Almost three million people have applied for Universal Credit since the beginning of March, with the impact of the coronavirus lockdown causing unprecedented demand for the new welfare scheme.
Designed to replace six existing benefits, Universal Credit is for the unemployed and those on low incomes.
Those who are still getting a wage when they go on to Universal Credit can earn a specified amount – known as the work allowance – before their benefit payment is reduced by 63p in every £1.
If their wages reach a certain level, eligibility to receive UC will stop.
And if you start a new claim for Universal Credit within six months, wages of more than £2,500 above the amount where the benefit stopped are included in calculations of your income.
Only when that ‘surplus’ is reduced can you qualify for Universal Credit again.
But there have been concerns about the system and this has led to clarifications from the DWP.
What are the concerns?
The DWP had said that the £2,500 minimum for determining surplus earnings would reduce to £300 at some point in the future.
If it does drop to that level, then many more people would find their UC payouts cut.
Victoria Todd, chairman of the Social Security Advisory Committee, an independent body scrutinising the benefits system, says the Government’s new Self-Employment Income Support Grant (SEISS) is likely to cause ‘surplus earnings’ for many more people.
It’s thought many people might be better off not making a claim for Universal Credit at all until their cash has dwindled.
She said: “The Covid-19 pandemic has resulted in an unprecedented number of claims for UC in a short period of time. Many of these claimants are likely to be new to the benefits system. Many will be self-employed.
“The Committee understand that the Self-Employment Income Support Grant (SEISS) will be paid to those who successfully claim as a lump sum in June 2020 and that it will be taken into account as income in the assessment period received.
“For some self-employed UC claimants, the grant is likely to trigger the surplus earnings rules and it may well be triggered in other cases as a result of the current situation, as the period of economic turmoil is likely to be associated with greater instability in assessed incomes.
“The result is that the policy is likely to be triggered by a far larger number of claimants than originally envisaged.”
What has the DWP ruled?
In response, there have been two important clarifications regarding the rule on surplus earnings.
Neil Couling, the DWP’s director general of Universal Credit, has said that the £2,500 surplus minimum will remain in place until March 2021, meaning far fewer people are affected than if it had been cut to £300.
This measure will cost £70million in 2020/21 and will mean around 500,000 fewer people will see their Universal Credit award reduced by surplus earnings.
Mr Couling says only one per cent of those who earn a wage and claim Universal Credit will find their benefits cut because they are deemed to have too much income.
And he said there was now a new regulation covering Universal Credit during the pandemic.
It means that people’s UC accounts will no longer be shut down when they have surplus earnings.
Until recently, people needed to keep trying to claim the benefit until their income was deemed low enough to qualify. But the DWP has reduced this hassle.
Mr Couling explained: “We will not automatically be closing claims where earnings exceed the claimant’s entitlement, thereby making it easier for awards of Universal Credit to be reinstated without the need for claimants to make a new claim.
“This also applies to people who are affected by the surplus earnings rules.”
This was introduced as part of the Universal Credit (Coronavirus) (Self-employed Claimants and Reclaims) (Amendment) Regulations 2020, he said.