Universal credit: what it means for you

Published by Mark King on 29 April 2013.
Last updated on 16 July 2013

Notes and coins

The Government has launched the first pilot test of a new benefit system called Universal Credit. Moneywise looks at how it will affect you.

What is universal credit?

A new welfare policy that streamlines the existing benefits system into a single income-replacement credit. It is designed to replace income-related employment and support allowance (ESA), income-based jobseeker's allowance (JSA), income support, the working tax credit, child tax credit and housing benefit.

As people return to work, support through the universal credit system will be reduced, while people in low-paid work will be eligible to make a claim. The government believes this will make people understand that they will always be better off if they work rather than remain on benefits.

When is it being introduced?

It was piloted on 29 April 2013 but is now beginning to be rolled out nationwide to almost six million people.

How does it work?

Claimants will now make their claim for the universal credit online, by opening an account and managing it themselves. The benefit will be paid in a single monthly sum direct to claimants in the same way people in work receive their salary, replacing existing benefits that are paid weekly or fortnightly.

Is the government ready?

Critics have questioned whether the complex computer system will be ready in time and capable of dealing with millions of complicated cases. The pilots will give an early indication of exactly how well-designed and efficient the government's IT systems are.

What other problems could universal credit cause?

The credit will be paid direct to recipients, meaning the onus is on them to pay landlords. In January, this led the National Housing Federation to claim that a million people living in social housing could struggle with their rent and end up in debt.

An Ipsos MORI survey of housing associations, which between them provide homes for over two million people, found that eight out of ten (84%) thought rent arrears would jump by an average of 51% following the introduction of universal credit.

Moreover, the fact that benefits will be paid monthly has led debt advice groups to highlight the problems benefit recipients might have in budgeting and paying bills.

Who are the winners and losers?

The government has said that 3.1 million households will be entitled to more benefits compared to 2.8 million who will be entitled to less – with an average gain of £16 a month.

But the Institute for Fiscal Students (IFS) puts the figures at 2.5 million families who will gain, 1.4 million who will lose out and 2.5 million who will see no change in benefit and tax credit entitlement. It believes that universal credit will benefit poorer families more than richer ones, on average.

The IFS adds: "Couples with children will gain more than couples without children, who will in turn gain more than single adults without children. Lone parents will, on average, lose in the long-run. But there will be winners and, in the long-run, losers amongst all family types."

Is it fair to cap benefits at £500 a week, or £26,000 a year? Share your thoughts in our poll.

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