The taper rate is the amount of Universal Credit payments that claimants lose, as they work and earn more above a certain threshold. This is known as the ‘work allowance’.

The current Universal Credit taper rate is 63%. That means for every £1 earned over that work allowance, the amount of Universal Credit paid to the claimant is reduced by 63p.

Sunak announced that the taper rate will be reduced from 63% to 55%. This means that if someone earned £100 in a month above their work allowance, they would lose £55 from their Universal Credit payment, instead of £63.

This means that those claiming the benefit will take home some more money each month.

The announcement comes just weeks after millions of people on Universal Credit saw their payments reduced by £20 a week after the £20 per week uplift introduced at the onset of the coronavirus pandemic was withdrawn.

Despite the reduction in the taper rate, StepChange Debt Charity warns that lower income households are still likely to be worse off than they were before the £20 Universal Credit uplift was withdrawn.

Peter Tutton, head of policy, research and public affairs at StepChange, said: “Among our clients, lower income households are disproportionately represented among those experiencing problem debt, and today’s measures – while helpful – won’t shift the dial on this much. The improvement to the Universal Credit taper is very welcome – although while 2 million working households will benefit, millions of others will not.

“A third of our clients experiencing problem debt claim Universal Credit, and they are already experiencing the rising costs of costs of fuel, energy and food, together with the Covid backlog of rent and council tax arrears, and unaffordable deductions from their payments which push them further into debt.”