Universal Credit
Encyclopedia
The Universal Credit is a proposed new benefit which will replace six of the main means-tested benefits and tax credits in the United Kingdom
.
and was announced at the conservative party conference 2010. The coalition aims to fully implement it over the course of ten years and two Parliaments. This is intended to cut costs and to ensure that people who work have more money than those who do not work. Unlike some existing benefits such as Income Support
that have a 100% withdrawal rate, the Universal Credit will be gradually tapered away, like tax credit
s and Housing Benefit
. The tapering is intended to mean that people will be unafraid to take on a job, even if it is only part time, because they will be allowed to keep most of the money they earn. Under the present system for jobseeker's allowance
there is only a five pounds earning disregard (per week) for childless adults. This means a person working 8 hours a week for 6 pounds per hour would earn 48 pounds per week but would have 43 pounds per week withdrawn in benefits; they would only gain 5 extra pounds per week by working. Many people therefore would conclude that it is better to refuse jobs which do not provide many hours and wait until they are made a different job offer.
The Tax Credits being incorporated into the new Universal Credit do currently taper, with a withdrawal rate of 41% (2011/12 figure) once the recipient earns above £6420 (2009/10 figure). This income will have already been subject to 11% national insurance, plus 20% income tax on any income above the personal allowance
.
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
.
Background
The Universal Credit was championed by Iain Duncan SmithIain Duncan Smith
George Iain Duncan Smith is a British Conservative politician. He is currently the Secretary of State for Work and Pensions and was previously leader of the Conservative Party from September 2001 to October 2003...
and was announced at the conservative party conference 2010. The coalition aims to fully implement it over the course of ten years and two Parliaments. This is intended to cut costs and to ensure that people who work have more money than those who do not work. Unlike some existing benefits such as Income Support
Income Support
Income support is an income-related means-tested benefit in the United Kingdom for people who are on a low income. Claimants of Income Support may be entitled to certain other benefits, for example, Housing Benefit, Council Tax Benefit and help with health costs...
that have a 100% withdrawal rate, the Universal Credit will be gradually tapered away, like tax credit
Tax credit
A tax credit is a sum deducted from the total amount a taxpayer owes to the state. A tax credit may be granted for various types of taxes, such as an income tax, property tax, or VAT. It may be granted in recognition of taxes already paid, as a subsidy, or to encourage investment or other behaviors...
s and Housing Benefit
Housing Benefit
Housing Benefit is a means tested social security benefit in the UK that is intended to help meet Housing costs for rented accommodation. The primary legislation governing Housing Benefit is the Social Security Contributions and Benefits Act 1992. Operationally, the governing Regulations are...
. The tapering is intended to mean that people will be unafraid to take on a job, even if it is only part time, because they will be allowed to keep most of the money they earn. Under the present system for jobseeker's allowance
Jobseeker's Allowance
Jobseeker's Allowance is a United Kingdom benefit, colloquially known as the dole . It is a form of unemployment benefit paid by the government to people who are unemployed and seeking work. It is part of the social security benefits system and is intended to cover living expenses while the...
there is only a five pounds earning disregard (per week) for childless adults. This means a person working 8 hours a week for 6 pounds per hour would earn 48 pounds per week but would have 43 pounds per week withdrawn in benefits; they would only gain 5 extra pounds per week by working. Many people therefore would conclude that it is better to refuse jobs which do not provide many hours and wait until they are made a different job offer.
The Tax Credits being incorporated into the new Universal Credit do currently taper, with a withdrawal rate of 41% (2011/12 figure) once the recipient earns above £6420 (2009/10 figure). This income will have already been subject to 11% national insurance, plus 20% income tax on any income above the personal allowance
Personal allowance
In the UK tax system, Personal Allowance is the level above which income tax is levied on an individual's annual income. A person who receives less than his/her personal allowance in taxable income in a given tax year does not pay income tax; otherwise, tax must be paid according to how much is...
.