MoneyMagpie

Jan 23

What is Universal Credit? How will it affect you?

Universal Credit is a new single payment that will be made to people currently on benefits. Instead of having lots of different benefits, you should have one single payment, paid monthly, which you will need to manage yourself. It’s being tested in April and will be rolled out in October. Here’s what it involves.

What is Universal Credit?

Universal Credit is a new single payment for people who are looking for work or on a low income. It replaces all the various bits and pieces of benefits and credits you get at the moment. It will be tested out in a few places in the north west in April and then rolled out properly in October 2013. From that time new claimants will be able to make claims for Universal Credit while claims for existing benefits and credits will be gradually phased out. From April 2014, all new claims will be for Universal Credit. It will replace:

  • Income-based Jobseeker’s Allowance
  • Income-related Employment and Support Allowance
  • Income Support
  • Child Tax Credits
  • Working Tax Credits
  • Housing Benefit

So if you’re on any of those you will be affected by the changes coming in this year. The main differences between Universal Credit and the current welfare system are:

  1. Universal Credit will be available to people who are in work and on a low income, as well as to those who are out of work.
  2. Most people will apply online and manage their claim through an online account. They won’t have to go into a government office to sort it out.moneymagpie_pound-coins
  3. Universal Credit will change as people on low incomes move in and out of work. The idea is that they’ll get ongoing support which should give people more incentive to work for any period of time that is available.
  4. Most people on low incomes will still be paid Universal Credit when they first start a new job or increase their part-time hours.
  5. People will receive just one payment each month which will be paid into a bank account in the same way as a monthly salary. The government wants people out of work to get into the habit of managing their money in the same way as people who work do.
  6. Support with housing costs will go direct to the claimant as part of their monthly payment. At the moment a lot of people on Housing Benefit get their money sent straight to their landlord. When Universal Credit comes in they will get it themselves.

Universal Credit will see some benefits change:

  • Disability Living Allowance – this will be replaced by Personal Independence Payment from 2013
  • Council Tax Benefit – this will be abolished in April 2013 and replaced by a system of localised support
  • Pension Credit – this will be amended from October 2014 to include help with eligible rent and dependent children
  • Social Fund – this is also being reformed to introduce new local assistance
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Who gets Universal Credit?

Essentially, anyone who is on benefits or tax credits will be affected by these changes. Instead of having different payments or credits coming in, you will be getting one payment (plus perhaps separate help with Council Tax and a few other bits).

The pros and cons of Universal Credit

ProsUniversal Credit

  • The point of Universal Credit is to make us all more responsible for ourselves and less dependent on the state and other agencies.
  • Being paid monthly, and having all the payments coming to us rather than direct to landlords etc, means that we start to learn how to budget and how to manage our own money. This gets us ready for life as a full-time earner and even more independence.
  • Getting people to apply for and manage their benefits and tax credits online should cut down the cost to the government (and therefore to tax payers) of managing it all. In theory this should help bring government debt down over time.
  • The new system will be more responsive to income changes – being integrated with the Pay-As-You-Earn tax system it will be able to benefit those who see a drop in earnings, and help those getting back into work.

ConsUniversal Credit

  • Many of the people who will get Universal Credit have no idea how to manage their money day to day, let alone over a month. There is a serious worry that many of the people who get the money will just blow it all in the first week and have nothing for the rest of the month.
  • Social landlords (housing associations particularly) are very worried that many of the people who currently receive housing benefit won’t pay their rent themselves as they won’t realise that this needs to be done. They are concerned there will be many people who may have to be kicked out of their homes because they will not pay their rent for months on end.
  • The number of landlords who accept tenants on benefits may drop due to the perceived risk of lack of payment.
  • Not everyone is on the internet, or has access to the internet – although there is some help for those without it.

What will you need to do?

If you think you might be receiving Universal Credit when it comes in, the first thing to do is make sure you have a bank or building society account which allows you to make direct debits and standing orders. Check our advice on choosing the best bank accounts for you. You might also want to consider opening an account with a Credit Union – our article tells you about the benefits of joining one, and where your nearest one is.

If you are living with your partner, the next step might be to discuss whether you need to open a joint account. If you are both going to be eligible for Universal Credit then you can get one joint payment paid into your joint account, which will enable you to budget more effectively.

Next, it’s also a good idea to create a budget and have your direct debits in place, so you don’t need to worry about things like rent when the time comes to pay it. Having an account that allows you to set up direct debits and standing orders will help with this, but if you need more assistance our budget planner can help get your finances in order.

Finally, although the service will be available to those without internet access, if you do not have the web at home, it might be more beneficial to know where in your area internet can be accessed for free.

How will it affect Pension Credit?

The current system will be phased out within 12 months of Universal Credit coming in, with those who are qualifying age still getting both Housing Benefit and Tax Credits until the changes come into effect. After that time, the new system will include a component called Housing Credit for those who need assistance with rent, and Guarantee Credit for those with dependent children.

How can you get help and information on Universal Credit?

There’s pretty comprehensive information about Universal Credit on the special DWP website here. Also, the Money Advice Service has an easy-to-follow action plan.

Ask us

You can also ask us! Just put your question in the comments box below and we’ll answer it as quickly as possible.

Don’t forget to use our budget calculator for huge savings on your monthly bills!

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WHAT DO YOU THINK?

3 thoughts on What is Universal Credit? How will it affect you?

  1. All those years it worked as giving rents directly to council than why this change. It’s to get people into problem and get them out to a poorer area.

    Reply
  2. I would like to know if you were on it, would you be informed if you were elegebal for some of the other benefits, which it includes out of the 5 that you could be entitled to but dont claim

    Reply

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