Rishi Sunak went further than expected by slashing the rate – the amount of every £1 lost when someone takes on work – from 63 per cent to 55 per cent.
The move offers some relief to many of the millions of people hit by the controversial £20-a-week cut in universal credit, introduced this week.
But universal credit claimants and campaigners said the move did not go far enough and that many would still be left struggling.
The chancellor was under huge pressure to act after the cut took £6bn out of the pockets of low-earners, but is handing only £2bn back.
And the move will 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 £6bn cut is predicted to plunge half million more people into poverty, including 200,000 children. An internal Whitehall analysis warned of a “catastrophic” impact.
In the final announcement of his Budget speech, Mr Sunak said what he called a “tax on work” would be reduced no later than 1 December.
“The universal credit taper withdraws support as people work more hours. The rate is currently 63 per cent, so for every extra £1 someone earns, their universal credit is reduced by 63p,” he said.
“To make sure work pays, and help some of the lowest income families in the country keep more of their hard-earned money, I have decided to cut this rate, not by 1 per cent, not by 2 per cent – but by 8 per cent.”
Stacey Oakley, 35, a single mother who works in sales, told The Independent the move meant she would be able to keep more of the money she earned, but that it didn’t make up for the universal credit cut.
The Bristol resident, who has two children aged five and seven, and had to start claiming the benefit when her partner died three years ago. She is part of Covid Realities, a Nuffield Foundation funded research project.
She said: “Although the £86 was an extra, it became less and less of an extra very quickly with the price rises going up. This is just going some way to replacing that, but they’ve missed an important element - childcare.
“They want to be a Parliament that gets people working, but people need childcare to work. I’ve had to drop my hours to cover childcare.”
In another case, Aurora, 40, also a single mother, said she felt that people like her, who were struggling to find work due to having to work around childcare, had been “ignored” in the Budget.
“I’ve had problems with childcare because my husband died four years ago. Pre-pandemic I started working for a hospitality agency doing weddings and functions, but that ended due to Covid,” she said.
“I’ve struggled to find work during the daytime when the kids are at school, and I can’t afford childcare. This announcement won’t help me until I can start work.”
In the Commons, a scornful Rachel Reeves, Labour’s shadow chancellor, said: “After taking £6bn out of the pockets of some of the poorest people in this country, he is expecting them to cheer today at being given £2bn to compensate.”
And Morgan Wild, head of policy at Citizens Advice, said: “It doesn’t cushion the blow of the £20-a-week cut for those still looking for work or the 1.7 million unable to work because of disability, health issues or caring responsibilities.
“Given the cost of living crisis, the government must ensure every family is able to access the support they need this winter.”
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 last month.
Mr Sunak also raised the amount claimants can earn before the benefit starts to be withdrawn – known as the work allowance – to £5,000.
However, this only partially reverse one of the biggest benefit cuts imposed by George Osborne, who cut work allowances dramatically in the middle of the last decade.
Paul Johnson, the head of the Institute for Fiscal Studies, said it was a “big cut” to the universal credit taper rate, but added: “Out of work UC claimants get nothing.”
He also warned that, while work incentives for current recipients would be improved, but that the change “will drag more into the system”.
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