£420 in Annual Savings Now Available for Universal Credit Recipients – Here’s What’s New

Published On: June 13, 2025

Starting June 30, 2025, millions of UK residents on Universal Credit will see more money in their pockets. That’s because the government has lowered the maximum deduction rate from 25% to 15%, under a new rule called the Fair Repayment Rate. The result? An estimated average annual saving of £420 for over 1.2 million households—including nearly 700,000 families with children.

This isn’t just another policy tweak. It’s a meaningful change designed to make life easier for claimants juggling debt, rising costs, and everyday expenses. Here’s how it works and what it means for you.

Reform

Here’s a snapshot of what’s changing and who it helps:

Feature	Details
Policy Name	Fair Repayment Rate
Start Date	June 30, 2025
Old Deduction Cap	25% of Universal Credit standard allowance
New Deduction Cap	15%
Average Savings	£420 annually per household
Households Impacted	Over 1.2 million (including 700,000 families)
Covered Deductions	Advance payments, rent arrears, utility debts
Official Source	gov.uk

Purpose

The government introduced this change to ease the financial burden on Universal Credit recipients, especially during a time when many households are still struggling with high living costs. With the cap lowered to 15%, claimants will have more of their benefit payments to cover daily expenses.

Background

Until now, up to 25% of a person’s Universal Credit allowance could be automatically deducted to repay debts like:

Advance payments
Budgeting loans
Benefit overpayments
Rent or utility arrears
Social Fund loans
Council tax debts

This often left families with less than enough to cover essentials.

Impact

So what does this really mean for someone on Universal Credit?

Let’s take an example. Sarah, a single mum from Birmingham, receives £650 a month in Universal Credit. Previously, 25% (£162.50) was taken for debts. Under the new rule, only 15% (£97.50) will be deducted. That’s £65 more in her bank each month—or £780 over the course of a year.

It’s not just helpful—it’s potentially life-changing.

How It Works

There’s no need to apply. If you’re receiving Universal Credit and have eligible deductions, the system will automatically switch to the 15% cap for your payment period beginning June 30, 2025. You’ll see the change reflected in your monthly statement.

Exclusions

Not every deduction is included in this cap. Deductions related to:

Fraud
Benefit sanctions
Court fines

may still exceed 15%, depending on the situation.

Why Now?

This reform comes at a time when inflation, utility bills, and food prices have squeezed household budgets. According to the Office for National Statistics, four in ten Universal Credit recipients were behind on at least one bill earlier this year.

The Fair Repayment Rate is part of a wider government plan to support low-income households, including:

A £742 million extension of the Household Support Fund
New job training and employment programmes
Expansion of school breakfast clubs for primary-aged children

Tips

Want to make the most of this change? Here are some simple actions you can take:

1. Check Your Statement

Log into your Universal Credit online account to review your new deduction amount. Make sure it reflects the 15% cap.

2. Use Budgeting Tools

Sites like MoneyHelper and StepChange offer free tools to help you budget and manage debt wisely.

3. Contact Support Services

If you’re still struggling, get in touch with Citizens Advice or your local council. They can help you access food banks, rent support, and more.

4. Avoid Payday Loans

It might be tempting to borrow with your new savings, but high-interest loans can lead to even more financial pressure.

A change like this doesn’t solve every issue, but for families on the edge, every pound matters. This reform gives people a better shot at managing their finances and avoiding the cycle of debt—and that’s a big step in the right direction.