Welfare Reform January 2013

As we enter 2013, the long forecast changes under the Welfare Reform Act 2012 begin to be implemented, having a significant impact on many benefit Claimants between age 16 and State Pension Credit age.

The following guide takes you through the changes as they are rolled out over the year ahead.

January 2013 Child Benefit

Child Benefit becomes means-tested from 7th January. Any households where at least one parent earns over £50,000 per annum will have their benefit taxed at 1% for every £100 over the threshold. Those with earnings with £60,000 or over will see their benefit stopped altogether. Claimants affected by the change will have to complete a self-assessment form to account for the tax due, or have the option to relinquish the benefit payment instead of having the tax liability.

Annual Benefit Increase

The majority of benefits and Tax Credits which have previously been increased in line with the Consumer Prices Index will be capped at a 1% increase until 2016. This is well below the rate of inflation and will see many working age Claimants lose out in real terms.

April 2013

Disability Living Allowance (DLA)

The pilot scheme for Personal Independence Payment (PIP) is to be trialled in Cheshire, Cumbria, Merseyside and North East England; replacing new claims to DLA. PIP is made-up of a Mobility Component and a Daily Living Component. A key feature of PIP is that there is no equivalent to the existing DLA lower rate care component. The weekly rates are proposed as follows:

Mobility Component

Standard rate: £21.00

Enhanced rate: £55.25

Daily Living Component

Standard rate: £53.00

Enhanced rate: £79.15

Every Claimant will have to undergo an assessment, and most will be required to attend a face-to-face consultation with a healthcare professional. The assessment process will be similar to the existing Work Capability Assessment for Employment and Support Allowance (ESA).

Claimants will be assessed on how their health condition impacts their ability to undertake specified daily tasks.

Each task will award a number of points according the level of a Claimant’s ability to undertake the activity. To be awarded the standard rate, at least eight points must be achieved in the assessment; for the Enhanced rate, a total of 12 points will need to be gained.

The assessment will take account of physical, sensory, mental, intellectual and cognitive impairments and developmental needs and will reflect variable and fluctuating conditions. When assessing a Claimant’s ability to undertake a prescribed activity, they must be considered as being able to do so reliably, repeatedly, safely and in a timely manner.

The “Bedroom Tax”

For those who currently rent in the private sector, the rate of Local Housing Allowance (LHA) payable is assessed on the size of the Claimant’s household, which will determine the number of bedrooms they require. Benefit is then capped at the equivalent rate, despite the size of the property they choose to live in.

From April, the rules for social housing tenants will fall into line with those for the private sector, meaning that anyone with a spare bedroom will see their benefit reduced accordingly. Those with one additional bedroom will see a 14% cut in their benefit, for those with two or more spare rooms, Housing Benefit will be reduced by 25%. Claimants will be expected to pick-up the shortfall from other benefit payments.

Discretionary Housing Payments (DHP)

A DHP is an extra payment administered by Local Authorities for Claimants whose Housing Benefit does not cover all of their rent and who are experiencing hardship as a result. The Government has increased the annual budget for DHP to £60 million for the new tax year, to buffer against Housing Benefit reform.

Council Tax

A new local rebate scheme will be introduced to replace Council Tax Benefit. The Government has slashed 10% off its total annual budget for Council Tax support. Local Authorities will therefore only receive 90% of the previous funding for Council Tax Benefit. There is no obligation on councils as to how this funding is administered and allocation is likely to depend on the council’s wider budget. Some authorities may choose to continue with the existing system of 100% rebates, others may, however, decide to reduce budgets for Council Tax relief by more than 10%.

The Benefit Cap

A household cap on benefits will be introduced from April, falling broadly into line with the income of an average working household. A single person with no children will see their benefit payments limited to £350 per week and £500 per week for couples and lone parents.

The cap will initially be administered by reducing Housing Benefit payments and will eventually be rolled out under the Universal Credit (UC) scheme. There will be certain exceptions to the cap, initially, Working Tax Credit and, when introduced, the childcare element of UC will not be included, so as not to reduce incentives to work.

DLA and PIP will also be disregarded, as will the Support Component of ESA and Industrial Injuries Benefit to avoid penalising disabled people. The Government will also offer exemptions for the Armed Forces Compensation Scheme, War Disablement Pensions and War Widow/Widowers Pensions as recognition of the contributions made by members of the armed forces and their families.

The Social Fund

Payments from the existing Social Fund are to be scrapped and replaced by local schemes and payment on account. Community Care Grants and Crisis Loans will be administered on a discretionary basis by Local Authorities. Budgeting Loans will continue in their current form until UC is rolled out, when they will be replaced by an advance payment on account.

October 2013

Universal Credit (UC)

No new claims will be available for Income Support, Income Based Jobseeker’s Allowance (JSA) and Income Related Employment and Support Allowance (ESA) from October. Anyone wishing to claim any of these benefits will instead have to apply for UC.  They will be varied conditionality attached to UC, depending on whether the Claimant is a jobseeker, ill or disabled or has caring responsibilities. Contributory JSA and ESA will continue as normal.

UC can be claimed online and is paid monthly in arrears directly to the Claimant for their household. In order to provide greater incentives into work, the working hours rule has been removed and only 65% of a Claimant or their partner’s net monthly earnings will be taken into account in the means-test. The capital thresholds will remain unchanged at £6,000 and £16,000.

Claims will be worked out much in the same way as existing means-tested benefits with a standard personal allowance, then additional amounts for limited capability for work and work related activity, disability and caring responsibilities.

There will be certain fixed disregards for earned income prior to the 65% taper being applied. These will be more generous for disabled Claimants and lone parents. There will, however, be no equivalent to the current Severe Disability Premium and Disabled Child Premium in means-tested benefit under UC. In addition, unlike the existing system where a severely disabled person can also be classed as a carer; they will not be eligible for a carer element if they are determined as having limited capability for work related activity. This is going to make a lot of severely disabled Claimants worse-off under the new regulations.

Presently, a couple where one partner is of working age but the other is at the qualifying age for State Pension Credit (SPC) are subject to the more generous SPC rules. Any couples who claim UC, where one partner is of working age (that is, below State Pension age for women), will be subject to the tighter working age regulations.

Personal Independence Payment

From June, PIP will be rolled out nationally for new claims. From October, the migration process will begin for existing claims, starting with those whose DLA claims are due to be reviewed. It is intended that all existing recipients of DLA will be invited to claim PIP from 2015 onwards. Every Claimant will be subject to the new assessment criteria to determine eligibility for the new benefit and the appropriate rate payable.

The reassessment process may have a knock-on effect on other means-tested benefits and Tax Credits. Other schemes such as Blue Badges for parking, Motability agreements and public transport concessions may also potentially be affected.

April 2014

Universal Credit (UC)

Existing claims to JSA (IB), ESA (IR) and Income Support will start to be migrated over to UC. In addition to this, new claims to Housing Benefit and Tax Credits will be abolished and rolled into new claims to UC. This will see additional amounts payable within UC for children, housing costs and childcare.

Housing Credit

As Housing Benefit is abolished, there will be a housing element introduced into State Pension Credit.