Universal Credit Overhaul: Three Major Changes Now in Effect
The Labour Party government has initiated a significant shake-up of the Universal Credit system, aiming to reduce the welfare bill and address the rising benefits rate. These changes, which came into force at the start of the new financial year, represent a pivotal shift in the UK's social security landscape.
Standard Rate Increase
One of the most notable changes is an increase in the basic allowance for Universal Credit, which is paid to all claimants. According to figures from the Institute for Fiscal Studies think tank, approximately three million families will receive an average increase of £120 this year. Matthew Oulton, a research economist at IFS, described this as a reweighting of the system away from people with health conditions and towards others, particularly those with three or more children. He noted that half a million families will see a substantial overnight income boost, while three million others will experience a smaller rise.
Health Rate Cuts
In a controversial move, the health element of Universal Credit—paid to claimants whose disability limits their ability to work—is being halved. However, this cut only applies to new claimants, with the 2.8 million existing recipients protected. Work and Pensions Committee Chair Debbie Abrahams has expressed concerns, citing government analysis that suggests around 50,000 people who develop a health condition or become disabled could fall into poverty by 2030 due to this reduction. She has recommended delaying the cuts until other support measures, such as increased NHS capacity or employment assistance, are in place.
Two-Child Benefit Cap Scrapped
The abolition of the two-child benefit cap marks a significant policy reversal, benefiting about 480,000 families with three or more children, who will now receive an average annual increase of £4,100. Alison Garnham, chief executive of the Child Poverty Action Group, hailed this as a "gamechanger" for children affected by what she called one of the "nastiest policies" in modern times. Minister for Employment Dame Diana Johnson emphasized that this change aims to break the link between a child's background and their life chances, offering greater security and opportunity to hundreds of thousands of children.
Sir Stephen Timms, a DWP minister and Labour Party cabinet member, stated that these reforms are designed to create a welfare system that supports people in work and helps them build a better future, while reducing projected Universal Credit expenditure by nearly £1 billion. The government is also investing £3.5 billion in employment support as part of this broader initiative.
