The government has made two key decisions with respect to its
recent reforms to universal credit, which are due to take effect
from April 2026. The first – and most important – decision is to
change the long-run shape of the benefit system. The government
plans to increase the basic amount of universal credit and to
halve the health element of universal credit, which provides
additional support for people with health conditions. Overall,
the package will reduce benefit spending by around £5 billion
once fully rolled out. This reflects judgements about the
appropriate size of the benefit system and the balance of support
for people with health conditions relative to other low-income
households.
The second key decision the government made is to provide
indefinite protection against the cut in the universal credit
health element to current claimants. These protections reduce the
savings from the reform by around £5 billion in 2029/30, meaning
the reform makes close to zero savings in 2029/30. As with many
recent benefit reforms, the changes mean that the benefit system
will treat similar people differently based on the date that they
began to claim these benefits. Any claimant whose universal
credit health claim has started before 6 April 2026 will be no
worse off due to the reform, but claimants who begin their claim
from 6 April 2026 will have their incomes cut by around £2,500
per year by 2029–30.
The differences will last for the duration of each claimant's
universal credit health claim, which can be a long time. Around
500,000 people have claimed an incapacity benefit (such as
universal credit health) for 15 years or longer. This means that
in the 2040s, there will still be thousands of otherwise similar
claimants who are treated differently depending on whether they
started their claim before or after April 2026.
The decision on how quickly to transition to a new system
following benefit reforms is separate from the government's
decision on what the long-run shape of the benefits system should
be.
There is a case for providing some protection from cuts for
existing claimants, but this needs to be balanced against
concerns about fairness and perverse incentives. The government
has chosen to give permanent protections to existing claimants.
There is a strong case to instead provide time-limited support
for existing claimants. This support could last years without
being permanent.
Matthew Oulton, Research Economist at the Institute for
Fiscal Studies, said:
‘Reducing a household's benefits will always be difficult for
those affected. In addition, though, it can be hard for some
people to adjust quickly to large falls in income, so there is a
case for government to provide transitional support for existing
claimants affected by benefit cuts.
‘However, it is difficult to justify permanently treating
claimants differently based on the precise date they started
their claim. The current universal credit health proposals imply
that one person could receive less support than another in the
2040s due to the precise date they started their claim in 2026.'
The briefing is
available to read here
