A protected minimum floor in Universal Credit

A protected minimum floor below Universal Credit’s (UC) standard allowance would limit the deepest hardship caused by debt deductions and the benefit cap, whilst representing a bold new positive policy likely to attract public support.

This briefing sets out how a floor 15% below Universal Credit’s current standard allowance could be introduced quickly and at relatively low cost:

• it would help around 1.9 million families, by around £48 a month on average¹
• it would have an annual cost of around £150 million, plus increase public sector net debt by around £2.7 billion cumulatively over the next 5 years.

Around half of households receiving Universal Credit have 1 or more reductions applied to their payment, including:

• Debt deductions: Amounts deducted to repay debts, mostly to the Department for Work and Pensions (DWP) but also to other government entities or third-party creditors. For example, ‘advance payment’ loans from DWP (used by people to help them through the 5 week wait for their first UC payment), council tax arrears or rent arrears.
• Benefit cap reductions: if a household’s total benefits exceed the limit set by the benefit cap, then a deduction (or ‘capped amount’) is made from their UC. This deduction is equal to the difference between the household’s total benefits and the benefit cap limit.

These reductions eat into UC’s already inadequate headline standard allowance rate, pulling support even further below what is needed to afford essentials like food, utility bills, clothing and hygiene products (JRF, Trussell, 2023).

Consequently, these reductions to UC are a strong driver of hardship:

• Our research consistently finds that benefit cap and debt deductions are significant factors in people experiencing destitution (JRF, 2023 A) and needing to use a food bank (Trussell, 2023).
• 85% of people with debt deductions went without an essential in the last 6 months, compared to 70% of people receiving UC without debt deductions.²
• 64% of people with debt deductions ran out of food in the last month and didn’t have enough money to buy more, compared to 43% of people receiving UC without debt deductions.³
• People with debt deductions are twice as likely to have fallen into other forms of debt because they couldn’t keep up with bills than people receiving UC without debt deductions (55% compared to 27%).⁴

These reductions also disproportionately affect groups that face a higher risk of experiencing hardship, particularly families with children and households where someone is ill or disabled:

• 49% of families with children on UC face debt deductions, compared to 41% of families without children (Opperman, 2023).
• 27% of families with children on UC had very large deductions (over 20% of their standard allowance), compared to 13% of families without children (Opperman, 2023 A).
• 53% of households containing someone who DWP has assessed as having ‘limited capability for work’ (LCW) or ‘limited capability for work-related activity’ (LCWRA) face debt deductions, compared to 42% of households without LCW or LCWRA (Opperman, 2023 B).
• 88% of households affected by a benefit cap reduction have children, particularly single-parent families (71% of affected households), families with very young children (54% of affected single-parent households on UC have a youngest child under the age of 5) and families with 3 or more children (56% of affected families on UC) (DWP, 2024 A).

Example household: A single person aged 25 or over currently receives a headline UC standard allowance of £91 a week. If they have no other income, this already puts them below JRF’s destitution income line of £95 a week. Debt deductions of up to 25% of the standard allowance can be taken, pulling support £23 a week further below this. Reductions arising from the benefit cap vary widely according to family circumstances, but the average reduction is £51 a week (DWP, 2024 A), again pulling people’s basic support well below what’s needed to afford essentials.

If this person was subject to both the maximum debt deduction and the average benefit cap reduction then they would be left with just £17 a week to cover essentials.

As part of an urgent plan to reduce immediate hardship, introducing a protected minimum floor below UC’s current standard allowance would directly target the deepest hardship driven by these reductions.

A protected minimum floor would embed for the first time the principle of a safety net below which no one should fall. This framing could bring political advantage that is harder to achieve from individual changes to obscure debt deduction rules, or politically challenging removal of the benefit cap. The Government could announce a bold new positive policy that is likely to be popular with the public (JRF and Trussell, 2023), quickly implementable and relatively low cost. It could also echo the bold action taken by the Labour government on taking office in 1997 when it introduced the first minimum wage.

The policy would work by limiting the amount of reductions that could be applied to a household’s UC, ensuring that the amount of standard allowance – net of these reductions – could not fall below the floor level, and in doing so would provide support to households both in and out of work.

Further, the policy would not only reduce the impact of reductions on individuals facing hardship, but would also, specifically on debt deductions, signal a shift in the department’s approach to debt and an intent to move towards processes which better align with best practice in the private sector.

A protected minimum floor could be implemented quickly in practice, via changes to UC guidance and regulations:

• UC regulations set out exactly how much should be deducted from a household’s UC payment under the benefit cap policy (Universal Credit Regulations, 2013). These regulations could be amended (without a parliamentary vote) to limit the ‘capped amount’ so that it cannot exceed the difference between a household’s standard allowance and the level of the protected minimum floor.
• As a matter of policy, DWP currently limits the total amount of debt deductions that can be taken from a household’s UC to a maximum of 25% of their standard allowance (although regulations allow up to 40%) (DWP, 2024 B and C). DWP could change its debt deductions guidance to make the maximum allowable total debt deductions a function of the household’s standard allowance, the level of the protected minimum floor, and the amount of any benefit cap reduction that the household might also be subject to.

However, primary legislation could be used to more firmly establish a new policy lever that could be deployed gradually over time to further limit the impact of various reductions and strengthen UC’s standard allowance, guided by independent expert advice on the minimum amount people need to cover essential costs.

Therefore, whilst a protected minimum floor would be warmly welcomed in its own right as having a significant immediate impact on hardship, it would also represent vital progress towards an Essentials Guarantee, a policy popular with the public (JRF and Trussell, 2023) and backed by a coalition of over 130 charities and other organisations (JRF, 2023 B and C).

The impacts and costs of a protected minimum floor depend on its specific level and design.

We propose that a floor set 15% below UC’s current standard allowance could be quickly implemented at relatively low cost, whilst aligning with existing consensus among leading debt advice experts on an impactful and practical level for the overall cap on total debt deductions to be reduced to.⁵

In 2024/25 this would mean 4 floor levels in the system:

• £77 a week for a household headed by a single adult aged 25 or over
• £61 a week for a household headed by a single adult aged under 25
• £121 a week for a household headed by a couple with at least 1 adult aged 25 or over
• £96 a week for a household headed by a couple with both adults aged under 25.

Impacts for households

Example household – with a protected minimum floor: Returning to the same example household of a single adult aged 25 or over, debt deductions and the benefit cap had in combination reduced their UC payment by £74 a week, leaving them with just £17 a week to cover essentials.

If a protected minimum floor set 15% below the standard allowance were introduced, the total reduction to UC experienced by this household would be limited to £14 a week, leaving them with the floor income of £77 a week. They would therefore benefit by £60 a week from this policy, a very significant amount for someone facing deep hardship.

In aggregate, the protected minimum floor would result in around 1.9 million families seeing their reductions to UC lowered, by around £48 a month on average.⁶

For families where the floor acts solely to reduce their debt deductions, they would see their UC payment increase by around £42 a month on average. Around 800,000 families would see their monthly UC payment increase by between £30 and £40, around 300,000 would see it increase by £60 to £70, and around 100,000 would see it increase by over £70.

For families with children in particular, where the floor acts solely to reduce their debt deductions, around 1.1 million families would see their monthly UC payment increase by around £48 on average.

Around 60,000 families with a benefit cap reduction, the vast majority of them containing children, would see their UC payment increase by around £210 a month on average. Many of these would see significantly higher gains, and for some the floor will limit reductions to their UC arising from both the benefit cap and debt deductions.

In addition, there will be a small number of families who face smaller reductions from both the benefit cap and debt deductions that on their own would not result in them benefitting from the floor, but who will benefit as a result of the floor applying to their combined reductions.

Costs to HM Treasury and impact on Government debt

The protected minimum floor’s effect on limiting debt deductions would not result in expenditure that would be scored in a Budget because it is a deferral of cash receipts by DWP rather than a cost. It would, however, increase public sector net debt (PSND) over a number of years, before levelling off, as a result of the increase in average repayment term on DWP’s stock of loans to benefit claimants. The protected minimum floor’s effect on limiting reductions arising from the benefit cap would be scored in a Budget.

We estimate that a protected minimum floor set at 15% below the current standard allowance would cost around £150 million annually through the benefit cap reductions. It would also result in a total £3.1 billion increase in steady-state PSND through limiting debt deductions, of which around £2.7 billion cumulatively would occur over the first 5 years:

1. This is an average gain across all families who would benefit either from the floor acting to limit their debt deductions or from it acting to limit their benefit cap reductions.
2. Polling of 2,077 adults on Universal Credit conducted by YouGov on behalf of Trussell, between 29 July and 23 August 2024. The survey was carried out online. Figures have been weighted and are representative of all adults (aged 16+) claiming Universal Credit.
3. Polling of 2,077 adults on Universal Credit conducted by YouGov on behalf of Trussell, between 29 July and 23 August 2024. The survey was carried out online. Figures have been weighted and are representative of all adults (aged 16+) claiming Universal Credit.
4. Polling of 2,077 adults on Universal Credit conducted by YouGov on behalf of Trussell, between 29 July and 23 August 2024. The survey was carried out online. Figures have been weighted and are representative of all adults (aged 16+) claiming Universal Credit.
5. For example, this would still allow debt deductions to remain a useful potential tool to help protect people from negative enforcement actions relating to ‘priority debts’ (like rent arrears) or to support access to safe and low-cost emergency credit like Budgeting Advances.
6. Our proposal is to implement the floor at this level via a flat reduction in the maximum rate of debt deductions for households on UC with any level of earnings. All impacts and costs are estimates based on JRF modelling and assumptions, drawing on data from Parliamentary Questions, tax-benefit microsimulation modelling, and reports from DWP, HM Treasury and the Office for Budget Responsibility. All impacts have been estimated for 2024/25, assuming full UC rollout. Further details can be provided upon request.

DWP (2024 A) Benefit cap: number of households capped to February 2024 

DWP (2024 B) Universal Credit guidance papers: Advice for Decision Making 

DWP (2024 C) Advice for Decision Making 

JRF (2023 A) Destitution in the UK 2023 

JRF (2023 B) Charities and organisations unite behind a powerful call on party leaders to guarantee essentials for low-income households amid rising hardship  

JRF (2023 C) Universal Credit falling so far short of the cost of essentials is putting the health of millions at risk say health bodies and charities 

Sumi Rabindrakumar is Head of Policy and Research at Trussell.

Iain Porter is Senior Policy Adviser at Joseph Rowntree Foundation.