Guest blog by Dr Phil Agulnik, Director of entitledto Ltd

Last summer in his July Budget, alongside cuts to tax credits, George Osborne announced cuts to the Universal Credit work allowance. While, in November 2015, huge pressures on the Chancellor forced him to abandon the changes to tax credits, the cuts to Universal Credit work allowances remain. These changes were implemented on 11 April this year and started to roll out around the UK on 25 May.

The impact of this decision has been largely unreported but will have a big impact on the finances of your clients.

The result is that in-work support low earners receive under Universal Credit will be significantly lower than the help currently available through Working Tax Credit. And this change will therefore mean financial hardship for many people on low-incomes.

This is the policy intention, and the introduction of the higher ‘living wage’ is meant to compensate. However, until the living wage rises significantly more, better-off-in-work calculations for Universal Credit now show smaller gains than under the benefit’s original structure.

A few examples of the financial impact help to paint a gloomy picture:

Excluding housing costs, a couple aged over 25 with no children or disabilities earning £7.20/hour and working 30 hours a week would be £53.86 a week better off under Working Tax Credit than they would be under Universal Credit. If their circumstances stayed the same for the next five years – during which time Universal Credit is being rolled out across the UK – that individual would receive an extra £14,000 in payments.

Before the Budget announcement in July 2015 the work allowance for a lone parent with no housing costs was £8,808. From 11 April 2016 this dropped to £4,764. Single people and couples without children lost the allowance altogether (it was £1,332).

So is it too late to help your clients? Fortunately the answer, for most, is no.

Universal Credit is now gradually being rolled out across the UK. All new claims from single unemployed people are included and a few job centres are already piloting the full service for new claims from couples or those with children. 40 more job centres will be added throughout the year and from the start of 2017 things are expected to speed up with up to 50 Jobcentres being added per month until June 2018. All existing claimants will be moved over to Universal Credit at some point between April 2018 and April 2021.

However, once Universal Credit is rolled out in their area your clients will no longer be able to apply for tax credits, and so their income may be severely impacted.

The government says no-one will be worse off under the new Universal Credit system but this is only if they are claiming an existing benefit when their Universal Credit award begins.

Nationally around 1 million people are entitled to Working Tax Credits but do not claim it. On average they lose £1,600 a year. If everyone who is entitled were to receive that £1,600 average award, it would mean an extra £1.5 billion per year coming into the economy.

It is therefore imperative for people with an upcoming deadline for claiming tax credits to claim now. People who do not will miss out on potentially £1000s of extra income that tax credits can provide.

entitledto has created a free to use tax credits take-up tool, to help people understand the impact of these changes and whether they might be eligible to apply for tax credits before Universal Credit comes to their town or city. You will find the tool at https://takeup.entitledto.co.uk