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Universal Credit: What is it and why does the £20 increase matter?

Many have struggled to get by on Universal Credit during the pandemic, or found themselves having to claim for the first time. We explain the controversial benefits system

The controversial Universal Credit system has been under a microscope throughout the pandemic after redundancies, the furlough scheme and income losses pushed thousands of families into poverty.

Unemployment is at its highest level in five years, with 1.7 million people now out of work amid the Covid-19 crisis. 

Nearly 420,000 more people lost their jobs in the three months leading to November compared to the same period in 2019, Office for National Statistics research showed.

It means thousands more are relying on the social security safety net to stay float.

Anti-poverty experts welcomed a £20 weekly increase in payments for those claiming Universal Credit (UC) and Working Tax Credits, introduced by the Government at the start of lockdown last year.

However many say it does not go far enough to support people who are already struggling to make ends meet. There are fears households across the country could be dropped deeper into poverty if the April cut goes ahead.

But why is the Universal Credit increase so important? Who is likely to be affected? We answer your questions.

What is Universal Credit?

Universal Credit was introduced by the Conservative government in 2013, designed to streamline the benefits system. Instead of a patchwork of means-tested benefits like housing benefit and income-based Job Seeker’s Allowance, it wrapped them up into one single monthly payment. It can be applied for online.

It is paid to people on low incomes, both in and out of work. People receiving benefits have been gradually migrated onto the UC system since its introduction. The Government aims to have everyone on the newer system by 2024.

In England and Wales, those who get help to pay their rent will receive it in their monthly UC payment which they must then use to pay their landlord themselves. In Scotland and Northern Ireland, claimants have the option of having the rent paid directly to their landlord.

People who live as a couple and both claim UC will get a joint payment paid into one bank account.

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Who is eligible to claim Universal Credit?

People aged 18 or over who are on a low income or are out of work can apply for UC. A person or their partner must be under state pension age and have £16,000 or less in savings.

In some cases, exceptions are made to pay Universal Credit to 16-17 year-olds and students.

There is no limit on the number of hours people can work if they are employed and claiming Universal Credit. However payments will reduce depending on how much is earned.

There are an average of nearly 10,000 people claiming Universal Credit in each parliamentary constituency, according to charity Z2K.

Why is Universal Credit controversial?

The Universal Credit system has been long criticised as not fit for purpose. 

One problem is the five-week wait most claimants face between applying for the benefit and receiving their first payment. It has been blamed for pushing people further into debt.

Claimants can receive an advance payment to cover the wait, but it must then essentially be paid back. Their payments for the next year are spread out over 13 weeks instead of 12. 

The Government refused to investigate the impact of Universal Credit on low-income households. This was despite a scathing work and pensions committee report linking it to food bank use and rent arrears.

The Government has refused MPs’ recommendations to investigate the impact this has on people and to introduce a non-repayable starter grant.

The UC system is complicated, making it difficult for people to calculate how much they might receive. Many families who faced income cuts during the Covid-19 crisis found they were not eligible for UC, despite struggling to make ends meet. Applying for UC payments could also end any tax credits a person receives.

Last year a Lords Economic Committee report said Universal Credit “punishes the poorest”.

What is the £20 Universal Credit increase?

At the start of the Covid-19 lockdown in 2020, the Government introduced a temporary £20 weekly increase for people receiving Universal Credit and Working Tax Credits.

It was designed to support those already struggling through what was a tough time for the economy.

But it is set to end this April, despite repeated calls from campaigners for it to be kept. People receiving UC could face a £1,040 cut to their annual income if the increase ends as planned.

More than 6.2 million families will be impacted by the payment cut, according to the Joseph Rowntree Foundation. Another half a million – including 200,000 children – pushed into poverty. It will disproportionately affect single parents, BAME families and households including a person who is disabled.

And removing the £20 increase will make Universal Credit worth less to families than it was in 2013, Citizens Advice Scotland said.

The benefit has not kept pace with inflation, analysis showed. This means it will be worth 11.5 per cent less than when it was introduced after the cut.

The uplift only returned Universal Credit to its real-terms value from eight years ago, the charity said. This is largely due to the benefit freeze between 2015 and 2019.

Single claimants under 25 will lose a quarter of their monthly allowance if the cut goes ahead. Their standard monthly allowance, currently £342.72, will drop to £257.33.

Meanwhile couples over 25 who claim together could lose nearly 15 per cent of their income, from £594.04 to £509.91.Nearly 60 per cent of the public back making the increase permanent, according to polling from the Health Foundation and Ipsos MORI.

Labour forced an Opposition Day vote on keeping the increase, and Parliament voted in favour with all but six Conservative MPs abstaining. 

But that doesn’t mean the Government will bring it into law. So far ministers have resisted committing to keeping the increase, with media reports suggesting Chancellor Rishi Sunak considered one-off payments of £500 or £1,000 instead.

Do people on other benefits get the £20 increase?

CAs well as campaigning to keep the £20 increase, campaigners say disabled people and those on so-called “legacy benefits” have been forgotten in Covid-19 support packages. People on Employment and Support Allowance, Child Tax Credits and Income Support, primarily people with disabilities and health conditions which prevent them working, did not receive any increase in their payments last year. Anti-poverty experts want the weekly £20 to be extended to them as well as keeping it for Universal Credit claimants.

The £20 increase would mean “being able to keep the house warm”, a single parent called Michelle reportedly told the All Party Parliamentary Group on Poverty at an evidence session about legacy benefits.

Work and pensions secretary Thérèse Coffey told MPs she did not believe the 2.2 million people on legacy benefits had been treated badly during the pandemic.

Coffey said she was “not aware specifically of extra costs that would have been unduly incurred” by disabled people throughout the Covid-19 crisis. She said only that discussions were ongoing behind the scenes of government around keeping the £20 increase for Universal Credit.

But just days earlier, the Disability Benefits Consortium (DBC) published research showing 82 per cent of people on legacy benefits were spending more than they normally would in lockdown.

Two thirds of those surveyed reported going without essentials like food, heating or medication to make ends meet. Nearly half said they had fallen behind on rent, mortgage payments or household bills.

For many it became necessary to use taxis to get to essential appointments, driving living costs up further.

Coffey previously encouraged disabled claimants to switch to Universal Credit if they feel they are missing out. But experts warned it would leave many worse off because the Severe Disability Premium does not exist under UC.