Ally
Starting July 30, 2025, the UK government has implemented a major change to Universal Credit repayment rules, offering £420 in annual savings to over 1.2 million households.
This includes 700,000 families with children who will benefit from lower deduction rates under a newly launched “Fair Repayment Rate.”
This reform significantly lowers the maximum deduction rate from 25% to 15%, helping claimants retain more of their monthly allowance and offering breathing space amid ongoing financial pressures.
What Is the Fair Repayment Rate?
The Fair Repayment Rate is a government policy designed to ease the financial strain on low-income individuals repaying debts directly through their Universal Credit.
Previously, up to 25% of a claimant’s monthly allowance could be deducted by the Department for Work and Pensions (DWP) to repay debts. Under the new rule, this has been reduced to 15%, effective from July 30, 2025.
Key Features of the Fair Repayment Rate
| Feature | Details |
|---|---|
| Effective Date | July 30, 2025 |
| Previous Deduction Cap | 25% of Universal Credit allowance |
| New Deduction Cap | 15% |
| Average Annual Savings | £420 |
| Households Benefiting | 1.2 million (700,000 with children) |
| Applies To | Advance payments, arrears, overpayments |
| Not Covered | Fraud, court fines, benefit sanctions |
Why the Change Was Needed
This reform was prompted by growing concern over how much debt recovery was leaving Universal Credit users without enough to live on. In 2023, over half of all Universal Credit recipients had deductions from their payments—many at the full 25% rate.
Charities and advocacy groups had long argued that these deductions were pushing vulnerable individuals further into poverty, forcing many to skip meals, fall behind on rent, or take out high-interest loans just to get by.
The reduction to 15% aims to break this cycle and promote greater financial resilience.
What Debts Are Affected?
The new 15% cap applies to a broad range of deduction types, including:
- Universal Credit advance repayments
- Budgeting advance repayments
- Benefit overpayments
- Rent arrears
- Utility bill debts
- Council tax arrears
- Social Fund loan repayments
Important: Deductions related to fraud, court fines, or sanctions are not included under the new cap and may still exceed 15%.
How Does It Work?
There’s no need for claimants to fill out forms or contact the DWP. If you currently receive Universal Credit, the change will be automatically applied from your July 30, 2025 assessment period onward.
Example:
James, a single father from Liverpool, was receiving £600 per month. With a 25% deduction, £150 was taken to repay debts. Under the new rules, only 15% (£90) will be deducted—saving him £60 per month, or £720 per year.
Broader Impact on Families
For many, this is more than just a financial tweak—it’s the difference between staying warm in winter or falling behind on utility bills. The extra funds can help with:
- School uniforms and supplies
- Grocery bills and heating costs
- Transport and job-seeking expenses
The reform also aligns with the UK government’s Plan for Change, which includes:
- A £742 million extension to the Household Support Fund
- Universal free breakfast clubs in primary schools
- Job retention and employment schemes for low-income individuals
Tips to Maximise the New Savings
1. Log In and Verify:
Check your Universal Credit account after July 30 to ensure your deduction rate has dropped to 15%.
2. Use Funds Wisely:
Apply the savings to essential costs like groceries, school needs, or paying down priority bills.
3. Avoid New Debt:
Resist the urge to take out short-term loans. Use budgeting tools or seek free advice from local support services.
4. Ask for Help if Needed:
If you’re still struggling, reach out to Citizens Advice, local food banks, or debt charities for tailored assistance.
The Fair Repayment Rate, launching on July 30, 2025, marks a significant financial shift for Universal Credit users.
With deductions capped at 15%, over a million households will benefit from increased take-home support.
This reform provides essential breathing space and a chance to break free from debt dependence.
FAQs
How much will Universal Credit users save with the new policy?
On average, households will save £420 annually, though the exact amount depends on the size of the original deductions.
Do I need to apply for the new deduction rate?
No. The lower 15% deduction cap will be automatically applied from your July 30, 2025 assessment date.
What types of deductions are not affected by the 15% cap?
Deductions for fraud, sanctions, and court fines can still exceed the 15% limit and are excluded from this reform.