Universal Credit is a United Kingdom–based social security payment. It is means-tested and is replacing and combining six benefits, for working-age households with a low income: income-related Employment and Support Allowance (ESA), income-based Jobseeker's Allowance (JSA), and Income Support; Child Tax Credit (CTC) and Working Tax Credit (WTC); and Housing Benefit. While Universal Credit replaced six working-age means-tested benefits, Council Tax Benefit was explicitly excluded from the reform and devolved to local government administration.
An award of UC is made up of different elements, which become payable to the claimant if relevant criteria apply: a standard allowance for singles or couples, child elements and disabled child elements for children in the household, housing cost element, childcare costs element, as well as elements for being a carer or for having limited capability to work-related activities, due to illness or disability.
The new policy was announced in 2010 at the Conservative Party annual conference by the Secretary of State for Work and Pensions, Iain Duncan Smith, who said it would make the social security system fairer to claimants and taxpayers. At the same venue the Welfare Reform Minister, Lord Freud, emphasised the scale of their plan, saying it was a "once in many generations" reform. A government white paper was published in November 2010. A key feature of the proposed new benefit was that unemployment payments would taper off as the recipient moved into work, not suddenly stop, thus avoiding a "cliff edge" that was said to "trap" people in unemployment.
Universal Credit was legislated for in the Welfare Reform Act 2012. In 2013, the new benefit began to be rolled out gradually to Jobcentres, initially focusing on new claimants with the least complex circumstances: single people who were not claiming for the cost of their accommodation.
There were problems with the early strategic leadership of the project and with the IT system on which Universal Credit relies. Implementation costs, initially forecast to be around £2 billion, later grew to over £12 billion.
More than three million recipients of the six older "legacy" benefits were expected to have transferred to the new system by 2017, but under current plans the full move will not be completed until at least 2028. The Department for Work and Pensions started full-scale migration in 2023 and by September 2024, all claimants other than claimants on income-based ESA or income-based ESA and housing benefit, will begin migrating to Universal Credit. As of December 2023, 6.3 million people across Great Britain were receiving Universal Credit and the total estimate cost of implementing the Universal Credit reached £2.928 billion in 2023.
One specific concern is that payments are made monthly, with a waiting period of at least five weeks (originally six) before the first payment, which can particularly affect claimants of Housing Benefit and lead to rent arrears (although claimants can apply for emergency loans paid more promptly). In May 2019, one million people were receiving less than their entitlement, often due to the repayment of loans given during the initial five-week wait period.
Background
Before Universal Credit was introduced, the UK welfare system consisted of around 40 distinct benefits and tax credits, with Department for Work and Pensions staff guidance reported to run over 8,000 pages.
The Universal Credit mechanism was itself first outlined as a concept in a 2009 report, Dynamic Benefits, authored by Iain Duncan Smith and Stephen Brien for the Centre for Social Justice think tank, which recommended consolidating multiple benefits into a single credit with a single rate for reducing benefits as earnings rise. It would go on to be described by the soon-to-be Work and Pensions Secretary at the Conservative Party annual conference in 2010. The initial aim was for it to be implemented fully over four years and two parliaments, and to merge the six main existing benefits (income-based Jobseeker's Allowance, income-related Employment and Support Allowance, Income Support, Working Tax Credit, Child Tax Credit and Housing Benefit) into a single monthly payment, as well as cut the considerable cost of administering six independent benefits, with their associated computer systems.
Unlike existing benefits like Income Support, which had a 100% withdrawal rate, Universal Credit was designed to gradually taper away – like tax credits and Housing Benefit – allowing claimants to take part-time work without losing their entitlement altogether. In theory, it makes claimants better off taking on work, as they keep at least a proportion of the money they earn. But reductions in funding and changes to withdrawal rates left commentators on either side of the debate to question whether it would actually make work pay. The Daily Telegraph claimed "part-time work may no longer pay", and "some people would be better off refusing" part-time work and in the Guardian Polly Toynbee wrote "Universal credit is simple: work more and get paid less". Finally, the "Minimum Income Floor" used when calculating Universal Credit for self-employed claimants may make it much less worthwhile for large parts of the population to work for themselves.
Policy The objectives of the policy included creating a more responsive system that would simplify and incentivise a return to work, pay benefits in a monthly cycle more akin to salaries, reduce the high marginal deduction rate that accumulates from the withdrawal of more than one means-tested benefit simultaneously to a single deduction rate improving incentives, ensure that taking on even a small or varying amount of work would be financially rewarding, and reduce the proportion of children growing up in homes where no one works. Universal Credit would merge out-of-work benefits and in-work support (specifically, Jobseeker's Allowance, Employment and Support Allowance, Income Support, Housing Benefit, Child Tax Credit, and Working Tax Credit, while Council Tax Benefit was excluded and devolved to local councils) to improve return to work incentives. Universal Credit’s reduction rate was originally set at 65% in 2010 and cut to 55% in November 2021.
The clearer financial incentives through Universal Credit would be strengthened by four types of conditionality for claimants depending on their circumstances, ranging from being required to look for full-time work to not being required to find work at all (people in the unconditional group include the severely disabled and carers). Universal Credit introduced in-work conditionality, which allows the Department for Work and Pensions to require low-paid workers to actively seek higher earnings or extra hours under threat of benefit sanctions.
Payments are made once a month directly into a bank or building society account, except in Scotland where claimants are given the option to have it paid fortnightly. Because payments are assessed in arrears, new claimants face an initial five-week wait for their first payment, during which repayable interest-free advances are available. Any help with rent granted as part of the overall benefit calculation is included in the monthly payment and claimants normally then pay landlords themselves. It is possible in some circumstances to get an Alternative Payment Arrangement (APA), which allows payment of housing benefit direct to the landlord.
Universal Credit claimants are also entitled to Personal Budgeting Support (PBS), which is aimed to help them adapt to some of the changes it brings, such as monthly payment, alongside the Department for Work and Pensions funded “Help to Claim” service run by Citizens Advice.
Major amendments
In 2015, the Chancellor, George Osborne, announced a future £3.2 billion a year cut to the overall Universal Credit budget after an attempt to cut Tax Credits that year was thwarted by parliament. The Resolution Foundation has argued that this cut, which will be felt more keenly as millions more people transfer to Universal Credit, risks the new system failing to achieve its original purpose of incentivising work in low-income households. The amendments were:
Reductions in the amount of "work allowances" before tapered deductions due to income are applied, from April 2016 Limiting the per-child element to only two children for new claims and births after April 2017 Removing the extra element for the first child for new claims from April 2017
In November 2016, in response to criticism that the previous changes had reduced incentives to work, the government announced a reduction in the Universal Credit post-tax taper rate, which controls the reduction of Universal Credit as employment income grows, from 65% to 63% of post-tax income, which will ultimately cost £600 million per year.
In the 2018 budget, the Chancellor, Philip Hammond, announced an increase in the "work allowances" for households with children, and people with disabilities, with effect from April 2019, partially reversing the reductions announced in 2015. The post-tax work allowances will increase by £1,000 per year, representing an extra £630 of income for about 2.4 million households in employment, ultimately at a cost of about £1.7 billion per year. Extra transitional support for claimants being moved to Universal Credit was also announced.
In April 2020, as a one-year temporary response to the COVID-19 pandemic, the Universal Credit standard allowance was temporarily increased by £20 per week and housing benefit rent limits relaxed. The uplift was extended until 30 September 2021. Later analysis showed this lifted 400,000 children out of the government's relative poverty measure, reversing the increasing trend of previous years.
The October 2021 budget increased in-work support by increasing the work allowances by £500 a year, and reducing the post-tax deduction taper rate from 63% to 55%. Iain Duncan Smith wrote that he was delighted that the taper rate would now be 55%, the level he wanted over a decade ago when he devised the scheme, but which had not been allowed by the Treasury. Analysis by the Resolution Foundation showed that three-quarters of families on UC would be worse off compared to the previous temporary £20 per week uplift during the Covid crisis.
Relationship to other proposed welfare policies Universal Credit has some similarities to Lady Williams' idea of a negative income tax, but it should not be confused with the universal basic income policy idea. There is some debate as to whether Universal Credit should be described as "universal", given it is both subject to income cut-offs and requires some claimants to be available for work.
Implementation Universal Credit is part of a package of measures in the Welfare Reform Act 2012, which received Royal Assent on 9 March 2012. The Act delegates its detailed workings to regulations, most of which were published as the Universal Credit Regulations 2013.Statutory Instruments 2013 No. 376, The Universal Credit Regulations 2013 Related regulations appeared in a range of other statutory instruments also.
The Department for Work and Pensions (DWP) announced in February 2012 that Universal Credit would be delivered by selected best-performing DWP and Tax Credit processing centres. Initially, the announcement made clear that local authorities (responsible for administering payment of Housing Benefit, a legacy benefit to be incorporated into the scheme) would not have a significant part in delivering Universal Credit. However, the Government subsequently recognised there may be a useful role for local authorities to play when helping people access services within Universal Credit.