We look at exactly what's set to change and how Universal Credit is likely to affect your personal finances.
What is changing?
The main aim of Universal Credit is to simplify the welfare system by replacing a number of different state benefits with a single payment.
The payments that are being stopped and replaced by Universal Credit are:
In 2010 Iain Duncan Smith, Secretary of State for Work and Pensions announced plans to replace a number of the existing state benefit payments with a single Universal Credit.
Income Related Jobseeker's Allowance
Income Related Employment Support Allowance
Working Tax Credit
Child Tax Credit
Benefits that won't be affected by the Universal Credit are; Attendance Allowance, Bereavement Benefits, Carer's Allowance, Child Benefit, Contributory Employment and Support Allowance, Contributory Jobseeker's Allowance, Council Tax Benefit, Industrial Injuries Disablement Benefit, Maternity Allowance, Pension Credit, Statutory Maternity Pay, Statutory Sick Pay and War Pensions
Disability Living Allowance will not be incorporated into the Universal Credit but will be replaced with Personal Independence Payments instead.
How has Universal Credit been introduced?
The move to a Universal Credit started in April 2013, and is being rolled out in 3 phases:
Phase 1: October 2013 - April 2014
New claimants of Jobseeker's Allowance, Employment Support Allowance, Housing Benefit, Working Tax Credit and Child Tax Credit have received Universal Credit instead of these individual benefits.
New claimants of Job Seekers Allowance were the first to receive Universal Credit payments.
During this period new claimants of Housing Benefit and Tax Credits have also been switched to Universal Credit.
Existing benefit claimants will also be transferred to Universal Credit when their circumstances change and they have to re-apply or update their details.
Phase 2: April 2014 - December 2015
Existing claimants of Jobseeker's Allowance, Employment Support Allowance, Housing Benefit, Working Tax Credit and Child Tax Credit who are still in receipt of the individual benefits (most likely because they haven't yet reported a change in their circumstances) will be moved over to Universal Credit.
Phase 3: December 2015 - December 2017
The remaining claimants of Housing Benefit will be transferred to Universal Credit, with the final transfer process expected to be completed by the end of 2017.
There are a several other changes to the benefits system being implemented as part of the Welfare Reform Act 2012.
These are not strictly part of Universal Credit but could still have a big impact on your finances.
A cap on benefits
One of the main aims of Universal Credit is to "make work pay"; consequently the total amount any family can claim in benefits will be capped.
This limit is linked to the average weekly earnings of people employed in the UK, and is set at £23,000 in London, and £20,000 elsewhere.
This could potentially mean some families see their benefits substantially reduced, especially if they have a several children.
The government are now looking into introducing regional variations to the benefits cap.
You are required to take training, an apprenticeship or go on a work placement if you are aged 18-21 and after claiming Universal Credit for 6 months.
This could cushion the impact of the benefit cap for people living in expensive areas of the country (like London and the South East) but could also mean that people living in cheaper areas of the country see the amount they can claim fall further.
Personal Independence Payments
From April 2013, the government replaced the existing Disability Living Allowance (DLA) for adults aged 16 to 64 with Personal Independence Payments.
The Personal Independence Payment is made up of two parts: a Daily Living component and a Mobility component.
Both of these elements operate on two set rates, standard and enhanced:
In order to claim you:
must suffer from a condition that's expected to last at least 12 months
will need to undergo a one to one assessment of how your conditions affect your day to day life; the exception is if you have a terminal illness
Existing DLA claimants will not automatically be transferred to Personal Independence Payments. Instead they will need to make a claim to start receiving the payment.
If you currently receive DLA but are deemed not to qualify for Personal Independence Payments when you have your assessment, your DLA will be withdrawn.
Local Housing Allowance rates
Local Housing Allowance rates now increase by the Consumer Price Index rather than the more generous Retail Prices Index.
This means the payments you receive may grow more slowly over time compared to what you would have been paid using the old system.
Employment and Support Allowance
A 12 month limit was introduced to contributory Employment and Support Allowance (ESA) claims.
After 12 months, the benefit will be withdrawn and replaced in full or in part with income-related ESA.
However, the government expects that 40% of claimants are not likely to qualify for any ESA after the 12 month period, and as such the payments will be withdrawn and their net income will fall by £36 per week.
New claims for ESA have been scrapped for those deemed able to work, with a lower Jobseeker's Allowance being provided instead.