If you receive benefits, you need to know about Universal Credit. Find out what it is, how to calculate Universal Credit and whether it will make your family better or worse off.
So what is Universal Credit? You may have heard about it in the news recently. It’s a big deal for millions of families across the UK as it’s a complete overhaul of the benefits system.
The main idea is to merge lots of different benefits into one overall payment – called ‘Universal Credit’ – which will replace Jobseeker's Allowance, Income Support, Housing Benefit and Tax Credits.
It’s a lot of changes to take in – so we’ve gathered all the facts, stripped out the jargon, and put them in an FAQ format to give you the information you need.
But if you’ve got a question we haven’t covered, ask us by commenting below – we’ll get back to you with an answer!
What is Universal Credit?
Universal Credit is a new single payment for people who are looking for work or are on a low income. Its purpose is to help families become more independent by simplifying the benefits system - bringing together a range of working-age benefits into a single payment that aims to ‘make work pay’. In other words, the government wants to create a system where people will always be better off in work than on benefits.
Which benefits will it affect?
- Income-based Jobseeker’s Allowance
- Income-related Employment and Support Allowance
- Income Support
- Child Tax Credit
- Working Tax Credit
- Housing Benefit
Universal credit calculator
As Universal Credit will be phased in over several years starting in April 2013, the best way to calculate your benefits entitlement is still with a regular benefits calculator rather than a Universal Credit calculator.
The Turn2us Benefits Calculator will ask the questions required to identify whether a person has to claim Universal Credit from March/April 2013.
Alternatively, you can use the HMRC Tax Credits calculator to calculate your Universal Credit claim.
What's different about Universal Credit?
The government hopes that most people will apply online and manage their claim through an online account, making life a bit simpler.
Universal Credit has been designed to encourage people to work, or to increase the hours they work, without fear of losing their benefit entitlements. Claimants without internet access will be helped to complete their online claim, at a Jobcentre or through a telephone service.
Will I be better or worse off?
The government has promised that no-one will be any worse off as a result of the introduction of Universal Credit.
When people are moved over to the new system, no-one should see their benefits fall as their Universal Credit will be fixed.
If the benefits you already receive are more than you would be entitled to under Universal Credit, your award of Universal Credit will be topped up to the level of your existing benefits. (However, when the benefit rates are increased every April you will not receive any rise until your Universal Credit amount is higher than your protected amount.)
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If you’re in work (including irregular or part-time work) you should be better off with Universal Credit. One of the main aims of the scheme is to reduce the incentive for people to not take on additional paid work, for fear of losing their benefits entitlement.
The government claims that around one million households will see an increase in their benefits entitlement of up to £25 a week.
How will Universal Credit support me moving into work or increasing my hours?
Universal Credit can be paid to people who are working or unemployed, so your benefits will not automatically stop if you want to try a new job or increase your hours.
Universal Credit payments will be reduced at a steady rate, taking your earnings into account. 'Earnings disregards' (the amount you can earn before your payment of Universal Credit is reduced) will be increased for many people, so you will be able to keep more of your earnings.
As your hours of work and your earnings increase, your Universal Credit payment will reduce, but Universal Credit has been designed so that you should always be financially better off in work.
Are there any other changes I need to be aware of?
Yes, benefit payments will be monthly instead of weekly. The government hopes this will help people manage their income more effectively and smooth the transition into monthly paid work.
Another big change is that claims will be made by households, rather than individuals.This means that the amount awarded will depend on the income and circumstances of all the household members.
What is Universal Credit Housing Benefit?
If you are a council or housing association tenant you may be used to your Housing Benefit being paid directly to your landlord. Your Universal Credit calculation will include an amount towards your rent, and this will be paid directly to you with the rest of your Universal Credit. You will be responsible for paying your rent to your landlord.
What about Council Tax?
You will also have to pay your Council Tax out of your monthly income. There is no element towards Council Tax in Universal Credit. Every local council will operate a scheme of council tax support for people on a low income and you will be able to apply to them for a reduction in the amount you have to pay.
When will these changes start?
If you’re unemployed: Universal Credit will start to take new claims from unemployed people in October 2013.
If you’re in work: For people in work this process will begin in April 2014.
The remainder of current claims will be moved to Universal Credit from 2014, with the process being complete by 2017.
What is happening about childcare?
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Universal Credit will provide more support for childcare costs.
Under current tax credit rules, support towards childcare costs is only available to parents who work more than 16 hours per week.
Under Universal Credit, this requirement will be removed and support will be available to parents regardless of the number of hours they work.
And Child Benefit?
Child Benefit will continue to be available in addition to the Universal Credit payments for children.
See our full Child Benefit Q&A for answers to the most commonly asked Child Benefit questions (including how much Child Benefit you can expect to receive).
Do you have a question we haven’t answered? If so let us know by commenting below, and we’ll get back to you with an answer!
Rebecca Spencer is head of campaigns at Turn2Us, a UK charity that helps people in financial need. As mum to a beautiful and active little boy, she knows how precious time and money is – there never seems to be enough of either! Here, she shares her practical tips to help MyFamilyClub readers in everyday money matters.