What is Universal Credit?

In the not too distant future the government will be rolling out a host of changes to the benefit system centred on a Universal Credit that incorporates a host of existing benefits. Here's how the plans could affect your finances.

Updated on 19 May 2015.

Happy family looking at a laptop

The benefits system has been changing since April 2013.

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.

The idea is that by doing this the government will not only cut costs by making the benefits system more efficient, but also encourage people to work if they can.

However, the introduction of Universal Credit has not been supported by all as there are widespread concerns that it will leave thousands worse off.

We look at exactly what's set to change and how Universal Credit is likely to affect your personal finances.

What are the current plans?

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 will be stopped and replaced by Universal Credit are:

  • Income Support
  • Income Related Jobseeker's Allowance
  • Income Related Employment Support Allowance
  • Housing Benefit
  • Working Tax Credit
  • Child Tax Credit

Disability Living Allowance will not be incorporated into the Universal Credit but will be replaced with Personal Independence Payments instead.

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
  • War Pensions

When will Universal Credit be introduced?

The move to a Universal Credit started in April 2013.

The role out of Universal Credit will take place in 3 phases:

Phase 1: October 2013 - April 2014

From October 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.

Other changes

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 will be linked to the average weekly earnings of people employed in the UK, and will initially be set at 26,000.

This could potentially mean some families see their benefits substantially reduced, especially if they have a several children.

Although the 26,000 cap was initially rejected by the House of Lords, it became law on 8th March, 2012.

However, the government are now looking into introducing regional variations to the benefits cap.

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; exact amounts are yet to be announced.

To claim the Personal Independence Payment you must suffer from a condition that's expected to last at least 12 months.

In order to claim it you 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

Changes in the Welfare Reform Act will see Local Housing Allowance rates increase by the Consumer Price Index rather than the more generous Retail Prices Index.

This move is likely to see the payments you'll receive 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 is set to be 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.

Written by at money.co.uk

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