More than a million households in the UK are set to benefit from a significant financial boost, as the Department for Work and Pensions (DWP) rolls out a major change to the way Universal Credit debts are repaid. As of May 1, 2025, the Fair Repayment Rate — the maximum portion of benefits that can be deducted to repay debt — has been reduced from 25% to 15%.
This move, which is part of the government’s broader “Plan for Change” agenda, is expected to ease the financial strain on over a million low-income families, allowing them to retain an average of £420 more annually. The policy change comes in response to growing concern over the rising cost of living and the heavy burden that automatic deductions place on those already facing economic hardship.
A Lifeline for Struggling Families
According to government data, around 2.8 million households currently face deductions from their Universal Credit payments each month to settle various debts. These include advances taken on benefits, overpayments, crisis loans, and even amounts owed to third parties like landlords, utility companies, and local authorities for council tax or court fines.
Previously, up to a quarter of a claimant’s monthly benefit could be automatically withheld to cover these repayments. For many, this left little room to manage basic living expenses. The new cap of 15% represents a more lenient approach intended to give claimants greater financial breathing space.
Speaking on the update, Chancellor Rachel Reeves confirmed the change and its intended impact: “As announced at the budget, from today, 1.2 million households will keep more of their Universal Credit and will be on average £420 better off a year. This is our plan for change delivering, easing the cost of living and putting more money into the pockets of working people.”
Work and Pensions Secretary Liz Kendall echoed the sentiment, stating, “We are taking decisive action to ensure working people keep more of the benefits they’re entitled to, which will boost financial security and improve living standards up and down the country.”
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Understanding Universal Credit Components
Universal Credit is a means-tested benefit designed to simplify the welfare system by consolidating six existing benefits into one monthly payment. It includes a standard allowance based on the claimant’s age and relationship status, with additional elements for children, disabilities, housing costs, and caregiving responsibilities.
As of May 2025, the standard monthly Universal Credit allowances are:
- £316.98 for single claimants under 25
- £400.14 for single claimants 25 or over
- £497.55 for joint claimants both under 25
- £628.10 for joint claimants with one or both over 25
Additional monthly amounts may include:
- Up to £339 for a first child born before April 6, 2017, or £292.81 for subsequent children
- £158.76 or £495.87 for a disabled child (lower and higher rates, respectively)
- £423.27 for limited capability for work or work-related activity
- £201.68 for caregivers
- Up to £1,768.94 to cover childcare for two or more children
Claimants who work may also benefit from work allowances, which let them earn a certain amount before their Universal Credit starts being reduced:
- £684 if they don’t receive housing support
- £411 if they do
Reducing the Burden of Debt
Debt deductions have long been a contentious issue among welfare advocates, with many arguing that high repayment rates push vulnerable households further into poverty. Reducing the Fair Repayment Rate to 15% is a move many have welcomed as long overdue.
While the government still reserves the right to make deductions — especially where fraud or overpayments are involved — the new threshold means repayments will be spread out over a longer period, making them more manageable.
The DWP has clarified that these deductions will still appear on Universal Credit statements and will apply to a range of debts, such as advances, overpayments, budgeting loans, and third-party arrears like rent or utility bills. However, under the new rules, claimants should see a noticeable difference in how much is being withheld from their monthly payments.
Looking Ahead
This reform aligns with the government’s ongoing efforts to make the welfare system more responsive to the realities of modern financial pressures. It is also a signal that more changes could follow, particularly in the area of debt recovery and benefit adequacy.
With the cost-of-living crisis far from over, and inflation still impacting everyday essentials, this measure provides a tangible relief for those reliant on Universal Credit. For many, it could mean the difference between falling behind on bills or staying afloat.
As millions continue to navigate economic uncertainty, the reduction in the Fair Repayment Rate marks a meaningful step toward a more compassionate and sustainable welfare system.
