Two-Tier Benefits: UK's Universal Credit Reforms Spark Decades of Inequality

A Two-Tier System for Universal Credit Claimants-The Labour government’s planned welfare reforms are on a collision course with reality, with a new analysis from the Institute for Fiscal Studies (IFS) warning they will create a two-tier benefits system that could last for "decades." This move, affecting hundreds of thousands of individuals, will see new Universal Credit (UC) claimants receive significantly less than those already on the system, creating a stark divide in financial support for those with health conditions.

For Universal Credit Claimants and the Disabled Community-If you are a current or future Universal Credit claimant with a long-term health condition or disability, these changes are critical. From April 2026, the "limited capability for work and work-related activity" (LCWRA) element of Universal Credit, also known as the "health element," will be cut by almost half for all new claimants. The current rate of £423.27 per month will be reduced to £217.26 per month.

This means if you apply for Universal Credit after April 6, 2026, you will be paid around £2,500 less per year than a claimant who applied before this date. The previous, higher rate will be protected for existing claimants, but frozen until 2029, meaning it will still lose value against inflation. This "transitional protection," as it's known, means that one person with a long-term health condition could be receiving a significantly different level of support from another in the same circumstances, simply based on the date they first claimed.

According to the IFS, this two-tier system is not a short-term fix. Given that around 500,000 people currently on incapacity benefits have been claiming for 15 years or more, the disparity could last well into the 2040s and beyond. This has been called an "Orwellian approach" where some people who are ill or disabled are "more equal than others."

Impact on British Bangladeshi and South Asian Communities-The proposed reforms are likely to have a disproportionate impact on certain communities, including British Bangladeshis and other British South Asian groups. Research has consistently shown that these communities are more likely to be living in poverty and have higher rates of certain long-term health conditions and disabilities, such as diabetes, chronic pain, and cardiovascular disease. As a result, they are more likely to be claiming health-related benefits like the LCWRA element of Universal Credit. The reduction in benefit rates for new claimants will therefore hit these communities particularly hard, deepening existing inequalities and potentially pushing more families into financial hardship.

A Complex Rationale and Fierce Opposition-The government's stated aim for these changes is to "rebalance Universal Credit rates" to "reduce the perverse incentives that discourage work," while also helping those with long-term health conditions into employment. They have promised to increase the standard rate of UC above inflation until 2029, with a 2.3% rise this April, and have also allocated £3.8 billion in employment support.

However, critics from across the political spectrum and from major charities have been vocal in their condemnation. James Taylor, director of strategy at disability equality charity Scope, stated that a system where two disabled people in the same situation receive different levels of support "simply doesn’t make sense." He urged the government to pause the reforms and co-produce any changes with disabled people to ensure they are fair and effective.

The government had originally planned even more drastic cuts, including restricting eligibility for Personal Independent Payments (PIP), a key benefit for 3.7 million people. This was expected to deliver the bulk of the £4.8 billion in savings, but the government was forced to backtrack after more than 100 Labour MPs threatened to vote against the measures.

Despite the backpedaling on PIP, the controversial changes to the UC health element remain, creating a deep divide that critics argue will embed inequality and could disincentivize people from attempting to work for fear of losing their protected, higher benefit rate should they need to return to a claim. For half a million future claimants, the financial consequences of these reforms will be significant and long-lasting, marking a defining moment in the UK's social security landscape.