chancellor boosted the tax credit element of Universal Credit by around £20 a week in March last year to support those whose incomes were hit by the coronavirus pandemic

Meanwhile couples aged over 25 saw a boost of £1,236.95 a year, with the £23.78 a week increase in their standard allowance accounting for 16 per cent of the amount they were paid.

The Chancellor also reversed a freeze in Local Housing Allowance, which is designed to support people struggling to afford rent, by re-linking it to cover 30 per cent of local rents after it had not been increased since 2016. The Treasury had initially planned to only increase it in line with inflation.

This increase in housing benefit is also scheduled to come to an end in 2021.

How many people would be affected by any changes to benefits?

According to the latest figures from the Department for Work and Pensions, there were 5.83million households on Universal Credit in November last year, during the second lockdown.

Meanwhile figures taken from the DWP and published by the Office for National Statistics suggest 2.7million of those, 46 per cent, were unemployed, claiming either job seeker’s allowance or Universal Credit while looking for work.

This latter figure, the ‘claimant count’, has risen 114.8 per cent since March and rose 2.5 per cent between October and November. 

That number could be set to increase further, with the Office for Budget Responsibility forecasting unemployment potentially rising to 7.5 per cent this April, up from 4.9 per cent in October 2020.

Some 2.7m people were claiming Universal Credit or job seeker's allowance while looking for work in November 2020 - a rise of 114% since March

Some 2.7m people were claiming Universal Credit or job seeker’s allowance while looking for work in November 2020 – a rise of 114% since March

What is the Government proposing and what would the impact be?

With the boost to the benefit system supposed to be time-limited when it was announced in March 2020, both the £20 a week uplift in Universal Credit and the re-linking of Local Housing Allowance to cover 30 per cent of rents in an area are due to come to an end after 12 months.

The measures have cost the Government £7billion in the 2020-21 financial year, according to the OBR, with other measures to support those claiming benefits adding £1.3billion more to the bill.

The think tank the Resolution Foundation warned ending the £20 a week uplift would reduce benefits to their lowest level ever relative to in-work earnings

The think tank the Resolution Foundation warned ending the £20 a week uplift would reduce benefits to their lowest level ever relative to in-work earnings

However, the measures account for just 2.7 per cent of the roughly £300billion the Treasury has spent on schemes designed to support the finances of people and businesses through the pandemic.

The removal of the £20 a week uplift would cost claimants around £6billion in total, and would cut the standard allowance for a single person aged over 25 by 22 per cent and the allowance for a couple aged over 25 by 16 per cent, by reducing them to just above the levels they stood at in March 2020.

The incomes of the bottom half of the population would be cut  by around £600

The incomes of the bottom half of the population would be cut  by around £600

The think tank the Resolution Foundation said last October that the removal of the uplift ‘would see the level of unemployment support fall to its lowest real-terms level since 1990-91, and its lowest ever relative to average earnings’, covering just over 12 per cent of average earnings.

Meanwhile Citizens Advice said this month that 75 per cent of claimants would be unable to afford the basics, up from 43 per cent currently.

Why is the Treasury considering this?

Rishi Sunak and the Treasury are increasingly concerned about the cost to the public purse. 

One senior Tory told The Sun: ‘We have spent nearly £300billion so far in this pandemic to help support families through this crisis. As a former Conservative PM once said, there is no magic money tree.’

Meanwhile the Financial Times was told by ‘an ally of the Chancellor’ that the uplift ‘would cost £6billion – that’s the equivalent of putting 1p on income tax and adding 5p a litre on fuel duty (which is currently 58p). Hopefully this will help focus minds among Conservative colleagues on what we value most.’

The temporary boosts to the benefits system have cost the Treasury around £8.3bn this year

The temporary boosts to the benefits system have cost the Treasury around £8.3bn this year

Instead, the Treasury is looking at cut price alternatives and potential compromises. 

One idea reportedly under consideration is a one-time payment of £500 to Universal Credit claimants, which would cost half as much.

However, this was described as a ‘turkey of an idea’ by Resolution Foundation chief executive Torsten Bell. 

Speaking on BBC Radio 4 on Monday, he said: ‘It’s bad because you have an arbitrary cut-off point of a certain date when somebody has to have been on Universal Credit.

‘It’d also provide a slightly perverse incentive for people to make sure they are on Universal Credit at that point, while somebody who was out of work for a whole year afterwards would get nothing. So it’s a bad idea.’

What about the other measures which came in last year?

Got a Universal Credit question?

This is Money asked the charity Citizens Advice for answers to the six most common questions they received about the benefit last year.

If you have any more, email [email protected] 

After a one-year boost, housing benefit looks like it is also in line for a cut, albeit a delayed one. 

In a document accompanying last November’s Spending Review, the OBR reported LHA rates ‘will be frozen in cash terms from 2021-22 onwards. 

‘This means the £1billion cost of the measure in 2020-21 declines to £0.3billion by 2025-26.’

It also means the benefit will not keep up with rising rental costs and will not rise in line with inflation.

The housing charity Shelter said last year that ‘severing the link between the LHA rates and rents means that the LHA rates will not hold their value against rental inflation.

‘The very same thing happened after 2011. It meant that, by March 2020, the rates were so far behind the cost of renting that they only covered the bottom 30 per cent of rents in 3 per cent of England. In a third of England, they didn’t even cover the bottom 10 per cent.’

It added: ‘If it is serious about tackling homelessness, the Government must reverse this decision ahead of March next year and keep rents in line with at least the thirtieth percentile.’

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