Universal Credit – what is it? The new benefits system explained

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Find out about universal credit

What is universal credit?

There are lots of changes coming to the UK benefits system this year.

One of the biggest changes will be the introduction of Universal Credit.

We’ve put together this handy guide to help you understand the basics and hopefully help you navigate the changes.

What is Universal Credit?

Universal Credit is the name for a new benefit that’ll be introduced for people of working age, whether they’re in or out of work. It’ll replace six existing benefits and will directly affect eight million households in the UK.

What benefits will it replace?

  • Income based Job Seekers Allowance (JSA)
  • Income based Employment and Support Allowance (ESA) which  replaced Incapacity Benefit
  • Child Tax Credits
  • Working Tax Credits
  • Housing benefit
  • Income Support

Why is the government introducing Universal Credit?

There are two main reasons for introducing Universal Credit; firstly to simplify the benefits system, and secondly to improve the incentive to work.

When does Universal Credit start?

A small pilot will begin from April onwards in Greater Manchester. This will test the system with local authorities, employers and claimants in the real world to see if it all works. It’ll then be more widely introduced from October.

There are three stages to the introduction. Anyone making a new claim because of unemployment will be moved to the Universal Credit system in October. Then from April 2014 new claims from people in work will be for Universal Credit. Finally, anyone already receiving one of the old benefits that are being replaced will be moved to the Universal Credit system sometime between 2014 and 2017.

How often will Universal Credit be paid?

Currently benefits are paid weekly, fortnightly or four-weekly. Universal Credit will combine all the benefits it replaces into one payment that’ll be paid calendar monthly.

The change to monthly payments is designed to encourage people to manage their money.  It is also more similar to the way wages are paid. This includes paying housing payments to the claimant, for them to then pay to their landlords.

How will my entitlement be calculated?

Entitlement to Universal Credit will be calculated on an on-going monthly basis, using real-time information that the government will collect through the tax system. This should reduce the number of overpayments and also remove the need to report earnings, as they’ll already have your details.

To make this system work the Government’s customs and tax department (HMRC) have introduced a new system called Real Time Information (RTI). This is a large system designed to capture income details. Government ministers are confident that this system will be up and running in time for the October 2013 deadline.

How do I claim?

Universal Credit will see a huge shift towards online claiming. The hope is that by 2017 80% of claims will be made through the online system, with the remaining 20% made over the phone or face to face.

Are pensioners going to be included in the Universal Credit system?

Universal Credit only applies to working age households. People who are older than the qualifying age for Pension Credit (find out your qualifying age) will receive that instead.

People receiving Pension Credit and housing benefit will see a change though, as housing benefit will eventually be phased out. In its place they’ll receive an extra element in their Pension Credit called Housing Credit.

What about Council Tax?

Council Tax is due to change in 2013 but won’t be part of Universal Credit. The current Council Tax benefit system will be replaced in April 2013 by local council tax support schemes. These will  be introduced by individual councils in England. In Scotland, Wales and Northern Ireland it’ll be dealt with by the respective devolved governments.

This’ll lead to many different systems for administering support for council tax and may see some people losing pre-existing benefits. The change will also see a 10% cut in support provided by the Government to councils (although in Scotland they’re looking to make these savings elsewhere instead of cutting the levels of support).

Should I claim now or wait until Universal Credit comes in?

If you think you might be entitled to benefits that you don’t currently receive then we’d recommend putting in a claim now. Every year £10 billion of benefits and tax credits go unclaimed. You can check your entitlement now by using our online benefits checker.

James Winterbottom has been a debt advisor for six years. Away from work he is an amateur app developer and writes fiction. James is a lifelong supporter of Huddersfield Town football club, which suggests he is either very loyal or very daft. He also likes to talk about himself in the third person in bio pages.

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  • billy howard

    in 2017, is pension credit being phased out.

    • Hello,

      There are no plans to phase out Pension Credit. The Universal Credit system will only apply to people who are of working age.

      While I’d never want to predict what will happen to the benefits system between now and 2017 there are no plans at the moment to get rid of Pension Credit.

      Hope this helps.

      James