Universal Credit currently has an earnings taper rate of 63 percent. This means that for every £1 earned over a work allowance, a Universal Credit payment would be reduced by 63p.
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This system is in place to try and ensure that people will never receive more from Universal Credit than they would from employment.
However, it was recently highlighted that this is effectively a tax which hurts those on lower incomes or who are in poverty.
This week Thérèse Coffey appeared before the Economic Affairs committee to take questions on the Universal Credit system and how it may change in light of coronavirus.
One of the questions raised by Lord Forsyth of Drumlean covered the taper rate rules and how they may be unfairly punishing the poor.
He compared the taper rate of 63 percent to the income tax levels paid by the highest earners, which currently sits at 45 percent.
As he put it to Thérèse Coffey: “That is why some of the highest paid people in the country are not paying more than 45 percent and yet the poorest people and the most vulnerable people in the country are effectible paying 63 percent.”
In response to this, the Secretary of State for Work and Pensions was understanding but ultimately rejecting of the claim: “Well I’m not sure that they are on over their overall income.
She went on to acknowledge that the taper rate is 63 percent but that the overall Universal Credit system is beneficial.
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As she continued: “Well when it comes to Universal Credit elements I fully accept the taper rate is 63 percent.
“But every individual is different, this is one of the bonuses of Universal Credit
“We’re not dictating what income they have from other assets, the amount of support you’ll get from Universal Credit will vary substantially according to your situation.
“So it’s a more dynamic benefit, reflecting your real time earnings and moving around, but without question you’ll be better off working than not working”
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These work allowance rules can get confusing but thankfully, there are tools available which can help claimants.
There are independent benefit calculators online which can help people find out how much they could receive from benefit payments.
The government’s website highlights three organisations who have these useful tools and they are Policy in Practice, entitledto and Turn2us.
To get started with these tools, a user will need accurate information available on their savings, income levels, existing benefits and pensions, outgoings and tax bills.
Currently there are two work allowances in place.
This is how much can be earned in a month before Universal Credit is reduced.
If people do not get state support with their housing costs, their work allowance will be £512.
If they do get help with housing, it will be reduced to £292.
Eventually, if the claimant’s income increases substantially, the Universal Credit payments will be stopped entirely.
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