Welfare reform: annual report 2019

The seventh in a series of reports that examines the impacts of UK Government welfare reforms on people in Scotland focusses on post-2015 reforms introduced by the UK Government, particularly the effects of the benefit freeze, two-child limit and Universal Credit work allowance reforms.

This document is part of a collection

3. Universal Credit since the 2018 Autumn Budget

3.1 Universal Credit work allowances 

During 2018 and 2019, a range of changes to UC have been announced. The most significant change, announced in the 2018 Autumn Budget,[19] was the increase of UC work allowances for claimants with responsibility for a child or limited capability for work, by an additional £1,000 per year.

Work allowances represent the net amount a household can earn each month before their UC award begins to reduce. A household’s UC entitlement reduces by 63 pence for every additional £1 of net earnings over the work allowance.[20] As an example, if a UC claimant in employment receives a £1,000 increase in their annual UC work allowance, their UC award would increase by £630 per year (as long as their net earnings exceed the work allowance by at least £1,000). Any increase in work allowance increases the generosity of UC for working households and can also improve the incentives for people on low incomes to earn more. 

In 2015, the UK Government reduced work allowances for claimants with children or limited capability for work. Lone parents not receiving housing support saw their work allowance decrease by as much as £4,000 per year. Work allowances were withdrawn completely for households without children who do not qualify as having limited capability for work. According to the Office for Budget Responsibility,[21] the 2018 increase only restores around half of the 2015 cuts.

In the 2016 Autumn budget[22] the UC taper rate was reduced from 65 pence per additional £1 of net earnings, to 63 pence per additional £1. In isolation, this change in taper rate would increase the returns to work for UC claimants by letting them keep more of what they earn.

The combination of work allowance and taper rate changes have created a complex array of winners and losers, with the amount gained or lost dependent on whether claimants rent their housing, are single or have a partner, have limited capability for work or have responsibility for a child. We have looked into the combined effect of these changes, to show how much people in different types of households have gained or lost (or will gain or lose) from the combination of 2015 work allowance reductions, 2016 taper rate reductions and 2018 work allowance increases. Table 1 compares the maximum additional amount of UC payment claimants could receive under current work allowance rules in 2019/20 cash terms with an alternative scenario, where the changes had not taken place. For the alternative scenario the 65% UC taper rate is applied and the 2013/14 work allowances are uprated by CPI inflation to 2019/20 levels. Table 1 shows the maximum direct gain or loss to each household type resulting from the changes.

Table 1 – Actual and baseline UC work allowances in 2019/20, by household group

Household characteristics Households in this group as % of all Scottish households claiming UC in May 2019 Maximum additional amount of UC payment due to work allowance, expressed in 2019/20 cash terms  Baseline – Maximum additional amount of UC payment due to 2013/14 work allowance, uprated by CPI to 2019/20 values 2019/20 gain or loss from policy changes
Work allowance for households not claiming the housing element
Single or joint claimant with no dependent children 25% £0 £959  - £959 
Single claimant with one child or more 6% £3,803 £6,339  - £2,536 
Joint claimants with one child or more 2% £3,803 £4,629  - £826 
Single or joint claimant with limited capability for work 3% £3,803 £5,587  - £1,785 
Work allowance for households claiming the housing element
Single or joint claimant with no dependent children 30% £0 £959  - £959 
Single claimant with child or more 21% £2,170 £2,271  - £102 
Joint claimants with child or more 7% £2,170 £1,917  £253 
Single or joint claimant with limited capability for work 7% £2,170 £1,658  £512 

Source: Scottish Government analysis based on House of Commons Library[23] and Stat-Xplore. Where a household has both limited capability for work element and dependent children, this has been categorised as the appropriate-sized household with children. Percentages total more than 100% due to rounding.

Around 14% of the Scottish households claiming UC in May 2019 (those claiming housing costs while entitled to the child element or the limited capability for work element of UC) will gain from UC work allowance and taper rate changes since 2015. The remaining 86% stand to lose out on up to £2,536 of UC entitlement in 2019/20. More than half of households claiming UC in May 2019 were not responsible for children, or eligible for the limited capability for work element. Working people in this category will have no work allowance and lose out on up to £959 in UC payments in 2019/20 as a result. It is important to note that a smaller proportion of the current UC caseload is made up of households with children or limited capability for work entitlement than is likely after UC full rollout. Therefore it is likely that the 14% share of the current UC caseload benefitting from the changes could become larger over time.

3.2 Universal Credit transition related changes

In addition to the change to UC work allowances, the 2018 Autumn Budget[24] also introduced a range of smaller measures. Whilst small-scale in terms of spend, (a Scottish share of the projected costs would be approximately £20 million per year between 2020/21 and 2023/24)[25] these changes could improve claimants experience of UC. They include:

1. Two week run-on payments. Claimants moving onto UC from Income Support, income-related Jobseeker’s Allowance and Employment and Support Allowance will continue to receive payments from these legacy benefits for the first fortnight of their UC claim. Claimants of Housing Benefit already receive this run-on payment, while claimants of the other legacy benefits will benefit from this change from July 2020. This will ease the five-week wait for UC payments for households with a pre-existing claim to these benefits, however newly entitled households making a fresh claim will not benefit from this policy. 

2. Rate and speed of debt recovery. Starting in October 2019, the maximum deduction taken from a UC award will be limited to 30% of the standard allowance – reduced from 40%. From October 2021 claimants will have 16 months to repay advances from their UC award, instead of 12.

3. Self-employed grace period. All self-employed people moving onto UC are granted a 12 month ‘grace period’. After this grace period the Minimum Income Floor will apply. That means UC entitlement will no longer increase for self-employed claimants when they earn less than they would if they worked the number of hours DWP expects of them at the minimum wage.

4. Surplus Earning disregard. The disregard for surplus earnings will remain at the higher level of £2,500 for one additional year beyond April 2019.[26] In April 2020, the disregard will be reduced to £300, resulting in many more people seeing their entitlements reduced by the policy.

5. Capital assessment for Tax Credits claimants. Claimants moving onto UC from Tax Credits will be able to claim for 12 months, even if they have savings of over £16,000. After this period, the standard rules will apply and they will no longer be eligible to claim UC if their savings are over this level.

3.3 Mixed age couples and Universal Credit

After the 2018 Autumn Budget, the UK Government has confirmed[27] that from 15 May 2019, couples with one partner over pension age and one working-age partner (referred to by DWP as mixed age couples) can no longer make new claims to Pension Credit (or pension-age Housing Benefit) and must claim UC instead. This could reduce the income of these households substantially. Pension Credit Guarantee Credit tops up a couple’s income to £12,940 per year. However, under UC the Standard Allowance only entitles couples to just under £5,990 per year, representing a potential loss of up to £7,000 per household. 

In February 2019, DWP estimated[28] that 15,000 households across the UK would be affected in 2019/20, reaching 60,000 by 2023/24. Table 2 presents the estimated Scottish share of households affected by this change, and the associated reduction in welfare spending.

Table 2 – Estimates of the number of households affected and spending reduction of the mixed age couple policy in Scotland

2019/20 2020/21 2021/22 2022/23 2023/24
Households affected across the UK 15,000 30,000 40,000 50,000 60,000
Households affected in Scotland 1,400 2,800   3,800 4,700 5,600
Spending reduction at UK level (£million) 45 130 220 315 385
Spending reduction at Scotland level (£million) 4 12 21 30 36

Source: UK Parliament (2019) and Stat-Xplore. These calculations assume that the Scottish share of the UK figures match the Scottish share of GB households claiming Pension Credit in the most recently available data (February 2019, 9.5%).

3.4 The migration schedule of Universal Credit

In the 2018 Autumn Budget, the UK Government moved the final rollout date of UC to December 2023 – nine months later than previously planned. This delay is designed to accommodate a one-year UC managed migration pilot, which began in Harrogate in July 2019.[29] The Office for Budget Responsibility (OBR) estimate[30] that recent UK Government’s changes to managed migration plans will lower the cost of UC by around £200 million over the next five years. 


Email: Jamie.Hume@gov.scot

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