Millions set for effective pay rise with Sunak's changes to Universal Credit

27 October 2021, 11:00 | Updated: 27 October 2021, 14:31

Rishi Sunak is has announced a reduction in the taper rate for Universal Credit
Rishi Sunak is has announced a reduction in the taper rate for Universal Credit. Picture: Alamy

By Daisy Stephens

The taper rate for Universal Credit will be cut, allowing claimants to keep more of the money even as they start to earn more, Chancellor Rishi Sunak has announced.

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The taper rate is the rate at which Universal Credit is reduced once a claimant starts to earn enough.

It has been reduced from 62 per cent to 55 per cent, meaning for every £1 claimants earn over the work allowance, their Universal Credit will be reduced by 55p.

The taper rate can act as a disincentive for claimants to take on more work or get a better-paid job – something the cut is aiming to tackle by allowing Universal Credit claimants to keep more of the money they earn.

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"The Universal Credit taper withdraws support as people work more hours," said Mr Sunak.

"The rate is currently 63 per cent, so for every extra £1 someone earns, their Universal Credit is reduced by 63p.

"Let us be in no doubt: this is a tax on work - and a high rate of tax at that."

He added: "To make sure work pays, and help some of the lowest income families in the country keep more of their hard-earned money, I have decided to cut this rate, not by 1 per cent, not by 2 per cent - but by 8 per cent."

Mr Sunak said the tax cut would be worth more than £2 billion and would be introduced by no later than December 1.

Former Tory minister Robert Jenrick told LBC on Wednesday that a reduction in the taper rate would be "sensible".

"It seems to me to be a very sensible step because Universal Credit is designed to make work pay, so if somebody takes on some extra hours they get to keep as much of that as possible and at the moment you see taper rates that mean that you lose as much as 60 per cent and that doesn't seem sensible," said Mr Jenrick, when asked by LBC's Nick Ferrari.

"So I think that's an attractive option to the Chancellor which targets money at the people who need it the most and helps to incentivise work, which must be at the core of what we as Conservatives believe."

LBC will bring you live coverage of Rishi Sunak's Budget Review on Wednesday from 12:30 and you can watch it on lbc.co.uk, listen live or watch in full on the Global Player.