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Universal credit: 1.3 million could be missing out on £7,300 a year in benefits

·Business Reporter, Yahoo Finance UK
·4-min read
Universal credit
Moving everyone onto the universal credit system on a similar basis to how people are required to register for tax would lift 380,000 people out of poverty, including 140,000 children, the report said. Photo: Getty

As many as 1.3 million people who are eligible for universal credit (UC) could be missing out on payments worth £7,300 per year, new research has shown.

According to data from the New Economics Foundation (NEF) on Thursday, Brits are being pushed into financial difficulty as they do not receive the income support they are entitled to thanks to lack of access to information, and lack of support navigating government systems.

The stigma around claiming benefits, as well as administrative difficulties are also factors behind it.

The report said that making UC payments automatic, like the tax system, would boost annual incomes for 390,000 families by £7,300 on average, affecting 1.3 million people this year.

An automatic enrolment as soon as anyone becomes eligible would mark a first step towards a Living Income for Britain; a new social security system that will guarantee everyone the minimum income they need to meet the challenges and opportunities of a fast-changing economy.

Moving everyone onto the UC system on a similar basis to how people are required to register for tax would lift 380,000 people out of poverty, including 140,000 children, the report said.

Read more: Delay national insurance hike, firms urge

The NEF modelling showed that once UC is fully rolled out by 2026-27, the number of families missing out on payments they are entitled to will likely rise to 660,000, or 2.3 million people. With each family missing out on average £7,400.

Among the poorest 10% of families, it is estimated that 1 million people will live in households missing out on payments worth around £10,000 per year.

Recent reforms to UC announced at the October 2021 budget, including a lower taper rate and higher work allowances, further worsen this problem, as many are unaware that they are newly entitled to a UC payment. The taper rate sets the rate at which UC payments are withdrawn for every £1 of earnings, and the work allowances set the level of earnings above which the taper rate applies.

Following the chancellor’s reforms, a further 150,000 people will be living in working families that are missing out on UC payments they are entitled to, and this number will rise to 300,000 by the time UC is fully rolled out.

Read more: Reskilling staff can save UK firms £49,000 per employee, study finds

The study made a number of recommendations to eventually move everyone onto the UC system, including keeping existing UC accounts open permanently after the claim is over, creating a basic profile for everyone with information from HMRC, and using HMRC data to flag when someone’s earnings have dropped.

It also highlighted that better support was needed providing better support and integration for self-employed people.

The NEF added that the move should be funded by rebalancing the share of tax towards income from wealth - abolishing the tax-free allowances in income tax on personal savings and dividends would raise a further £1.4 billion a year, it said.

How UC auto-enrollment could be funded. Chart: NEF
How UC auto-enrollment could be funded. Chart: NEF

“With rising prices, job losses from a new wave of coronavirus, higher interest rates and a national insurance hike, we're set to see a fast deterioration in UK living standards in 2022. And still, the government is failing to support families that need it most,” Tom Pollard, independent policy expert and co-author of the report, said.

“Part of the problem is that when factors such as higher energy bills cause a cost of living crisis, it is hard for the government to reach the right people quickly. This is an example of a problem that auto-enrolment on UC would help solve, ensuring that everyone who is eligible for support is getting it so that they are better able to withstand these hits to their income.”

Watch: How to prevent getting into debt

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