Resolution Foundation publishes report on Universal Credit capital rules

The Resolution Foundation published a report, "Saving penalties", on 24 April 2025 assessing the capital rules in Universal Credit and recommending changes to how savings are treated¹. The report estimates that 2 million families who would otherwise have been eligible for Universal Credit on the basis of income in 2020-22 have reduced entitlement because of the capital rules¹.

Under the current rules, the first £6,000 of capital is disregarded and entitlement ends at £16,000. The report states that both thresholds have been frozen since 2006, and that had they risen with inflation they would now be over £10,000 and £27,000 respectively¹. It says 35 per cent of working-age families in the UK had savings above £6,000 in 2006-08, rising to 46 per cent by 2020-22, while the share exceeding £16,000 rose from 23 per cent to 32 per cent over the same period¹.

Among families affected by the rules, the report estimates that nearly half, 47 per cent or 930,000 families, had capital of £16,000 or less; 12 per cent (240,000 families) had capital between £50,000.01 and £100,000; and 16 per cent (315,000 families) held over £100,000¹. For families with capital of £50,000 or less, more than 80 per cent was held in current accounts, savings accounts, ISAs, or National Savings and Investment products¹.

On saving behaviour, the report says that in the two years to March 2023, 7 per cent of Universal Credit recipients reported avoiding saving due to the risk of losing benefits, rising to 12 per cent among recipients who could afford to save¹.

The report says that two adults fully using their Help to Save accounts could save up to £13,200, made up of £6,000 within the disregarded threshold plus £7,200 in Help to Save, without losing any Universal Credit entitlement¹. It also recommends that Lifetime ISA savings be disregarded, arguing it is contradictory to expect people to run them down before claiming support given the penalties for early withdrawal¹.

The report sets out costs for its recommendations:

Source: Resolution Foundation, "Saving penalties"¹

Why it matters for households

Capital held above £6,000 reduces Universal Credit entitlement, and capital above £16,000 ends it altogether. Because both figures have been frozen since 2006, more households cross them as balances grow with inflation and higher interest rates, and the report estimates 2 million families had reduced entitlement on income grounds in 2020-22 for this reason¹. The report notes that most capital held by affected families with £50,000 or less sits in easy-access accounts, including current accounts, savings accounts, ISAs and National Savings and Investment products¹. Its proposals would change the treatment of savings that affect benefits, and of money held in Help to Save and Lifetime ISAs specifically, though no change to the rules has been announced.

What happens next

The report recommends the Government commits to indexing the thresholds with inflation starting in April 2026, and says the £16,000 cliff edge should be examined as part of the Government's review of Universal Credit¹. No government response to the report, and no date for the review's conclusions, has been reported.