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The Department for Work and Pensions (DWP) has rolled out a key update to Universal Credit that will allow over one million UK households to retain more of their monthly benefits.
This update is part of a broader effort to tackle the cost-of-living crisis and enhance financial security for low-income families.
New Fair Repayment Rate Explained
The recent policy change, implemented on April 30, is tied to the Fair Repayment Rate—a policy limiting the amount deducted from Universal Credit payments to recover debt.
Previously, 25% of a claimant’s standard allowance could be withheld. However, under the new rule, this figure has been reduced to 15%.
Who Benefits from the Change?
This reform applies to all assessment periods starting April 30 or later, with eligible households seeing the impact from May 30 onwards.
| Impact Area | Details |
|---|---|
| Deduction Rate Before April 30 | 25% of Universal Credit allowance |
| Deduction Rate After April 30 | 15% of Universal Credit allowance |
| Households Benefiting | 1.2 million households |
| Households with Children Benefiting | 700,000 households |
| Average Annual Financial Gain | £420 more per household |
| Total Households with UC Deductions | Up to 2.8 million |
Supporting Families in Debt
The new deduction cap means that 1.2 million of the UK’s most vulnerable households—including families with children—will see an average yearly benefit of £420.
It’s a significant step to ensure that people repaying debts are still able to cover essential living costs and gradually reduce their liabilities in a more sustainable manner.
Part of the Government’s Plan for Change
This initiative forms part of the UK Government’s broader “Plan for Change,” aimed at uplifting household finances and ensuring benefits are more supportive of the everyday challenges faced by claimants.
Chancellor Rachel Reeves, who announced the Fair Repayment Rate during the Autumn Budget, stated:
“As announced at the Budget, 1.2 million households will keep more of their Universal Credit and will be on average £420 better off a year. This is our plan for change delivering, easing the cost of living and putting more money into the pockets of working people.”
Wider Labour Government Reforms
The current Labour government sees this as a first step in a comprehensive Universal Credit review. Their focus is not just on financial support, but also on empowering employment.
Work and Pensions Secretary Liz Kendall emphasized:
“As part of our Plan for Change, we are taking decisive action to ensure working people keep more of the benefits they’re entitled to – which will boost financial security and improve living standards up and down the country.”
In line with this vision, the government has launched the Get Britain Working White Paper, targeting an ambitious 80% employment rate. This includes plans to:
- Modernise Jobcentres
- Launch a national careers and jobs service
- Guarantee employment or education for every young individual
- Increase the National Minimum and Living Wage
Key Takeaways
- Fair Repayment Rate reduced from 25% to 15% as of April 30
- £420 more per year on average for 1.2 million households
- Part of the government’s strategy to improve living standards and tackle poverty
- More reforms to Universal Credit and employment services are on the horizon
The UK Government’s reduction in Universal Credit debt deductions marks a meaningful shift in supporting low-income families. By allowing claimants to keep more of their benefits, this reform promotes financial resilience, supports children, and complements broader goals of improving employment rates and raising living standards nationwide.
FAQs
When did the Universal Credit deduction rate change take effect?
The change was effective from April 30, 2025, and applies to all assessment periods starting on or after that date.
How much more will eligible households keep each year?
On average, households will retain £420 more annually due to the reduced deduction rate.
Who is eligible for this change?
Households receiving Universal Credit with existing debt repayments will benefit from the reduced 15% deduction cap, including 700,000 households with children.