Universal Credit warning as DWP told families could lose up to £1,000 a year

People on Universal Credit who have children could face a real-terms benefits cut of £1,000 a year if the government chooses to increase benefits in line with earnings instead of inflation, a think tank has warned. The Department of Work and Pensions (DWP) has been told that low-incomes families with children will be the worst off if the government moves forward with the proposals.

So far, the government has refused to rule out uprating benefits by earnings growth. But it will be up to new chancellor Jeremy Hunt to deliver the verdict during his fiscal statement on October 31.

The Resolution Foundation said uprating by earnings would amount to a real-terms cut, which would set the typical incomes of the poorest fifth of UK households back to levels not seen since 2001.

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The Conservative Party has been split over whether it should raise benefits in line with inflation or the lower measure of earnings. Uprating benefits in line with the recent earnings growth – 5.5 per cent – would save the Treasury £3 billion by 2026-27. However, September’s CPI rate is expected to be around 10 per cent, the Resolution Foundation said.

Decisions on benefits uprating would usually be announced in November, with any change to come into effect the following April.

Analysis from the Resolution Foundation predicts that, if benefits are raised in line with earnings, working parents who receive Universal Credit and Child Benefit would be hit the hardest and be set to lose almost £1,000 a year. A working single parent with one child would lose £478, and a working couple with three children would lose £978.

A couple with one child only receiving Child Benefit