Universal Credit will be made more generous for around 1.9million working British families, Rishi Sunak confirmed today in a Budget U-turn.
The Chancellor announced a surprise 8p cut in the taper rate from 63p to 55p.
The taper rate is the amount of Universal Credit that gets withdrawn for every pound a claimant earns through work.
And the work allowance - the amount some claimants can earn before the taper kicks in - will be raised by £500 a year.
The £2bn-a-year change - which goes further than what was demanded by DWP ministers - will allow many working benefit claimants to keep 45p of every extra pound they earn, instead of 37p.
It is the first taper change in five years, and cushions the blow of this month's £20-a-week cut for some families after an 18-month Covid uplift was removed.
But the £20-a-week cut is not being reversed which means more than half of people on Universal Credit - including those who can’t work due to illness - won't see a penny of the U-turn.
Shadow Chancellor Rachel Reeves raged: "The arrogance, after taking £6bn out of the pockets of some of the poorest people in this country, expecting them to cheer today for £2bn given to compensate!
"In the long story of this parliament, never has a Chancellor asked the British people to pay so much for so little."
As Work and Pensions Secretary Therese Coffey roared with delight, Mr Sunak said to "help people right now" he will introduce the move "within weeks and no later than December 1.”
He added: "To make sure work pays, and help some of the lowest income families in the country keep more of their hard-earned money, I have decided to cut this rate, not by 1%, not by 2% - but by 8%."
He claimed a single mother of two, renting in Darlington, working a full-time job on minimum wage will gain £1,200 a year - or £160 after the £1,040-a-year UC cut.
A couple with two children, renting their home with their two children, where one partner works full time and the other works part-time on minimum wage would gain £1,800 - or £760 after the UC cut.
But the Resolution Foundation think tank said a single parent with one child and housing costs of £140 a week, working 20 hours a week on minimum wage, will be £5 a week worse off overall in April 2022 than they were in September 2021.
There are 5.8million people on Universal Credit as of August 2021, 2.3million of whom are in work.
That means 2.5million people will not benefit at all from today’s changes to the taper rate.
Meanwhile, not all 2.3million claimants who are in work will benefit either.
That is because many of them have a “work allowance” that allows them to earn a certain amount before the taper rate kicks in.
Claimants with children or limited capability for work can earn £293 a month (£515 if they don’t get housing support) before the taper is activated.
Those work allowances will also be raised by £500 a year, the Chancellor announced.
DWP ministers had been lobbying Mr Sunak to cut the taper from 63p to 60p after they lost the argument about stopping the £20 cut.
However, people with wages already slightly above the minimum may not get a rise in pay. And those on shorter hours see less benefit from a pay increase.
The new taper rate equals the 55p originally suggested by the benefit’s architect Iain Duncan Smith.
Torsten Bell, director of the Resolution Foundation think tank, said that a new taper level would improve the welfare system.
But he added: "This is helping better off Universal Credit claimants - the poorest (who generally aren't working) get nothing to compensate for the 20 pound cut."
The director of the Institute for Fiscal Studies (IFS), Paul Johnson, tweeted: "(The) Chancellor seems to be claiming tax and spending rising to record levels because of the pandemic. Not true. These are largely tax and spending decisions unrelated to pandemic."
Mr Johnson also contested the Chancellor's claim the minimum wage increase is worth £1,000 to a full-time worker, stating this is worth £700 after tax and national insurance and "less than £300 to anyone on Universal Credit (UC)".
He added: "Big cut to Universal Credit taper. And increase in work allowance. Targeted at working claimants. Out of work UC claimants get nothing.
"Trade-offs as ever. Improves work incentives for current recipients but will drag more into the system."
Social Market Foundation Director, James Kirkup, said: “This is a welcome, if overdue, acknowledgement of the need to support and encourage workers on low wages, too many of whom suffer in-work poverty.
“However, not all UC recipients are in work, and this welcome change won’t help non-working claimants who have seen the £20 weekly Covid uplift withdrawn and now face a bleak winter of rising living costs.”
Gwen Hines, Chief Executive of Save the Children, said: “This will ease the financial pressure on some families.
“But these measures aren’t a replacement for the £20 increase to Universal Credit, particularly for those whom the government accepts aren’t in a position to work, including people with disabilities or caring responsibilities.
“Millions of parents will continue to worry about how to heat their homes and fill their cupboards this winter."
Polly Neate, chief executive of Shelter, said: “While lowering the taper rate to allow people in work to keep hold of a bit more Universal Credit is really good, it won’t reach all of the five million families hit by the recent UC cut, and it doesn’t help people unable to work because they are sick, disabled or have young children to look after.”
Katie Schmuecker of the Joseph Rowntree Foundation said: "This is a tale of two Budgets for families on low incomes.
“For those in work, the change to the taper rate and work allowance, alongside the National Living Wage increase, are very positive steps, allowing low-paid workers to keep more of what they earn.
“But the reality is that millions of people who are unable to work or looking for work will not benefit from these changes.
“The Chancellor’s decision to ignore them today as the cost of living rises risks deepening poverty among this group, who now have the lowest main rate of out-of-work support in real terms since around 1990.”
Mayor of Greater Manchester Andy Burnham previously said he hoped the move would be the “rabbit out of the hat” in the Budget statement.
And he credited Labour - which campaigned for the taper rate to be cut - for forcing the change.
He told the BBC before the announcement: “I’m hearing they are about to U-turn on Universal Credit and actually that is a credit to the Labour Party that’s campaigned on that particular issue and I hope that is the rabbit that’s in his hat today.
“We’re hearing there’s going to be a change for those on Universal credit in work. If he’s going to do that, it’s the right thing to do, this pandemic is not over, people are still feeling its impact.”
