DWP Universal Credit shake-up could see millions get £420 boost in Budget

This move, known as the Fair Repayment Rate, could provide claimants with an annual boost of up to £420 from April 2025.

The Department for Work and Pensions (DWP) currently allows deductions from Universal Credit payments to recover various debts, including benefit advances, overpayments, and utility arrears.

The proposed reduction aims to alleviate financial pressure on struggling families primarily benefitting the worst-off families.

According to Save the Children UK, single parents could receive up to £39 more of their Universal Credit entitlement each month. For two-parent families, this figure could reach £62.

The measure is intended to address what charities describe as "unfair and unsustainable" levels of benefit deductions.

It will cover various debts, including benefit advances, overpayments, rent and council tax arrears, and outstanding utility bills.

However, it remains unclear whether the new cap will apply to "last resort deductions" used to prevent evictions or utility cut-offs.

Ruth Talbot, Save the Children UK's policy and advocacy adviser said: "It is bold thinking from ministers and we know it will have a significant impact on families and put more money in their pockets for food, toys, clothes and books."

The change is projected to benefit 1.2 million households, including 700,000 families with children.

However, some Universal Credit claimants may still face deductions exceeding 25 per cent if they pay a "last resort deduction" to prevent eviction or utility cut-offs.

The Government's rationale for this policy change is rooted in poverty reduction. A Whitehall source said: "It's a down payment on poverty reduction.

"It is unacceptable that people are in this kind of deep poverty, and this is a small victory for people in deep poverty."

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Helen Barnard, director of policy at Trussell Trust said: "This would be a positive first step to tackling the appalling levels of hardship our community of food banks see every day.

"On its own, however, this is unlikely to significantly reduce the numbers of people forced to turn to food banks to survive."

The measure could also help the Government mitigate criticism over other policy decisions, such as cuts to the Winter Fuel Payment and maintaining the two-child benefit cap.