The problem with the savings cap in Universal Credit

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Households savings and capital under Universal Credit

The government aims to focus Universal Credit on people with insufficient resources to meet their needs.  Households with savings above £16,000 will not be entitled to Universal Credit.

This introduces a significant disincentive to save for low-income households with savings on either side of the £16,000 threshold.  

This post compares the income for similar families, one with savings just above the threshold and one with savings just below the threshold.  The families both have two children receiving £350 per week in out of work Universal Credit, working 35 hours at the minimum wage and with earnings disregards of £25 per week.

  • With £15,999 of savings, the family will receive in-work support equal to £203 per week: Take home income: £392.80
  • With £16,001 of savings, the family receive no in-work support: Take home income: £190 per week.

There is a six-month grace period for people who come into money suddenly (redundancy, bequeathed).  They may take this opportunity to make sub-optimal spending decisions to fall below the saving threshold.  It will also make it difficult for households on Universal Credit to get a mortgage deposit together greater than £16,000.

The additional cost to increase the savings threshold to £25,000 is estimated to be £60m pa.

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