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Early in the pandemic, the Government introduced temporary measures to support household finances. These included the Coronavirus Job Retention (furlough) Scheme (CJRS) and the Self Employment Income Support Scheme (SEISS).

There have also been significant changes to the benefits system such as an increase to Universal Credit and Working Tax Credit, known as an ‘uplift’.

Some measures have since been withdrawn, and others have expired, or are due to expire.

Budget 2021 extended some of these crisis social security measures and announced other changes to the benefits system, which this Insight explains.

The Universal Credit and Working Tax Credit uplift

In March 2020, the Chancellor announced temporary increases in Universal Credit (UC) and Working Tax Credit (WTC) to “strengthen the safety net,” until April 2021. UC standard allowances and the WTC basic element were increased by £20 per week.

Since last Autumn, campaigning organisations and opposition parties have argued for this uplift to be extended or made permanent.

Extending the uplift beyond April 2021

In his Budget speech, the Chancellor announced that the UC uplift would continue for a further six months, “well beyond the end of this national lockdown”, and that WTC claimants would receive a one-off payment of £500. The Government would then shift resources and “focus towards getting people into decent, well-paid jobs.”

The reason for the one-off WTC payment is that tax credits are claimed on an annual cycle based on the tax year, so increasing payments temporarily for six months is less straightforward than in UC.

The UC uplift will now end at the beginning of October 2021, shortly after the closure of the CJRS and SEISS in September, which were also extended in the Budget. The total cost of the further increased payments of both benefits will be just over £3 billion.

The Office for Budget Responsibility’s Economic and Fiscal Outlook (EFO) forecasts that following the closure of the CJRS and SEISS, unemployment will rise by 500,000 to a peak of 6.5% at the end of 2021. This is more optimistic than the 7.5% peak it predicted in November 2020.

Reaction to the uplift extension

Responding to the Chancellor’s statement, Keir Starmer criticised the length of the extension, arguing it was “deferring the problem” and would result in insecurity and a loss £1,000 a year for six million households. He announced that Labour’s policy would be to keep the uplift until “a new, fairer system” could replace UC.

Many campaigning groups and think tanks have welcomed the extension, but are concerned benefits will still be cut after six months. The Joseph Rowntree Foundation said that withdrawing the increase would return the rate of unemployment support to its lowest real-terms level since 1990. It argues that alongside the closure of the CJRS and SEISS, and a peak in unemployment, the result will be a “winter of hardship.”

The Institute for Fiscal Studies points out that withdrawing the uplift completely will result in an “overnight” benefit cut of more than 20% for some. It argues that clear advance communication will be crucial to help families adjust, and that a gradual taper would have been a “less troublesome” way to withdraw support.

On the other hand, commentators at the free market think tank, the Institute of Economic Affairs, have expressed concern about the cost of this extension and argue for “a more targeted approach” to providing support during the pandemic.

Extending other crisis measures

Budget 2021 also extended measures affecting those receiving UC or WTC:

  • The Minimum Income Floor (MIF) in Universal Credit treats some self-employed claimants as if they have earned the National Minimum Wage for the number of hours per week they are expected to work.
    To help claimants who lost business during the pandemic, the MIF was twice suspended. The Budget announced a third delay to the MIF’s reintroduction, to the end of July.
    This followed calls from the Social Security Advisory Committee for any reintroduction to be “phased” and for claimants to have advance notice. The Secretary of State for Work and Pensions, Thérèse Coffey, has said the MIF will be reintroduced on an individual basis, and won’t be a “big bang.”
  • Claimants normally stop being eligible for WTC if they aren’t working enough hours. During the pandemic the Government suspended this rule so that claimants could continue receiving payments “even if working fewer hours.” Along with the CJRS, the Budget extended this measure to the end of September.
  • If a UC claimant is in paid work, their award will be tapered away, eventually to zero. If someone’s earnings reach £2,500 above the level needed to stop the payment in a single month, they will be treated as having surplus earnings. These can be counted in future awards, and therefore reduce UC payments for up to six months.
    The surplus earnings rule at its current level has affected recipients of SEISS grants, who have been paid in single instalments of up to £7,500 covering three-month periods.
    The Government previously planned to reduce the surplus earnings threshold from £2,500 to £300, from April 2021. Budget 2021 delayed this further, to April 2022.

What other social security measures were in the Budget?

Beyond the pandemic, the Budget included other social security measures:

  • From October 2021, the Government had planned to recover advance payments of UC over 24, rather than 12 months, and to reduce the cap on total monthly deductions from 30% to 25% of the standard allowance. Deductions for various debts and advances affected 44% of claims in November 2020. The Budget brought forward these measures to April 2021, following pressure from the Work and Pensions Committee and others.
  • The Budget also brought forward the exemption of care leavers under 25 (adults who have left care) from the Shared Accommodation Rate. This is the lower rate of housing support available for rooms in a shared house. From June 2021 young care leavers will be entitled to the higher one-bedroom rate. This change was previously planned to take effect in October 2023 and had been welcomed by campaigning organisations such as the Children’s Society.
  • The Budget also allocated more funding for the Department for Work and Pensions and local authorities to increase “capacity and analytical capability to prevent and detect welfare fraud and error.”

Further reading

About the authors: Andrew Mackley and Frank Hobson are researchers at the House of Commons Library, specialising in social security policy.

Image by (© By Martin Lee – stock.adobe.com).