Good news for some UC claimants – but the detail is key

In his Autumn Budget on 27 October, the Chancellor announced a number of significant changes aimed at supporting low income workers receiving universal credit. These are generally positive changes for those they apply to, but how much benefit they bring to people depends on a complicated series of interactions and the individual’s personal circumstances. They also must be viewed alongside the previously announced increase to national insurance from April 2022 and the freeze in the tax personal allowance.

Victoria Todd, Head of LITRG, says:

“We welcome the changes announced to universal credit and the national living wage. Changing the universal credit taper rate to 55% means that most¹ low income workers will keep more of every pound that they earn. Moreover, those who qualify for a work allowance will get to keep even more when work allowances increase by £500 a year². However, not everyone qualifies for a work allowance and the changes announced won’t benefit those universal credit claimants who are not working.

“The significant increase in the national living wage from £8.91 an hour to £9.50 an hour has been reported as an increase of £1,074 a year for someone working full time at the current national minimum wage from April 2022. However, that is the gross amount and it doesn’t account for tax (at 20%) and national insurance (increases to 13.25% from April 2022) meaning it is actually worth £716.76 a year. For some universal credit claimants, the value of the NMW increase is further reduced to £322 even after today’s welcome cut to the taper rate.

“The changes to universal credit don’t appear to be replicated in tax credits which may mean that some tax credit claimants may be better off under universal credit once they are implemented. However, the changes are complex, they interact with tax and national insurance and they affect people differently depending on their circumstances. It is very important for people to seek specialist welfare rights advice before making a claim for universal credit if they are already in receipt of tax credits or any other benefits universal credit is replacing”.

Notes for editors

1. Those who earn under the work allowance do not have the taper applied to their earnings so will not benefit from this change. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1028814/Budget_AB2021_Web_Accessible.pdf
2. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1028814/Budget_AB2021_Web_Accessible.pdf

Low Incomes Tax Reform Group

The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. The CIOT’s 19,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

Media contact: CIOT External Relations Team 0207 340 2702 and out of hours contact George Crozier 07740 477 374