The Universal Credit review needs to ensure benefits meet people’s needs

In its 2024 election manifesto, the Labour Party pledged to review the Universal Credit (UC) system. Now in government, we’re pleased to see this review underway. But there are growing concerns about its relatively narrow scope.

Alternative universal

We’re concerned, above all, that the review might not consider the level of Universal Credit payments. Our analysis shows that if the Universal Credit standard allowance (SA) had been raised in line with inflation since 2014, the rate for people aged 25+ would now be £34 per month (£404 per year) higher for single claimants, and £53 per month (£635 per year) higher for couples.

In reality, a series of freezes and below-inflation increases since 2014 has led to the UC SA losing value.

The government has now proposed increasing the UC SA in the years ahead beyond the rate of inflation — but as part of disability benefits reform, not the review of UC itself.

This will mean disabled people who currently claim the UC health element will see payments frozen — and new claimants will see them almost halved (and then also frozen). One of the government’s justifications for this change is that the income-related benefits system needs to be ‘rebalanced’ from support targeted on disabled people, to support for general living costs (which all claimants are eligible for).

But the proposed uplift in the UC SA falls a long way short of offsetting the loss of income that disabled UC claimants are now confronted with.

This small uplift also fails to restore the value that the UC SA has lost since 2014. UC SA rates that will be available in 2029 are still £15 per month (£174 per year) lower for single claimants, and £23 per month (£273 per year) lower for couples, than would be the case if the UC SA had simply been increased consistently by inflation since 2014.

Ins and outs

While the planned uplift is welcome, it doesn’t even get us back to where UC started from. The review must address this and go further on the SA than what is proposed in the disability benefits green paper.

What else would we like to see the review achieve? We’re pleased to see that the 5 week wait for first UC payments seems to be in scope. This delay causes a great deal of hardship.

Some claimants are able to bridge the gap in income by taking out an advance loan from the government, but the deductions to UC payments needed to repay these loans are also a source of hardship. This is despite the recent decision to reduce the limit on deductions from 25% to 15% of the SA. We hope the government takes action through the UC review to eliminate the need for advance loans altogether.

Unfortunately, there are plenty of other issues that, like overall adequacy levels, seem to not be included in the review.

These include the Local Housing Allowance (LHA), the mechanism which decides the UC housing element. LHA is currently frozen too, despite sky-rocketing housing costs for private renters. The review won’t cover the 2 child limit, or the level of child element payments. Similarly, it won’t consider the impact of the benefit cap, or other sources of UC deductions such as overpayment recovery.

All of these issues can have a significant impact on UC outcomes, and indeed on how well the UC system supports people to find and maintain employment. A review with such narrow parameters could end up being a missed opportunity to make meaningful improvements.

This post has been co-authored by Craig Berry and Julia Ruddick-Trentmann.