Universal Credit surplus earnings threshold of £2,500 extended for another year

The £2,500 surplus earnings threshold for Universal Credit will be extended for another year until at least April 2025, according to an analysis of the November 2023 Autumn Statement published on 23 November 2023¹. The threshold had been due to reduce to £300 from April 2022¹.

The surplus earnings rule governs what happens when a claimant's earnings rise above a set level and then fall again. Under the threshold as it stands, earnings above £2,500 in a claim period are treated as surplus earnings and can reduce later Universal Credit awards. The extension keeps that figure at £2,500 rather than the lower £300 level that had been planned¹.

The same analysis sets out other changes announced at the same time. All working age benefits, including Universal Credit, were increased using September's Consumer Prices Index inflation rate of 6.7%, while pension age benefits including Pension Credit and the State Pension were increased by 8.5% under the triple lock rules¹. The freeze to Local Housing Allowance rates in place since 2020 was lifted, with maximum amounts increased to the 30th percentile of local market rents from April 2024, a rule applied for one year only¹.

The analysis also notes that the reduction in National Insurance contributions would be partly offset for Universal Credit claimants, because the 55% taper means that as net earnings rise, Universal Credit falls¹. It states that the reduction in NICs "will, in effect, be 'clawed-back' by the 55% taper in UC"¹. The work allowance and taper determine how much Universal Credit is reduced as earnings rise.

Why it matters for households

The surplus earnings threshold affects claimants whose earnings fluctuate, for example those on variable hours or short contracts. Keeping the threshold at £2,500 rather than £300 means that a month of higher earnings is less likely to be carried forward and reduce Universal Credit in a later month when pay falls back. The change applies until at least April 2025¹.

The other measures take effect on different dates. The National Insurance cut for employees applied from January 2024, while the benefit uprating and Local Housing Allowance changes applied from April 2024¹. For claimants in work, the interaction between the National Insurance cut and the Universal Credit taper means part of the gain is offset in reduced Universal Credit¹.

The Local Housing Allowance change affects private renters claiming Universal Credit or Housing Benefit. The 30th percentile rule means the allowance covers the bottom 30% of market rents in an area, so the analysis states that many people will still have to top up their rent from other income¹. The level had been frozen since 2020, and the analysis notes the amount is much less than the 50th percentile last seen in 2011¹.

What happens next

The surplus earnings threshold is extended until at least April 2025, with no further change reported beyond that date¹. The Local Housing Allowance increase to the 30th percentile is being applied for one year only¹. From late 2024, people in England and Wales who have not found a job after 18 months will need to take mandatory work placements, and from 2025 there are plans to change the activities and descriptors needed to pass a Work Capability Assessment for new claimants of new style Employment and Support Allowance and some elements of Universal Credit¹.