Monday 13 July 2015

The Budget and Benefits: Part 1 - the changes summarised

In last week's budget social security was centre stage, as reducing benefit expenditure seems to be the government's preferred route for deficit reduction. George Osborne's target is to reduce annual welfare expenditure by £12billion, although his initial target for fulling achieving this of 2017-18 has been delayed to 2018-19.

But what are the details? It's easy to lose these in all the political and media spin: some changes have been given greater prominence while others have been largely ignored. I've tried to lay out all the main changes here. I've also included some things, such as the 'living wage' and changes  to social housing rents, which are not benefits but are likely to have a significant impact on many claimants.

You can look at the details for yourself. The government has published the Summer Budget 2015 here: Most of the benefit related changes appear in the section headed 'Rewarding work and backing aspiration' (sigh).

In an attempt to keep this to a manageable length:

  1. All changes come into effect in April 2016 except where otherwise specified;
  2. Changes to Universal Credit that simply mirror changes in other benefits are marked '[& UC]'. 
  • There will be no inflationary increase in April 2016, April 2017, April 2018, and April 2019. The following are exempt from this freeze:
    • disability, carer, and pensioner related  benefits, elements and premiums;
    • Statutory sick pay, maternity pay, etc.
Changes to tax credits for new and current claimants
  • The income taper will be increased from 41% to 48% of gross income: in other words, for every pound over the threshold figure the claimant's tax credits will be reduced by 48p, rather than 41p (before 2011-12 it was 39%);
  • The threshold figure (see previous bullet point) will go down from £6,420 to £3,850: this means that any income over £3,850 will be taken into account now;
  • The income rise disregard will be reduced from £5,000 to £2,500 (at present, a claimant's income can rise by up to £5,000 during a tax year without affecting amount of tax credits paid for that year - this will change to £2,500);
  • No child element will be paid in respect to third (or additional) children born after April 2017. There will be exceptions for multiple births and disabled children. Compared to 2015-16 figures, this will reduce the maximum annual entitlement by £2,780 per child; [& UC];
  • The powers available to HMRC to recover overpayments will be widened.

Changes to tax credits for new claimants only

  • The family element (currently worth £545) will no longer be included for families whose first baby is born in April 2017 or later (I suppose this could also apply to existing claimants of Working Tax Credits only, but who don't start a family until April 2017). [& UC]

Employment and Support Allowance

  • For new claimants after April 2017 there will be no work-related activity component (currently £29.05). At present, after the initial assessment period, claimants  who are assessed as being potentially able to work in the future will usually receive £102.15 per week. New claimants affected by this rule will only receive £73.10 per week. [& UC]

Housing Benefit and social housing rents

  • Backdating will be limited to a maximum of four weeks (compared with a possible maximum of up to six months currently, in some circumstances);
  • For new claimants, or current claimants who start a family, there will be no family premium (currently worth £17.45 normally); [& UC]
  • There will be no personal allowances for children amounts in the Housing Benefit calculation to take account of third (or subsequent) children born after April 2017 (the same exceptions apply as for tax credits child elements); [& UC]
  • Social housing rents will decrease by 1% a year for four years;
  • Social housing tenants whose income exceeds £30,000 (£40,000 in London) will be required to pay a market rent, or near market rent (although as words in this section include 'consult', 'set out the detail', and 'due course', suggest that the timetable for this change is uncertain).

Mortgage Help (applicable to most means-tested benefits)

  • Claimants will normally have to wait 39 weeks before mortgage help begins (in fairness, the current 13 week wait was applied as a recession related provision, and was always intended to be temporary;
  • From April 2018 mortgage help will become a loan, repayable when the claimant sells the house or begins work.

Universal Credit

  • The amount people will be able to earn before their benefit is affected (the work allowance) will be reduced: For childless, non-disabled, claimants, the work allowance will go down to zero (currently £111 per month): for other claimants it will go down to £397 per month for those with no housing costs (compared to between £536 and £734 now) and to £192 per month for those with housing costs (compared with between £192 and £263 now);
  • Various changes are to be made reducing amounts for families with children. These mirror those applied to other benefits;
  • From April 2017 there will no longer be an extra amount payable for claimants who have limited capability for work and are in the work related activity group;
  • The work-related requirements placed on parents of young children will become stricter from April 2017. This is a bit tricky to explain. For simplicity, imagine you are a single parent of a child:
    • Currently, no requirements are placed on you until your youngest child is one year old. Then, until your child is three, you have to attend work-focused interviews. From the child's third birthday until they are five you also under work-preparation activities as well. Once your child is five, you have to be available for work;
    • From April 2017 there are no changes until the child is one. However, you will now have to undertake work-preparation activities once the child is two, not three, and will be expected to look for work when they are three, not five.

  • From September 2017, working parents of 3 and 4 year old children will be entitled to 30 hours of free childcare (compared with 15 hours currently).

Benefit Cap
  • The Benefit cap, which sets a limit on the total amount of benefits a household can receive, will be reduced from £26,000 to £20,000 per year outside London, and to £23,000 within London. 
Changes affecting young people 
  • From April 2017, 18 - 21 year olds will not normally be entitled to help with their rent (as part of Universal Credit - Housing Benefit is supposed to have been phased out by 2017). There are exceptions, including 'vulnerable' young people, those who may not be able to move back with their parents. Young people who have been working and living independently will also be able to get help with their rent, but only for six months;
  • From April 2017 18 - 21 year olds on Universal Credit will be expected to participate in 'an intensive regime of support' from the outset of the claim. After six months they will be expected to apply for an apprenticeship or traineeship, go on a work placement, or 'gain work-based skills'. All this is known as the 'youth obligation';
  • 18 - 24 year olds will not be entitled to the 'Living Wage'.

The 'Living Wage' (in my next post I'll justify my use of 'scare quotes' around this term.)

  • From April 2016, this will be set at £7.20, compared with the £6.50 national minimum wage currently (due to rise to £6.70 in September 2015);
  • It is intended that it reach at least £9 (60% of median earnings) by 2020.
  • It will not apply to workers who are younger than 25.

In my next post, due soon, I'll give some examples, and offer some opinions...

Main Sources

The Summer Budget 2015:
The resultant Welfare Reform and Work Bill:

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