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  1. The Explainer
27 October 2021

Who will benefit from Rishi Sunak’s Universal Credit taper rate cut in the Budget?

More than 60 per cent of Universal Credit claimants will not benefit from the change and will feel the full impact of the £1,040-a-year cut.

By Anoosh Chakelian

On 6 October, the UK government withdrew the extra £20-a-week it had added to Universal Credit when the pandemic hit last March. This was the biggest overnight cut to benefits since the creation of the British welfare state.

The move attracted opposition from all sides, including from Tory MPs and every former work and pensions secretary since the Conservatives entered government in 2010. Ahead of the 27 October Budget day, politicians behind the scenes urged the Treasury to soften the cut’s blow. Whitehall’s own analysis found it will have a “catastrophic” impact.

And Rishi Sunak did announce a significant reform to Universal Credit in the Budget. The taper rate – the rate at which individuals lose their benefits as their earnings rise above the work allowance – has been reduced from 63p to 55p. If you are working and claiming Universal Credit, this means you will be able to keep significantly more of your earnings – and the change will be introduced no later than 1 December.

The idea is that this will mean working families on low wages will have more money in their pockets in time for winter, and that the policy will incentivise work. Yet one former work and pensions secretary says they “don’t buy the argument that this is really about work rather than welfare; it’s driven by the fiscal numbers”, which may be a reason behind the cut going ahead.

[See also: Will the £20 Universal Credit cut become Boris Johnson’s government’s worst decision?]

Changing the taper rate was not the preferred policy of some Tory opponents, who were instead pushing for families with children to keep the £20-a-week uplift. Such a change would have meant excluding people claiming the “child element” from the cut, which could have simply been done with “one line of code”, according to a former Whitehall insider familiar with the system.

In addition, 55 per cent is still a high rate at which to have earnings reduced – a “higher marginal tax rate than the Prime Minister” pays, as shadow chancellor Rachel Reeves put it in her Budget response (the top rate of income tax is 45 per cent on earnings over £150,000).

This change also does not make up for the £20-a-week uplift cut, as only working welfare claimants benefit from a reduction in the taper rate – that’s just 37 per cent of people who are on Universal Credit.

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37 per cent of Universal Credit claimants are in work
Percentage of claimants by work condition, July 2021

Chart by Patrick Scott

This means the worse-off claimants, who are either jobseeking or are not required to work because of illness or other circumstances, will not benefit from this change, and will still feel the full impact of a £1,040 fall in their annual income.

[See also: How generous was Rishi Sunak’s 2021 Budget and Spending Review really?]