Credit, Collections & Insolvency News
Chancellor Rishi Sunak has announced changes to the Universal Credit Taper rate, which is the amount of Universal Credit (UC) withdrawn for every pound someone earns (from 63% to 55%, so for every extra £1 earned, 55p of Universal Credit will be withdrawn) as part of his latest budget announcement.
StepChange Debt Charity says that the Budget is good in parts – but that many lower-income households who accumulated debt during the pandemic are still deep in a hole from which a helping hand from the State to climb out remains too far away to reach. The main positive take-aways from the Budget and the pre-announced measures of the past few days for people experiencing problem debt are the change in the Universal Credit taper that will allow people to keep more of their benefit as they increase their income from working, along with the rise in the national living wage, the additional support for rent arrears and an increase in affordable housing. However, overall, lower income households – who are disproportionately represented among households experiencing problem debt – are still likely to be worse off than they were before the £6 billion of temporary uplift to Universal Credit was withdrawn, with increased National Insurance contributions also looming for many households from next year.
The Government had already pre-announced £65 million of support to be delivered through local councils to help lower earners with rent arrears – just a fraction of the £360 million of rent arrears built up during the pandemic, but nevertheless very welcome. Similarly, the increase in the National Living Wage was also pre-announced, and is also welcome. However, among lower income clients turning to debt advice, an increasing proportion are still likely to face a deficit budget, with their expenditure on basic essentials exceeding their outgoings, even before trying to find ways to repay their debt.
Peter Tutton, Head of Policy, Research and Public Affairs at StepChange Debt Charity, said “Among our clients, lower income households are disproportionately represented among those experiencing problem debt, and the measures – while helpful – won’t shift the dial on this much. The improvement to the Universal Credit taper is very welcome – although while 2 million working households will benefit, millions of others will not. A third of our clients experiencing problem debt claim Universal Credit, and they are already experiencing the rising costs of costs of fuel, energy and food, together with the Covid backlog of rent and council tax arrears, and unaffordable deductions from their payments which push them further into debt.”
“Of course we welcome the incremental improvements to increase the minimum wage and address some of the structural flaws of Universal Credit, as well as the recognition that rent arrears will not resolve themselves and will lead to a significant rise in evictions without support. The big picture, though, is that social security safety nets are simply not adequate to ensure that people who are forced to rely on them are able to make ends meet. Alongside longer term reform, we would urge the Government to stand ready to offer further support, beyond the Budget measures announced, to those who need it most.”
Jane Tully, Director of External Affairs and Partnerships at the Money Advice Trust said “The announcements on an increase in the National Living Wage and a cut to the Universal Credit taper rate are welcome. However, for people who are already struggling to make ends meet, and those who have lost their job due to the pandemic, these measures alone will not be enough.”
“Nearly two in five callers to our debt service already don’t have enough money coming in to cover their essential costs, like energy, rent and council tax. While measures to increase incomes will help some, there will be many others who will face a real struggle just to pay for the basics this winter.”
“We need to see greater investment in targeted support – for example on energy bills – as well as help for people who have fallen into debt. Without this, many will face a tough winter ahead.”
Morgan Wild, Head of Policy at Citizens Advice, said “Today’s welcome announcement will ensure working people on Universal Credit can keep more of their hard-earned cash. But it doesn’t cushion the blow of the £20-a-week cut for those still looking for work or the 1.7 million unable to work because of disability, health issues or caring responsibilities.”
“Given the cost of living crisis, the government must ensure every family is able to access the support they need this winter.”
Tina Hughes, Director of savings at Yorkshire Building Society said “Whilst the Universal Credit reforms will bring some relief to those who are most vulnerable to the impact of a financial shock, it’s important to realise that more needs to be done to help those whose finances have been significantly impacted by the pandemic, and are now struggling even more due to the current macro-economic climate.”
“Our recent research shows that single parents and younger people are now the most financially vulnerable in society, with many no longer having any cash reserves and struggling under the weight of increasing living costs.
“As such, it’s vital that more is done to support these people, as well as greater education on how people can build their financial resilience, so they are better protected from the impact of a financial shock.”
Helen Undy, Chief Executive of the Money and Mental Health Policy Institute said “Today’s budget failed to address the enormous financial and mental pressures that millions of people across the country face. While the changes to Universal Credit will make a big difference to people in work receiving this benefit, they do nothing to help many of the most vulnerable people in the system, such as those who are too unwell to work. They will also only make up for around a third of the income lost as result of the Universal Credit uplift being scrapped.”
“With no new measures to help people through the energy crisis, no additional funding for the mental health system, and inflation set to be higher than previously forecast, the winter ahead looks even bleaker for many people than it did before today.”
John Goodall, CEO of Landbay said “In this budget the Chancellor seems to have rolled back the years of austerity with yet another spending spree. We will need to see if tax receipts really do cover this if the Chancellor is to meet his goal that every day spending is to be paid for through taxation.”
“The £11.5billion investment in 180,000 new affordable homes will be helpful – if they actually get built. The government is woefully short in its target to build 300,000 new homes a year so we need to see the detail of exactly how that is to be achieved.”
“The investment relief to encourage businesses to adopt green technologies will be a welcome help limited company landlords to achieve the required EPC rating of C or above which will be required to rent their properties out from 2025”
Kevin Brown, Savings Specialist at Scottish Friendly said “The government’s decision to cut the universal credit taper rate by 8% will help support some working families but there is little support for many other hard-working households.”
“Families in the UK are facing rising prices across the board with the cost of food, petrol and gas and electricity all on the up, with no sign of slowing.”
“Today’s budget was an opportunity for the government to ease the financial pressure on households, however they have given no indication of what action will be taken to tackle rising inflation, despite suggesting they are ready to act.”
“The universal credit tax cut will also be further offset by the increase in national insurance which will come into effect in April 2022.“The outlook for households is bleak and they need greater support now. We expect inflation will rise closer to 5% than the OBR’s prediction of 4% and this will hurt a lot of families who aren’t used to dealing with rising prices.”
“It’s going to mean people will have to tighten the purse strings by making some tough spending decisions and cutting back on saving. Sadly, not everyone has a rainy day fund to fall back on so it’s going to be a tough winter for many.”
Katie Schmuecker, Deputy Director of Policy & Partnerships at JRF said “This is a tale of two Budgets for families on low incomes. For those in work, the change to the taper rate and work allowance, alongside the National Living Wage increase, are very positive steps, allowing low-paid workers to keep more of what they earn. Together these measures improve our social security system for working families and demonstrates a serious intent to turn the tide on the pre-pandemic trend of rising in-work poverty.”
“But the reality is that millions of people who are unable to work or looking for work will not benefit from these changes. The Chancellor’s decision to ignore them today as the cost of living rises risks deepening poverty among this group, who now have the lowest main rate of out-of-work support in real terms since around 1990.”
“Among the people in our society who cannot work are cancer patients, people with disabilities and those caring for young children or elderly parents. Their energy bills and weekly shop are going up like everyone else’s and they face immediate hardship, hunger and and debt in the months ahead. The Chancellor had an opportunity to support families on the lowest incomes to weather the storm ahead, and he did not take it.”
James Tew, CEO, iVendi, said “So much of the Budget was leaked beforehand that there were few surprises today and really the most interesting parts were the macroeconomic forecasts that showed, by and large, that the economy has weathered the effects of Covid really quite well. In itself, that is the best news for vehicle retailers in the UK. Despite that, there are a whole host of potential downsides in play – from the forecast 4% inflation for next year through to the ongoing effects of Brexit and the semiconductor shortage – that were not really tackled in any meaningful way. If there are any threats to the new and used sectors in the short and medium term, this is where they will lie. However, our overall view remains that the market should be able to maintain momentum very close to its current level.”
Sarah Coles, Senior Personal Finance Analyst at Hargreaves Lansdown said “The budget offered some relief for those on low incomes who are under horrible pressure from rising prices on all sides, along with the feelgood factor of cut-price pints and bargain bubbly. However, despite none of them getting a mention in the speech, we still face the nightmare of rising taxes.”
“The Universal Credit taper currently withdraws cash from people on lower incomes faster than the effective tax rate of people earning over £100,000, so the cut in the taper is a welcome change. For those who are able to work more, it will help offset the impact of the withdrawal of the £20 a week extra paid at the height of the pandemic. However this measure will only boost the incomes of 2 million people, so millions more will remain worse off.”
“Not announced, but buried in the Budget documents, was news that council tax looks set to rise, with councils able to raise taxes by 2% without a referendum, plus another 1% for social care. Police and crime commissioners will also have the power to increase the money they raise through council tax. These hikes will add insult to injury for taxpayers who are already feeling the pressure from rising prices on all sides.”