From 30 April 2025, a significant change to Universal Credit will ensure that more than a million low-income households across the UK receive a financial boost, thanks to new rules reducing the amount that can be deducted from their benefits to repay debts
This adjustment, known as the Fair Repayment Rate, lowers the cap on deductions from 25% to 15% of a person’s Universal Credit standard allowance. It is expected to leave affected households with an average of £420 more in their pockets each year.
Improving living standards across the UK with Universal Credit
The change is expected to benefit around 1.2 million of the UK’s poorest households, including 700,000 families with children. The aim is to ensure that those already facing financial hardship can retain more of their monthly income to cover essential living costs, such as food, rent, and energy bills, while still repaying debts sustainably.
This policy is a key part of the Government’s Plan for Change, which focuses on boosting living standards, addressing poverty, and providing more support for working families. By easing the burden of debt repayments, the Government hopes to give struggling households greater financial security and help them manage the cost-of-living pressures that continue to affect many across the country.
Reducing deduction rates
The new deduction cap applies to debts such as benefit overpayments, rent arrears, utility bills, and other money owed to the Government or third parties.
Previously, many households could see up to a quarter of their standard Universal Credit allowance deducted to service these debts. For people already on tight budgets, this often meant difficult choices between paying bills or putting food on the table. The reduced deduction rate is designed to ease this pressure without removing the responsibility to repay.
This change also reflects a shift in government priorities, aiming to support low-income families more holistically. The Government recognises that ensuring people can cover their day-to-day expenses makes them more likely to succeed in work and less likely to fall further into poverty or debt. It is also seen as a more compassionate and effective approach to welfare support, especially when inflation and energy prices have placed additional strain on household budgets.
Alongside the Fair Repayment Rate, other supportive measures are being rolled out as part of the Plan for Change.
Easing the repayment rate for households that struggle
These include a one-year extension of the Household Support Fund, backed by £742 million, which helps local councils provide emergency support for food, energy costs, and essential household items. In addition, initiatives such as free breakfast clubs in all primary schools in England aim to tackle child poverty and ensure every child has a healthy start to the day.
The Government is also focusing on employment as a route out of poverty, with reforms to job centres, a new career service, and a youth guarantee to ensure every young person is working or in education. The recent increases to the National Minimum and Living Wage further aim to ensure that being in work translates to a better standard of living.
The introduction of the Fair Repayment Rate shows a significant policy shift intended to make Universal Credit work more effectively for the country’s most vulnerable households. The Government hopes to improve living standards, reduce poverty, and create a more sustainable path toward financial independence by easing the repayment burden on those already struggling.
