The £20-a-week reduction would stay – but working people who receive the benefit would be allowed to keep more of their earnings, under the proposal.
The so-called “taper rate” – the amount a claimant loses for every extra pound they earn – would be reduced from 63p to 60p, if the Treasury agrees the move.
It would cost around £1bn a year, but that is far less than the £6bn cost of reversing the £20-a-week cut, which the chancellor, Rishi Sunak, has refused to do.
Furthermore, the move would only benefit the approximately 40 per cent of universal credit claimants who are in work – and of those, only people able to take on extra hours.
The cut – to reverse what ministers insist was always a temporary increase, because of the pandemic – is predicted to plunge half a million more people into poverty, including 200,000 children.
An internal Whitehall analysis warned of a “catastrophic” impact from removing the support, including rising homelessness, poverty and foodbank use.
Boris Johnson is faced with the prospect of the cut kicking in on 6 October, the day before he makes his leader’s speech to the Conservative Party conference.
The prime minister was discomforted in the Commons last week, when he was unable to explain how universal credit claimants should recoup the £20-a-week.
Mr Duncan Smith, who quit as work and pensions secretary in 2016 in protest at benefits cuts, has consistently criticised the taper rate for being too harsh.
Jonathan Reynolds, Labour’s shadow work and pensions secretary, said: “Rising food costs, tax hikes, the energy crisis and cuts to universal credit are a perfect storm facing working families. It’s not too late for the government to change course and cancel their cut.”
The Resolution Foundation think-tank warned that easing the taper rate – while a positive move – was not a substitute for retaining the uplift.
“The gains are far smaller than the £20-a-week cut and would flow to better off families on universal credit while three million families would gain nothing at all,” said Karl Handscomb, its senior economist.
“Virtually all households would still be significantly worse off overall.”
It is understood that the plan is being pushed by the Department for Work and Pensions and is being considered by the Treasury,
Ironically, Thérèse Coffey, the work and pensions secretary, got into trouble when she appeared not to understand how the taper works, in a major gaffe earlier this month.
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