Over one million Universal Credit recipients are poised to receive a £420 increase this month following a significant adjustment by the Department for Work and Pensions (DWP).
The DWP will reduce the cap on the maximum deductions that can be made from a claimant’s benefit payments starting from April 30. Announced by Labour Chancellor Rachel Reeves in last year’s Autumn Budget, the maximum deductions from the standard allowance will decrease from 25% to 15%.
Presently, the DWP and third parties have the authority to deduct 25% of an individual’s Universal Credit standard allowance to settle any outstanding debts. These deductions are subtracted from the claimant’s standard allowance each month until the debt is cleared.
These deductions may encompass various debts such as benefit advances, historical child tax credit overpayments, rent and council tax arrears, as well as unpaid water and utility bills. Payments can be withheld from Universal Credit to address up to three debts concurrently, with a minimum 5% deduction for each debt owed.
The sequence of deductions is determined by priority, with fraud penalties, sanctions, or advances taking precedence. Once the 25% limit is reached, any remaining deductions of lower priority cannot be made unless it is a “last resort deduction.”
Last resort deductions are aimed at preventing evictions or the discontinuation of essential services like gas or electricity. They are primarily used for covering rent, home service charges, or energy arrears and are sent directly to the relevant third party owed.
The new Fairer Repayment Rate will not apply to deductions related to fraud penalties or sanctions, allowing for more deductions from the Standard Allowance of Universal Credit claimants.
Additionally, child support deductions will be elevated in priority, surpassing repayments for Universal Credit advances and third-party deductions for rent arrears. This adjustment, known as the Fair Repayment Rate, is primarily designed to assist the most financially vulnerable families.
According to Reeves, this change is expected to benefit 1.2 million households, including 700,000 families with children, enhancing their annual income by up to £420 or £35 per month.
Save the Children estimates that single parents could see an increase of up to £39 in their monthly Universal Credit entitlement due to this measure. For two-parent households, the increase could reach up to £62.
Charities, including Save the Children, have hailed the move, criticizing the current deduction levels as unjust and unsustainable. Ruth Talbot, Save the Children UK’s policy and advocacy adviser, praised the change as a significant boost for families, enabling them to allocate more funds for essential needs like food, toys, clothes, and books.
Sebrian McCullough, director of external relations at the debt-free advice firm Money Wellness, expressed support for the reduction in deductions, emphasizing the positive impact on society’s most vulnerable individuals. McCullough highlighted the necessity for government decisions to consider individual affordability to prevent people from facing financial hardships.
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