Hello Mike.
My client, who lives in Nottingham, has three daughters aged 16, 13 and 11
Her Universal Credit is affected by the benefit cap
She works part-time earning £600 per month. Her privately rented home costs £900 per month
She’s asked me how the new rules for wages announced in the budget will help her
Can you explain?
Thank you
Joanna
Hello Jo,
The simple answer is that they won’t. But there is a way to improve her situation.
What are the new rules?
At the moment, if you have children, or you have limited capability for work you are allowed to earn £293 per month, with no effect on your UC.*
This is called a Work Allowance.
If you earn more than the work allowance, 63% of the excess is deducted from your Universal Credit.
For a parent earning £600 per month the Earnings Deduction is £193.41. [ 0.63 x (£600 – £293) ]
The new rules increase the work allowance to £335 and reduce the taper to 55%.
For a parent earning £600 per month the earnings deduction will be £145.75. [ 0.55 x £600.00 – £335.00) ]
So the new rules let someone in this situation keep an extra £47.66 of their earnings.
Why this doesn’t help your client
Your client is entitled to Child Benefit of £49.15 per week (£212.98 per month)
A normal UC calculation (detailed below) would allow her £1,513.11 per month
The total of Child Benefit and UC comes to £1,726.09 per month
But, the benefit cap limits your client’s Child Benefit and UC to £1,666.67 per month, so £59.42 is knocked off her UC to bring the total to this level.
The new earnings rules will increase her Universal Credit by £47.66 per month, but the cap will still keep her exactly where she is now.
How To Improve This Situation
Some people are exempt from the benefit cap. (See Benefit Notes page 51)
These exemptions include anyone on UC who earns more than £617 per month
If your service user can increase her earnings by £17 per month, the benefit cap will no longer apply and she will get her full UC and Child Benefit.
With earnings of £617 per month, under the new rules her total UC and Child Benefit will be £1764.40
And this won’t be capped
For my fellow benefits nerds, the £617 figure is the monthly equivalent of 16 hours per week of minimum wage. It comes from Regulation 82(1) of the UC Regulations 2013.
The Universal Credit Calculation:
Universal Credit thinks that your client needs £1,706.52 per month,
This is made up of
- £324.84 standard allowance for herself
- £282.50 eldest child element
- £237.08 second child
- £237.08 third child
- £625.02 housing hosts element for a three bedroom property in Nottingham
The monthly Universal Credit is this amount, minus the earnings deduction detailed above.
But then, if the benefit cap applies, the UC will be reduced to bring the total benefits to the cap level.
* What’s With The Asterisk?
For someone who does not get help with housing costs such as:
- someone who lives with family member as a non-dependant
- someone who owns their home outright
- a worker with a mortgage
The work allowance is currently £515.00 per month increasing to £557.00