Here, The i Paper looks at why so many low-income households are losing out on this financial support from the state – and what experts want the Government to do about it.
How much universal credit a claimant gets depends on how much money they or their partner earns. If an individual’s wages increase, their universal credit payment will decrease and vice versa.
Why are millions of families losing out?
The Resolution Foundation estimates that two million families who would otherwise have been eligible for universal credit based on income in 2020-22 have reduced entitlement because of capital rules.
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If a claimant’s savings exceed £16,000 by just 1p, they become ineligible for universal credit payments.
It adds that had the capital limits risen with inflation, they would now be over £10,000 and £27,000, respectively.
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Means-testing is a tool the Government uses to ensure that individuals with substantial financial resources use these before resorting to receiving government-funded assistance.
However, Mr Haq also acknowledges that the failure to increase the capital limits in line with inflation means over one million families are losing out on universal credit.
What are experts calling on the Government to do?
In the two years leading up to March 2023, 7 per cent of universal credit recipients reported that they avoided saving due to the risk of losing benefits, the think tank reported.
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The report also states it seems contradictory to expect people to “run down” savings built up in Lifetime Isas (LISAs) before they can be deemed eligible for benefit payments, not least because there are significant penalties to withdrawing such savings before 60 or for reasons other than buying a first home.
“And with the Government currently reviewing universal credit, it should take the opportunity to index the capital thresholds to inflation, to prevent the system from penalising more families every year. Fortunately, this can be done at limited cost to the Exchequer.”
He added: “This particularly affects couples, the self-employed and those retiring early. Small changes to the capital limits and what counts as savings could improve the living standards of many struggling to make ends meet.”
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