What is the Universal Credit taper rate, and what does cutting it actually mean?

The Universal Credit taper rate is set to be cut, according to Rishi Sunak. This refers to the rate at which the entitlement is withdrawn as a person earns more. The Chancellor used the Budget to announce that it will be cut from 63% to 55% within the next few weeks: for every £1 a person earns over their work allowance, their Universal Credit payment will automatically be reduced by 55p instead of 63p.

The work allowance is the amount an individual can earn before the taper rate kicks in. The figure depends on whether someone claims the housing costs element: £293 if your Universal Credit payment includes housing support; £515 if it does not. Sunak told MPs today that the government will be increasing work allowances by £500 a year. He said both changes will take place “within weeks, and no later than December 1st”.

His Universal Credit tweaks come in the wake of the deeply damaging decision to scrap the £20-per-week uplift to the benefit, introduced earlier in the pandemic. Analysis by the Joseph Rowntree Foundation ahead of the cut found that 500,000 people, including 200,000 children, would be pushed into poverty as a result. The move by the government represented the single biggest overnight benefit cut in the history of the welfare state.

The gap between what has been handed out to households today and what was taken from them earlier this month was highlighted by Rachel Reeves. “The arrogance, after taking £6bn out of the pockets of some of the poorest people in this country, expecting them to cheer today for £2bn given to compensate. In the long story of this parliament, never has a Chancellor asked the British people to pay so much for so little,” the Shadow Chancellor told the Commons this afternoon.

Sunak said today that a single parent of two earning the national minimum wage would see their take home pay increase by around £1,200 a year as a result of the changes. This is, of course, the largest increase possible. The amount of increased income a person will see depends on their specific circumstances. Over half of claimants will not see a single additional penny after the change: those on Universal Credit and not working, which represents around 60% of those in receipt of the benefit, are not affected by any change to the taper rate. They are hit by the cut of £20 per week, or £1,040 per year, though.

The 8% cut to the taper rate is clearly good news for any low earner on Universal Credit, a sizeable number of people, and should be welcomed. But it is simply no substitute for the across-the-board reduction made to the benefit earlier this month.