Universal Credit Explained
A single monthly payment for people on low income or out of work. It replaces six older benefits including Jobseeker's Allowance, Housing Benefit and Working Tax Credits.
What is Universal Credit?
Universal Credit (UC) is a means-tested benefit paid monthly. It replaced Income Support, income-based JSA, income-related ESA, Housing Benefit, Child Tax Credit and Working Tax Credit. The standard allowance for a single person aged 25 or over is £393.45 per month in 2025-26. Additional elements are added for children, housing costs, disability and caring responsibilities.
How it works
If you work while on UC, your payment reduces as your earnings increase. The taper rate is 55p for every £1 earned above your work allowance. The work allowance is £404 per month if you receive help with housing costs, or £673 if you do not.
This means for every extra £1 you earn above the work allowance, your UC goes down by 55p. Combined with Income Tax (20%) and NI (8%), the effective marginal rate for a UC claimant earning above the work allowance can reach 55% + 20% + 8% = around 70% when all deductions are considered together.
Real example
Sarah is a single parent with one child, earning £1,200 per month. Her maximum UC entitlement (standard + child element + housing) is £1,250 per month. Her work allowance is £404.
Earnings above work allowance: £796 (£1,200 minus £404). UC reduction: £437.80 (£796 x 55%). Net UC payment: £812.20 (£1,250 minus £437.80). Her total monthly income is £2,012.20 (£1,200 salary plus £812.20 UC).
Who does this affect?
People who are unemployed, on low income or unable to work due to illness or disability. Around 6.2 million people claim UC in the UK. You can claim while working, with the taper gradually reducing your payment as your income rises. The system aims to ensure you are always better off working than not working.
HMRC source
gov.uk/universal-credit has eligibility details, how to apply and how payments are calculated.
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