The Universal Credit is a proposed new benefit to replace six of the main means-tested benefits and tax credits in the United Kingdom.[1]
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The Universal Credit was championed by Iain Duncan Smith and announced at the conference of the Conservative Party in 2010. The coalition aims to implement it fully over ten years and two Parliaments, intending to cut costs and to ensure that people are better off in work. Unlike some existing benefits such as Income Support that have a 100% withdrawal rate, the Universal Credit will be gradually tapered away, like tax credits and Housing Benefit so that people can take even a part-time job and still be allowed to keep most of the money they earn.
By comparison, Jobseeker's Allowance allows only a £5 of earnings disregard per week for childless adults. Thus, people working 8 hours a week for £6/hour would earn £48 pounds a week but would have £43 a week withdrawn in benefits; they would only gain £5 extra per week by working. They could lose even more than £5 a week by no longer qualifying for Housing Benefit, making not working pay more.
If it is implemented, the programme would drastically affect the low-paid self employed as well as anyone who makes a tax loss.[2] It is proposed that Universal Credits will be "limited to those who exceed the 'floor of assumed income'" based on the National Minimum Wage.[3] As well as directly affecting self-employed people, excluded from any set minimum wage, it could also affect employees who receive below the minimum wage, hitting the poorest workers the hardest.
The Tax Credits being incorporated into the new Universal Credit currently taper, with a withdrawal rate of 41% (2011/12 figure) once the recipient earns above £6420 (2009/10 figure). This income will have already been subject to 11% national insurance, plus 20% income tax on any income above the personal allowance.
Gareth Morgan has written a detailed piece about the effects of welfare reform on benefits received, including Universal Credit.[4]
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