Proposed Changes to Universal Credit
Recent developments from the Institute for Fiscal Studies (IFS) propose that council tax support for working-age households in England could be integrated into universal credit. This integration aims to simplify the welfare system and strengthen work incentives for claimants.
Since its localization in 2013-14, council tax support has been designed and administered by English councils, resulting in a diverse range of schemes with varying levels of generosity and eligibility rules. The IFS highlights that the overall value of working-age support in England has decreased by approximately £630 million since this transition, partly due to reductions in central government funding.
This significant cut has led to a reduction in disposable incomes for the poorest households, averaging a loss of £106 a year, which translates to about 1% of their income. Some councils have implemented ‘banded’ schemes where entitlement sharply declines when incomes exceed certain thresholds, potentially creating high marginal tax rates that disincentivize work.
Currently, around 8.3 million people are on universal credit and are expected to receive an uprating in April. However, due to the monthly payment structure of universal credit, many claimants will not see the increase until June. The standard allowance for universal credit will rise, with some households potentially benefiting by up to £750 a year.
While the IFS argues that integrating council tax support into universal credit could reduce complexity for claimants and lessen the administrative burdens on councils, it also notes that such reforms could introduce financial risks. The proposed changes aim to streamline the process for those navigating the welfare system, which has often been criticized for its complexity.
As part of the upcoming changes, the rates for Personal Independence Payment (PIP) and Adult Disability Payment (ADP) will also see an increase from April, providing additional support for individuals facing extra costs due to disabilities or long-term health conditions. This adjustment is seen as a positive step for many, though the timing of the benefits may still pose challenges for recipients.
Officials have indicated that most people will see the uprated universal credit in June, depending on their assessment periods. For instance, if an individual’s assessment period runs from 15 April to 14 May, the uprating will apply to that specific period. The April uprating is viewed as beneficial for millions, although the delayed realization of these increases due to arrears and assessment period dates has raised concerns among stakeholders.
As discussions continue regarding the integration of council tax support into universal credit, the potential impact on claimants and local councils remains a focal point. Details remain unconfirmed as the government evaluates the implications of these proposed changes on the welfare system.