Emergency DWP cash increase of £700 proposed from end of June for people on Universal Credit

Households struggling with the rising cost of living stand to benefit from an emergency increase in their Universal Credit payments of more than £700 – according to a study by analysts.

Policy in Practice has been asked to examine the costs and consequences of three options for giving a much-needed lifeline to those in need by the Center for Social Justice (CSJ). The first option proposed would be to increase DWP benefits as if they had received a 10% increase in April 2022, instead of the 3.1% actually applied.

The move would cost the government £3.1billion and mean the 4.2million households struggling with the cost of living crisis would earn an average of £729 a year. That’s the equivalent of an extra £60 per month.

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The second option would be to reinstate the Universal Credit boost when an additional £1,000 a year is granted to claimants during the 18 months of the pandemic. Restoring this would cost £4.2billion, but it has already been indicated that this is only a temporary measure.

The CSJ agrees that the £729 hike may be seen as preferable, as ‘it reduces the cost to the Treasury, if that’s a problem – it’s a sensible alternative to reinstating the £20 hike’.

The third proposal is to restore in-work benefits to 2015 levels. This would mean that 1.66 million working and Universal Credit households would benefit from a policy costing £733 million, so the average gain would be £442 a year for each working household.

A working allowance is the amount of benefits that working claimants are allowed to keep. At present, for every pound of earnings above the level of this allowance, 55 pence of benefit is deducted. Work allowances apply only to those with dependent child care or limited work capacity. The deduction rate was 63p in the £1, but this was lowered in December 2021.

In a report, the Center for Social Justice, a think tank founded by former Tory leader Sir Iain Duncan Smith, said: “While the decision to cut the UC cut in the Autumn Budget has postponed £1,000 in the pockets of 1.9 million households, much of its value will be wiped out by inflation and it will do nothing to protect those who are out of work.

“With UC only up 3.1% in April, those who depend on welfare for their income will take a 7% reduction. To avoid this, the Chancellor and Secretary of State for Work and Pensions should put implemented an emergency increase during the year, bringing the UC in line with inflation to ensure it covers the true cost of living.”

Sir Iain said rebates and discretionary funds represent ‘a step in the wrong direction in tackling poverty’, arguing it would be better to increase Universal Credit (UC) as it ‘links benefits to work’ . It comes after Boris Johnson said he could not ‘magically make’ all rising food and energy spending disappear as he came under increasing pressure to ease the cost of living crisis.

The government has already given many homes a £150 council tax rebate and will also cut £200 off energy bills from October. However, campaigners believe this will not be enough as benefits have only risen by 3.1% while inflation is not at 9%.

In its report, the CSJ says the government should consider reviewing benefit rates quarterly, rather than annually, at least as long as “the current period of unusual inflationary pressures persists”. The first increase should take place at the end of June.

It has also been suggested that the government suspend UC debt repayments for six months and write off historic debts “born from design issues in the inherited benefit system”. The CSJ also wants environmental levies to be absorbed into general taxation and for the energy price ceiling to be revised every quarter rather than every six months.

Last week, Chancellor Rishi Sunak said he was unable to increase payments by more than 3.1% due to an old IT system used by the Department for Work and Pensions. The Institute for Fiscal Studies economics think tank has suggested that poorer households could face inflation of 10.9% – which is above average as they spend more of their money on heat and light their homes.

The Treasury and the Department for Work and Pensions (DWP) have been contacted for comment.

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