Warning for thousands on Universal Credit over major change that could see families lose £1,000 a year

THE government has been warned a major change for Universal Credit claimants could cost families up to £1,000 a year.

The Department for Work and Pensions (DWP) has been warned about the cut before PM Liz Truss announces her benefits update next month.

Pensions Minister Victoria Prentis has confirmed there will be a benefits update by the end of November.

It will affect all benefit payments to be received from April 2023.

But it is unclear yet whether the PM will be uprating benefits in line with wages or with inflation.

Think tank Resolution Foundation has told the DWP that families could face a £1,000 benefits cut if she chooses to increase benefits in line with wages.

It said low income families with children would be worse off, with the result causing a real-terms pay cut.

This would leave single and working parents hundreds if not thousands of pounds out of pocket.

Adam Corlett, Principal Economist at the Resolution Foundation, said: “Plans to cut benefits like Universal Credit by uprating them by less than inflation could save the Treasury low billions of pounds, but reduce the incomes of nine million households.

"Working parents who receive Universal Credit and Child Benefit would be hit particularly hard, with some losing up to £1,000.

“These cuts would come at a time when families are already set to struggle with rising prices, soaring mortgages, and the end of temporary support schemes.

"With benefits having repeatedly failed to keep pace with inflation over the past decade, this would see real income levels for Britain’s poorest families fall to levels not seen since the turn of the century.”

It said the number if people living in absolute poverty in the UK could drop down to its lowest level since 2001 as a result of benefits increasing based on wages - that's another three million people in poverty.

Since there's been a recent earnings increase of 5.5% according to July's statistics, the Prime Minister had recently planned to raise benefits in line with UK earnings.

This would ultimately save the Treasury £5billion.

In response, a DWP spokesperson has said: "We are committed to looking after the most vulnerable which is why we’ve delivered at least £1,200 of support to families this winter while also saving households an average of £1,000 a year through our Energy Price Guarantee.

"This support is on top of the annual working-age benefits bill which is over £87 billion."

But the earnings growth is 4.4% lower than the latest rate of inflation which was 9.9% in August, so Ms Truss may now make a U-turn.

If the Prime Minister makes a U-turn, she might increase benefits to keep payments in line with inflation.

This could mean benefits payments will increase by about 10%.

If a single claimant under 25 receives the standard £265.31 a month in Universal Credit - they could now get £291.84 a month.

For single claimants over 25 receiving £334.91 a month - this would rise to £368.40.

It is yet to be confirmed whether Ms Truss will in fact U-turn on the plan to kerb benefit increases.

Who could be affected by real-term cuts?

Right now 10million people, including the low-paid and those with disabilities, face a real-terms cut to their income unless benefits rise.

Millions on Universal Credit — an estimated 40% — are in work, while others receive benefits temporarily because they’ve lost their job or exited a dangerous relationship or household situation.

Four million people rely on welfare payments because of a long-term illness or disability.

For many years benefits have been raised each April in line with the Consumer Prices Index measure of inflation from the previous September.

What does it mean?

It’s not yet known exactly how the Government would calculate the benefits rise if it decides to link it to wages instead of inflation.

But it’s thought ministers could use the figure of 5.5% because this is the average increase in total earnings from May-July 2022 that was released by officials last week.

If it does so, those on benefits will still see an increase in the amount of money they receive.

But in real terms they will feel a whole lot worse off because rocketing costs mean they’ll be able to buy less with their money.

We spoke to mum Sarah, who is worried about affording heating and food if benefits do not rise in line with inflation.

The decision is causing a rift in Westminster as MPs urge Ms Truss to consider her choice carefully.