Universal Credit claimants will be able to keep more of the benefit as they earn more, as part of a £2.2bn tax cut to help low-paid families with the cost of living and “reward work”.
The taper rate will be cut by 8% “within weeks”, bringing it down from 63% to 55%, chancellor Rishi Sunak announced as he decried the “hidden tax on work”.
The taper rate is the amount of benefit taken away from every £1 earned above the claimant’s work allowance – meaning claimants will now be able to keep an additional 8p per £1 of net income.
The move, which will take place no later than December 1, will ease the burden on claimants who are in work by providing more of an incentive to increase their hours.
But it does not compensate for the £20-a-week reduction earlier this month or do anything to help people who are not in work.
Sunak said the current taper represents a “hidden tax on work” for many of the lowest paid in society and a “high rate of tax at that”.
The amount that households with children or a household member with limited capability for work can earn before their Universal Credit (UC) payments are reduced will also be increased by £500 a year.
Announcing the change to cheers from the Commons, he said: “This is a £2bn tax cut for the lowest paid workers in our country.
“It supports working families, it helps with the cost of living and it rewards work.”
The changes mean that nearly two million families will keep on average an extra £1000 a year, he said.
This is less than a third of around six million households hit by the removal of the £20-a-week UC uplift which came into effect this month.
Also in the spending review, Sunak said the national living wage will increase by 6.6% to £9.50 an hour from next April.
And he said the Government is investing an extra £170m by 2024/25 into paying for childcare.
Stacey, a full-time sales executive from Yate, near Bristol, started claiming UC three years ago when her fiance and father of her two young daughters died in a car crash.
The 35-year old said the change to the taper rate will help her “massively”, but will not help claimants who are unable to work or who want to work but cannot because of factors such as childcare costs.
She said: “For me, cautiously, it’s good, but as far as other people are concerned, it doesn’t go far enough in helping them.”
She added: “It just means you can keep more of your money, which if you’re working and you’re earning enough, it’s going to be helpful moving forward, and it does go some way to easing the burden of losing £20 a week.
“Unless you are doing a decent amount of hours, I don’t see it being that much of a match for the £20 a week.”
Stacey is part of Covid Realities, a Nuffield Foundation funded research programme research project by the Universities of York and Birmingham, and Child Poverty Action Group, documenting life on a low income.
Dr Ruth Patrick, senior lecturer in social policy at the University of York who leads the project, said the changes are welcome but more support is needed “to make our social security system worthy of that name”.
She added: “That support was not forthcoming in this Budget, and will lead many millions of families feeling anything but optimistic as they move into what looks set to be a very difficult winter.”
Responding to the Budget, Labour’s shadow chancellor Rachel Reeves said “never has a chancellor asked the British people to pay so much for so little”.
She said: “After taking £6bn out of the pockets of some of the poorest people in this country, he is expecting them to cheer today at being given £2bn to compensate.”
Institute for Fiscal Studies director Paul Johnson tweeted: “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.”
Morgan Wild, head of policy at Citizens Advice, welcomed the change to the taper, but said it “doesn’t cushion the blow of the £20-a-week cut for those still looking for work or the 1.7 million unable to work because of disability, health issues or caring responsibilities”.
He added: “Given the cost-of-living crisis, the Government must ensure every family is able to access the support they need this winter.”