What does the Budget mean for Universal Credit?

What does the Budget mean for Universal Credit?

So, there we have it. The final Budget before Brexit.

An interesting one. Or was it? Well, there were a few terrible jokes (mainly about toilets), and an interesting display of the most pantomime aspects of politics – boos, heckles, cheers, and jeers.

But what does it all mean for Universal Credit? Broadly speaking it means an acknowledgement of errors, more time, and a bit more money. This is still not even close to the money that was cut from Universal Credit by George Osborne, but we’ll keep pressing on. As always, the devil is in the detail…

Extensions and migrations

We can cry a small cheer that the government will extend the provision of a fortnight’s run-on of housing benefit during the transition period, to cover the income-related elements of Jobseeker’s Allowance, Employment and Support Allowance, and Income Support. This will not come into effect however until July 2020. The managed migration process, with its many transitionary troubles, is due to start in February 2019.

The issue of a five-week wait for a first Universal Credit payment is the main flaw, rather than the promise of extending housing benefit payments to a greater number of people. The government has committed to further slowing down the process of managed migration, with fewer people transferring in the first year than previously planned.

Another big problem with Universal Credit is the 40% deduction rate that can be imposed on a claimant’s payment to cover third party debts. This results in claimants being left with pennies to live on after their debts and essential bills have been covered, forcing some families into taking out more loans – further increasing their debt. Recognising this, the government announced a reduction to the maximum deduction rate, from 40% to 30%. This is a welcome step in the right direction, but this is still too high for many people who are already struggling to make ends meet. This reduction will come into effect from October 2019, so there’s a full year to wait for that reduction.

Transition-related debts, and work allowance

The government also recognised that its 12-month period within which it aims to recover all transition-related debts is perhaps punishingly short. This has been extended to 16 months, giving people more time to spread the cost. Again, a step in the right direction. Again, a disappointing wait for this to come into effect – not until October 2021. All those currently struggling, and the wave of people due to begin the managed migration process next year, will miss out.

The chancellor committed to increasing the Universal Credit work allowance, (the amount of money a claimant can earn before their benefit is affected) by £1,000 per annum. This allowance applies to people with dependent children, and/or those who cannot work full time due to illness or disability. This is a very welcome move, and one that we supported poverty groups in pushing for. However, after that additional £1,000 a year, or £83.33 per month earnt, the Universal Credit deductions will still be reduced by the government’s 63p for every £1 rate. So, someone who had been receiving £200 a week Universal Credit would drop to £74 per week, due to earning an extra £83.33 per month.

Freezing LHA rates

Perhaps the biggest blow came not from what was in the budget, but rather what was left out. Housing benefit for private renters has suffered real-terms cuts since 2011. Universal Credit claimants must apply for the ‘housing cost element’ if they need help covering their rent, which is capped by Local Housing Allowances (LHA) rates – just like housing benefit. These rates are set by the government and vary depending on where you live. The government has frozen LHA rates until 2020 – which, when added to the real-terms cuts, means that rates no longer reflect the true price of market rents.

Finally, extra money has been earmarked for Universal Credit – an extra £1 billion to be spent over five years. The details of this much-needed cash injection will be revealed later this year by Esther McVey, when she presents the regulations for managed migration.

The government has taken steps which show it is aware of the main issues. We now need those steps to quickly turn into leaps, to stop the widespread suffering that Universal Credit currently brings.

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