On Wednesday, Rachel Reeves will deliver the first Labour budget in 14 years, outlining the government’s plans for the fiscal year ahead.
One of the areas likely to be targeted is the amount the government spends on benefits, with Reeves reportedly putting pressure on the Department for Work and Pensions to maintain welfare cuts of between £1.3bn and £3bn over four years — a target initially set out by the previous Tory government.
On Monday, Keir Starmer warned that Wednesday’s statement will “embrace the harsh light of fiscal reality”, as he warned of the pressures of “unprecedented” economic challenges. However, recipients could potentially see an increase to the amount of universal credit payments.
Here’s what we know so far about the potential changes to universal credit coming on Wednesday.
Changes to repayment rules
On Saturday, the Guardian reported that some of the most vulnerable households could benefit from a new plan that would cap the amount that can be deducted from benefit payments to repay short-term loans and debts.
Currently, the Department for Work and Pensions takes around £1.6bn a year from low-income households for debt repayments, according to the New Economics Foundation.
The measure, dubbed the “fair repayment rate”, would benefit more than 1 million households in the UK from April 2025, making them £420 better off on average. This will see single parents getting around £39 more a month, and for two-parent families, up to £62, according to charity Save The Children.
Currently, some of the lowest income families in the UK are struggling to make these repayments, which can mean up to 25% of a universal credit standard allowance is taken.
If the measure does come into force, these repayments would be revised down to 15%.
Benefits uprate to be confirmed
To help benefits keep up with the rising cost of living, universal credit is normally increased every April in line with the previous September’s consumer price inflation rate.
That means those claiming universal credit can expect their payments to increase by 1.7% in April 2025.
However, the rate of inflation announced by the Bank of England is lower than many experts had predicted, leaving some campaigners concerned that the payment increase next year will be smaller than they had hoped, leaving people in need struggling to shoulder the costs.
Last year, the government considered using the October inflation figures to inform April 2024’s uprate.
This year, campaigners have urged the administration to do the same because inflation is likely to bounce back up again.
ESA migration to be sped up
On Monday, the Treasury said that some 800,000 people will be moved on to universal credit from the employment and support allowance (ESA) from this autumn, instead of from 2028,
Labour has said it is part of their plan to get people back into work. However, there have already been some issues with the migration process with a small number of claimants transferring onto universal credit from ESA being asked by the DWP to provide fit notes or sign a claimant commitment.
If they do not, they could then be ineligible for limited capability for work and work-related activity (LCWRA) payments, which are worth £416 a month.
This suggests that those claiming the benefit will be asked if they are looking for work, and inappropriately sanctioned.
Anyone who has been advised to do this has been recommended to contact Citizens Advice or their work coach for support.
Ayla Ozmen, director of policy & campaigns at anti-poverty charity Z2K told Birmingham Live: “It’s very concerning to hear that some disabled people on employment and support allowance who are being moved on to universal credit are being asked to look for work. Not only is this unlawful, but it puts disabled people at risk of being inappropriately sanctioned.”
The DWP has said it is “aware of the issue” and is looking to “resolve the situation”.
Improve work guidance
Since the government came into power, it has emphasised its plans to bring people claiming benefits and experiencing long-term illnesses back into the workforce.
Reeves is expected to acknowledge the government’s employment support reforms on Wednesday, with a more detailed overview of the plans featuring in an upcoming white paper.
One of those plans is merging job centres with the national careers service to improve the guidance offered to those seeking work.
Job centre pilots will also expand to offer more regional support, with work and pensions secretary Liz Kendall planning to give regional leaders greater powers over jobs and employment in their areas.
Some other plans in this area have proven controversial, such as reports that Wes Streeting wants to give weight-loss jabs to obese unemployed people to help them back into work.
In an interview with Laura Kuenssberg earlier this month, he denied that the move would result in a “dystopian future” where overweight people would be “involuntarily jabbed”.
Benefit cap remains
In the run-up to the budget, some campaigners have argued that any potential improvements in universal credit will not go far enough and that lifting the benefit cap is critical to improving the lives of some of the most vulnerable households.
The benefit cap applies to most people who are over 16 and below state pension age. This means that:
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If you are a couple or single parent: You cannot receive more than £2,110.25 per universal credit assessment period, or £486.89 per week
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If you are a single person without children: You cannot receive more than £1,413.92 per universal credit assessment period, or £326.26 per week
With universal credit benefit cap deductions, any payments over the benefit cap are automatically deducted from universal credit payments by the Department for Work and Pensions. The government also deducts the excess from housing benefit payments.
It means some recipients are said to be getting by on as little as £4 a day as a result.
There has also been repeated criticism of Labour’s refusal to scrap the two-child benefit cap.
The cap, which was introduced by the Conservative government in 2017, prevents parents from claiming child tax credit or universal credit for more than two children.
Charity Child Poverty Action Group said that 10,000 more children have been plunged into poverty since Labour came into power because it has refused to scrap the cap.
However, in the Labour party manifesto, Sir Keir Starmer said that he wouldn’t scrap the cap as he was refusing to commit to “unfunded promises.”
Child Poverty Action Group’s chief executive, Alison Garnham, said: “The clock is ticking while child poverty rises – and the two-child limit is the key driver of the increase. Scrapping it is the most cost-effective way to stop more kids being pulled into poverty on the government’s watch.”
It is not expected that benefits caps will be increased in the budget.
What about other benefit changes?
One welfare expert told Yahoo News they’re most concerned about whether chancellor Rachel Reeves will unfreeze the local housing allowance (LHA) spend, thereby providing extra security for low-income renters.
The support payment is available to tenants renting private sector accommodation in England, Scotland and Wales.
In April 2024, LHA was increased to reflect the cheapest 30% of local rents using rental figures from September 2023. Prior to that, LHA had been frozen for four years at September 2019 levels. As things stand LHA will remain frozen at the current level from 2025, unless the government makes an active choice to unfreeze it.
Others want to know more about the government’s plans for personal independence payment (PIP), a benefit which helps working age adults with the extra costs of working or living with a disability.
Ministers are expected to review the eligibility criteria for PIP to reduce the pool of people eligible for the benefit. While questions remain over how the government will respond to the consultation on PIP carried out by the previous government, plans to overhaul PIP are not expected until 2025.
The government is also expected to continue with its plans to means-test the winter fuel payment, with charity Age UK warning that the policy change will leave Britain’s poorest pensioners “facing potential disaster”.