The Department for Work and Pensions (DWP) has issued a statement regarding potential changes to Universal Credit payment reduction rules, following criticism that the current system traps claimants in poverty. A single mother from Cardiff told MPs that the capital limits, unchanged for 20 years, no longer reflect the cost of living.
Claimant Describes 'Poverty Trap'
Sam Richards, a single mother from Cardiff with a 12-month-old son, Oscar, spoke before a joint meeting of the Work and Pensions Committee and Education Committee. She works full-time and relies on private childcare, but says the Universal Credit system is problematic for low-income workers. “The Universal Credit system as it stands now creates a poverty trap. The upper capital and lower capital limits have not changed for 20 years,” she said.
Under current rules, claimants can have up to £6,000 in capital (savings and investments) without affecting their claim. For amounts between £6,000 and £16,000, Universal Credit is reduced by £4.35 for every £250 above the lower limit. Claimants with more than £16,000 are ineligible. Ms. Richards noted that in 2006, £6,000 had more purchasing power. “If you work more hours, your Universal Credit income goes down. You are always on this wheel trying to catch ahead of you, and you cannot get out of it,” she added.
Inflation-Adjusted Limits Would Be Higher
Had the capital limits risen with inflation, the lower limit would now be worth over £10,600, and the upper limit over £28,000. The DWP was asked whether it would consider increasing these thresholds. A spokesperson said any decision must be considered within the wider fiscal context and the overall welfare budget.
Work Allowances and Taper Rate
Universal Credit also includes a Work Allowance, which is the amount a claimant can earn before their benefit is reduced. The monthly allowance is £427 if the claim includes help with housing costs, or £710 if it does not. For each £1 earned above the allowance, Universal Credit is reduced by 55p, meaning claimants keep 45p for every £1 earned above the threshold.
DWP Response
A DWP spokesperson said: “We’re committed to moving from a welfare state to a working state, so that work always pays and people can move into good, secure jobs, and out of poverty. That’s why we've deployed 1,000 Pathways to Work advisers who are supporting people left behind by the previous Government, are helping sick or disabled people into jobs backed by £3.5billion by the end of the Parliament and removing the sickness incentive in Universal Credit.” The department also highlighted measures to tackle cost-of-living pressures, including increasing the National Minimum Wage, reducing energy bills, and launching the Crisis and Resilience Fund.
