More than a million households in receipt of Universal Credit will benefit from changes to the system announced by Chancellor Rachel Reeves today.

Ms Reeves, giving her first budget as Chancellor, announced that Labour will be lowering the cap on deductions that can be taken from benefit payments by up to £420 a year.

It is estimated that the change will benefit around 1.2 million households across the country, including 700,000 families with children.

Making the announcement during today’s Budget, the Chancellor said: "I can today announce that we are introducing a new Fair Repayment Rate to reduce the level of debt repayments that can be taken from a household’s Universal Credit payment each month from 25% to 15% of their standard allowance.

"This means that 1.2 million of the poorest households will keep more of their award each month lifting children out of poverty and those who benefit will gain an average of £420 a year."

The new Fair Repayment Rate will come into force in April 2025, with the deductions cap set at 15 per cent as opposed to 25 per cent.

This is money the government can take off a Universal Credit claimant's allowance to help them make debt repayments.

These deductions can cover a range of debts, including benefit advances, historical overpayments of child tax credits, rent and council tax arrears.

They are deducted from claimant's Universal Credit standard allowance each month until the debt is paid off, but many have complained it puts vulnerable people into severe hardship.

While this may take longer to repay debts, it could be a lifeline to some of the poorest households, already struggling with spiralling costs.

Universal Credit payment increase

The Budget also saw an increase in Universal Credit payments announced.

Benefits including Universal Credit and Personal Independence Payments (PIP) will increase by 1.7 per cent next year, in line with inflation figures from September.

These are the benefits that usually rise in line with inflation:

  • Attendance allowance
  • Employment and support allowance
  • Housing benefit
  • Income support
  • Industrial injuries disablement benefit
  • Jobseeker's allowance
  • Maternity allowance
  • Pension credit
  • Personal independence payment
  • Statutory maternity/paternity/adoption/shared parental pay
  • Statutory sick pay
  • Tax credits
  • Universal credit

Opening the Budget this afternoon, Ms Reeves said: “On July 4, the country voted for change. This government was given a mandate. To restore stability to our country and to begin a decade of national renewal.

“To fix the foundations and deliver change through responsible leadership in the national interest. That is our task. And I know we can achieve it.”

She said her “belief in Britain burns brighter than ever” but “the only way to drive economic growth is to invest, invest, invest”.

“There are no shortcuts. And to deliver that investment we must restore economic stability and turn the page on the last 14 years.”