Universal Credit: What is it and why does the £20 increase matter?

Many have struggled to get by on Universal Credit during the pandemic, or found themselves having to claim for the first time. We explain the controversial benefits system

The controversial Universal Credit system has been under a microscope throughout the pandemic after redundancies, the furlough scheme and income losses pushed thousands of families into poverty.

Anti-poverty experts welcomed a £20 weekly increase in payments for those claiming Universal Credit (UC) and Working Tax Credits, introduced by the Government at the start of lockdown last year.

However many say it does not go far enough to support people who are already struggling to make ends meet. there are fears households across the country could be dropped deeper into poverty if the temporary increase ends in April as planned.

But why is the Universal Credit increase so important? Who is likely to be affected? We answer your questions.

What is Universal Credit?

Universal Credit was introduced by the Conservative government in 2013, designed to streamline the benefits system. Instead of a patchwork of means-tested benefits like housing benefit and income-based Job Seeker’s Allowance, it wrapped them up into one single monthly payment. It can be applied for online.

It is paid to people on low incomes, both in and out of work. People receiving benefits have been gradually migrated onto the UC system since its introduction. The Government aims to have everyone on the newer system by 2024.

In England and Wales, those who get help to pay their rent will receive it in their monthly UC payment which they must then use to pay their landlord themselves. In Scotland and Northern Ireland, claimants have the option of having the rent paid directly to their landlord.

People who live as a couple and both claim UC will get a joint payment paid into one bank account.

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Who is eligible to claim Universal Credit?

People aged 18 or over who are on a low income or are out of work can apply for UC. A person or their partner must be under state pension age and have £16,000 or less in savings.

In some cases, exceptions are made to pay Universal Credit to 16-17 year-olds and students.

There is no limit on the number of hours people can work if they are employed and claiming Universal Credit. However payments will reduce depending on how much is earned.

Why is Universal Credit controversial?

The Universal Credit system has been long criticised as not fit for purpose. 

One problem is the five-week wait most claimants face between applying for the benefit and receiving their first payment. It has been blamed for pushing people further into debt.

Claimants can receive an advance payment to cover the wait, but it must then essentially be paid back. Their payments for the next year are spread out over 13 weeks instead of 12. The Government has refused MPs’ recommendations to investigate the impact this has on people and to introduce a non-repayable starter grant.

The UC system is complicated, making it difficult for people to calculate how much they might receive. Many families who faced income cuts during the Covid-19 crisis found they were not eligible for UC, despite struggling to make ends meet. Applying for UC payments could also end any tax credits a person receives.

Last year a Lords Economic Committee report said Universal Credit “punishes the poorest”.

What is the £20 Universal Credit increase?

At the start of the Covid-19 lockdown in 2020, the Government introduced a temporary £20 weekly increase for people receiving Universal Credit and Working Tax Credits.

It was designed to support those already struggling through what was a tough time for the economy.

But it is set to end this April, despite repeated calls from campaigners for it to be kept. People receiving UC could face a £1,000 cut to their annual income if the increase ends as planned.

More than 6.2 million families will be impacted by the payment cut, according to the Joseph Rowntree Foundation. Another half a million – including 200,000 children – pushed into poverty. It will disproportionately affect single parents, BAME families and households including a person who is disabled.

Nearly 60 per cent of the public back making the increase permanent, according to polling from the Health Foundation and Ipsos MORI.

As well as campaigning to keep the £20 increase, campaigners say disabled people and those on so-called “legacy benefits” have been forgotten in Covid-19 support packages. People on Employment and Support Allowance, Child Tax Credits and Income Support did not receive any increase in their payments last year. Anti-poverty experts want the weekly £20 to be extended to them as well as keeping it for Universal Credit claimants.