Universal Credit
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Living standards
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Welfare

Taper cut

Analysis of the Autumn Budget changes to Universal Credit

Mike Brewer
Mike Brewer
Karl Handscomb
Karl Handscomb
Lalitha Try
Lalitha Try

This briefing note looks at the changes to Universal Credit (UC) – the main benefit for low-income families – made by the Chancellor in the Autumn 2021 Budget. The reduction in the taper rate from 63 to 55 percent, and increase in the work allowance by £500 a year, represent a significant, permanent increase in the generosity of one part of the welfare state. The £3 billion a year increase in spending that these reforms require stands in stark contrast to the welfare cuts that have characterised the past decade.

Looked at in isolation, the Budget will benefit 2.2 million families in 2022-23, who – on average – will be £1,000 per year better off. But the Chancellor’s Budget announcement comes just weeks after the end of the pandemic-related £20-a-week boost to UC. When we look at these two changes together, we find that around three-quarters (73 per cent) of families on UC in 2022-23 will be worse off, with one-quarter (27 per cent) better off.

The decision to focus all the increased support on working families leaves the UK with an especially weak safety net for the out-of-work. Workers may have higher incomes today, but they have less insurance against the risk of unemployment tomorrow.

Key findings

  • Families with the highest earnings and at the limit of UC eligibility see the biggest gains from the reduction to the UC taper rate and higher work allowances. For a couple with two children, with earnings at the previous maximum earnings under UC of £32,800, that equates to a gain of £1,800 per year.
  • Three-quarters (73 per cent, or 3.6 million) of families on UC in 2022-23 will be worse off under the new regime than they would have been absent the Budget changes but if the £20-per-week uplift had been retained. One-quarter (27 per cent, or 1.3 million) will be better off and an additional 330,000 families newly eligible. The tipping point varies by family circumstances, but stands at £18,800 for families with children who are not renting.
  • The Budget changes mean that UC entitlement will extend further up the earnings distribution: for a couple with two children, UC entitlement now extends to families with annual pre-tax earnings of £37,700.
  • The overall marginal effective tax rate for UC families earning over the work allowance will be 70 per cent in 2022-23, down from 75 per cent before the taper rate reduction. This is the same rate as experienced by families receiving tax credits from 2003-04 to 2010-11.
  • The Budget 2021 changes provide no extra support for workless families: the basic rate of unemployment benefit in 2022-23 will be less than the level of support in 1991 in real-terms.

Further reading

In credit?
Assessing where Universal Credit’s long roll-out has left the benefit system and the country
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Alex Clegg
Happy new tax year
Six big changes to pay, tax and benefit policy – and how they affect households across Britain
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Torsten Bell, Adam Corlett, Alex Clegg
Housing Outlook Q1 2024
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Lindsay Judge, Adam Corlett
Mike Brewer
Mike Brewer Deputy Chief Executive and Chief Economist
Karl Handscomb
Karl Handscomb
Lalitha Try
Lalitha Try Economist