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Welfare Reform Universal Credit, the Benefit Cap, Under-occupancy Deductions, and Council Tax. Universal Credit. What is it? A total overhaul and replacement of the majority of the current benefit system with one single payment made up of various components or ‘allowances’

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welfare reform universal credit the benefit cap under occupancy deductions and council tax
Welfare Reform

Universal Credit, the Benefit Cap, Under-occupancy Deductions, and Council Tax

universal credit
Universal Credit

What is it?

  • A total overhaul and replacement of the majority of the current benefit system with one single payment made up of various components or ‘allowances’
  • UC will abolish most of the core benefits currently claimed
  • UC will be paid monthly in a lump sum, and no longer be based on the number of hours you work, but the amount of money you make
what does it replace
What does it replace?
  • Income Support (both disability and parents)
  • Income-based Jobseekers Allowance
  • Income-based Employment & Support Allowance
  • Incapacity Benefit
  • Housing Benefit
  • Child Tax Credits
  • Working Tax Credits
  • The Severe Disability Premium
what will remain
What will remain?
  • Attendance Allowance
  • Carer’s Allowance
  • Child Benefit
  • Contributory JSA and ESA
  • Guardian’s Allowance
  • Pension Credit (UC does not impact pensioners)
  • Statutory Sick Pay
  • Statutory Maternity, Paternity and Adoption Pay
  • Winter Fuel Payments
  • DLA (until it becomes PIP, but still administered separately)
how will it be administered
How will it be administered?
  • All decision making and the main point of contact will be through the DWP
  • HMRC will gather ‘real-time’ data for in-work benefits. This will be done through the PAYE tax system for employed people and through a simplified, monthly online self-assessment for self-employed people
  • The majority of the claims will be completed online
  • ‘Work-related requirements’ may be outsourced to external agencies, probably through the Work Programme Providers
  • UC is based on earnings not the number of hours worked
the timetable
The Timetable
  • October 2013 – No new claims for Income Support or (IB) JSA and ESA
  • October 2013 – April 2014 Migration of those receiving JSA and IS begins as they move in (and out of) work.
  • April 2014 – No new claims for Tax Credits or Housing Benefit
  • April 2014 – December 2015 Migration of most other claimants, including part-time workers, disabled people, lone parents and carers
  • January 2016 – October 2017 – Migration of everyone else. Mainly those who are working and only claiming HB (and maybe Tax Credits)
other changes
Other changes
  • There are nearly a million people still receiving Incapacity Benefit and Income Support (Disability) who will continue to be reassessed. They will be placed into ‘conditionality groups’ based on the current Work Capability Assessment, which will remain in place under UC
  • Parents moved from Income Support to JSA when youngest child reaches 5 (previously 7)
  • Reduction in payment of (CB) ESA and JSA to 1 year
  • Abolition of the Social Fund – budget and responsibility will be moved to local authorities. Budgeting Loans and new Hardship Payments will remain and be deducted from on going entitlement. Crisis Loans and Community Care Grants will be replaced by a local system of provision. Westminster intends this to be vouchers.
  • Abolition of DLA and replacement with Personal Independence Payments
the basic conditions
The Basic Conditions
  • These are quite similar to those that currently exist, particularly around income and capital
  • The main changes are:
    • A new ‘claimant commitment’ which must be signed by BOTH partners
    • If one partner is under pensionable age they must both claim UC, not Pension Credit
    • Reduction in the amount of time spent out of the country
    • Restrictions on those who can claim while a student to only the most severely disabled (and presumably the least likely to enrol)
how will it be paid
How will it be paid?
  • UC will be paid as one monthly lump sum payment
  • Housing costs will be paid direct to the tenant, unless they are vulnerable. The definition of vulnerable will be very limited
  • As it is based on ‘real-time’ data, it will change with wages rather than after
  • Which partner will be paid is a decision for them
  • Claimants experiencing delays in payment can receive ‘payments on account’, which will act like advances
how much
How much?
  • A ‘standard allowance’
  • An amount for each dependent child
  • An amount for each disabled child (at a lower or higher rate)
  • An amount for each disabled adult (at a lower or higher rate)
  • An amount for a carer
  • An amount for housing costs
  • An amount for childcare costs
transitional protection
Transitional Protection
  • The government has made it clear that no one will ‘lose out’ under UC. This means that existing claimants who are migrated over and would have received a lesser amount under UC, will have their original award maintained
  • However, this will be frozen and will not rise with inflation until the UC amounts rise to meet it
  • A change of circumstance will lead to the application of the new amount. Likely to affect people who move into work and then out again
  • This will mean that two households in exactly the same circumstances will receive different amounts depending on the date they claimed
how does the new taper and disregard system work
How does the new taper and disregard system work?
  • Because different benefits have different rates at which they reduce as a claimant’s income increases, the combined effect can be that moving into work does not increase income significantly. This is called the ‘poverty trap’; the way in which low wages combine with benefit payments to act as a disincentive to work.
  • For example, for every pound earned in wages, a claimant is expected to pay 65p towards their housing costs (that’s 65%). However, when a claimant is also receiving Tax Credits, this too is treated as income for the purposes of housing costs, meaning that you immediately lose 65% of your tax credits as well. When combined with other benefits, income tax and NI, this can be almost 97p out of every pound. So you are no longer working for minimum wage, you are actually working for much less.
  • The idea behind UC is that these disincentives will be reduced by having a consistent rate at which it will be reduced (the taper rate) and by apply a generous ‘disregard’, which will be ignored when calculating someone’s entitlement.
how will it work in practice
How will it work in practice?
  • Depending on your status (lone parent, disabled etc.) a claimant will be given a maximum amount of benefit (similar to the current ‘applicable amount’, which the government says you need to live on) and a disregard, which will apply when calculating their entitlement. So if your maximum is £200 per week, the disregard is £10 per week and you made £100 a week, the DWP would calculate your entitlement based on £90
  • Then a flat reduction rate will be applied to every pound you make above the disregard after tax and NI.

Maximum amount of UC (out of work) = £200

Earned income after tax and NI = £100

Disregard = £40

Income of £100 – disregard of £40 = £60

£60 excess income x 65% = £39

Maximum UC + Income of £100 - £39 =


conditionality and looking for work
Conditionality and looking for work
  • There are 4 conditionality groups
    • No work-related requirements
    • Work-focused interviews
    • Work-focused interviews and work preparation
    • All work-related requirements (including being available for and looking for work)
  • At present those claiming ESA fall into one of two groups: Work-related Activities (WRA) or the Support Group
  • This will be replicated in UC, but be either ‘limited capability for work’ (the current WRA group) or ‘limited capability for work and work-related activities’ (the current Support Group)
  • Those with ‘limited capability for work’ only, will be required to attend work-focused interviews and work preparation
  • Carers of severely disabled people, parents of children under-1 and those escaping domestic violence, will NOT be required to prepare for work
  • People with children aged between 2 - 4 will be required to attend work-focused interviews and possibly work-related activities later
  • Those earning above a certain amount will not be expected to undertake Work-related Activities (this is part of the movement from hours to income)
personal independence payments
Personal Independence Payments
  • PIP will replace DLA for all working age claimants, even if they have an indefinite award. Note that it will not replace DLA for under-16s
  • PIP will be introduced for new claims from June 2013
  • All DLA claimants will have to make a claim for PIP, including by attending a medical assessment (exemptions likely to remain)
  • The government intends to reassess all people receiving DLA and remove around 500,000 people from it. This is likely to involve taking the current caseload and removing the bottom 20%. This is most likely to affect people will lower needs, primarily those with mental health issues, and those with lower level but combined physical and mental health problems.
  • Disability payments within UC will generally be structured according to an enhanced and lower rate only. While the enhanced rate will be similar to the current higher rate, the lower rate will be significantly reduced. This means that around 100,000 disabled people would be likely to see a reduction in their benefits. The most severely disabled will not see a reduction
self employed
  • All self-employed people will receive a once in every 5 years, ‘Start-up Period’, lasting for a year, during which their income can be minimal (after deductions, for example) but still receive their full entitlement to UC
  • After this ‘Start-up Period’, a Minimum Income Floor will be applied. This will assume that a claimant has a certain income, even if they don’t. This is likely to be the equivalent of 16 hours at NMW. So if you earn less than this you will still see a reduction in benefit as if you had earned more
childcare costs
Childcare costs
  • At present a claimant can disregard most of their childcare costs through their HB, CTB and WTC
  • As these will be abolished, claimants will only receive the flat rate of 70% of their costs, subject to upper limits (£175 per week for one child)
  • This is, however, an area that remains to be fully developed, and it is clear that the government are looking into other systems
  • The new sanctions regime is much harsher, with much longer periods. For example, for a first sanction, the period is 91 days if the claimant is subject to the full conditions
  • Hardship payments will only pay 60% of the lost standard allowance, and will be recovered later
the benefit cap
The Benefit Cap
  • No out of work (or under-employed) household will receive more in benefits than the average household receives in wages after tax i.e. roughly £500 a week
  • This will be introduced in April 2013, and will initially be deducted from a claimant’s HB. It will also apply to UC, but with slightly different conditions
  • The Benefit Cap will NOT be appealable to a tribunal
  • As the Benefit Cap is linked to wage inflation but benefits are linked to the CPI, more and more households will be affected as wages fail to keep up with benefits
benefit cap under hb
Benefit Cap under HB


  • Only applies to working age claimants (but both must be of pensionable age)
  • If anyone in the household is receiving DLA or the Support Component of ESA (but not those only in the Work-related Activities Group)
  • Those receiving Working Tax Credits (you must be 25 or over, and working 16 hours if single or 24 as a couple)
problematic groups
Problematic groups
  • Those still receiving Income Support (Disability) and Incapacity Benefit NOT exempt – if they are likely to be placed in the Support Group it might be worth attempting to expedite their migration to ESA
  • Those receiving Income Support because they have a child under 5
  • Those receiving Carer’s Allowance are NOT exempt, but expected to care for someone for 35 hours a week
  • Those in temporary accommodation
benefit cap under uc
Benefit Cap under UC
  • This will apply in much the same way but as WTC will no longer exist, the threshold will be based on income not hours i.e. the equivalent of 16 hours at NMW. As couples under the old system will have to work 24 hours to be exempt i.e. to get WTC, they would be better off under the new system
  • As the new self-employed rules will be based on income not hours, after the ‘Start-up Period’ claimants will be forced into employed work
discretionary housing payments
Discretionary Housing Payments
  • As the Benefit Cap is intended to push people into work, DHPs cannot be used long term. They will largely be used for people who are disabled or otherwise struggling to find work. But most likely conditional on their moving into work quickly
bedroom tax
‘Bedroom Tax’
  • A reduction from a claimant’s HB or UC will be made if they are deemed to be under-occupying their social housing
  • Most local authorities do not know how many people are affected because they are waiting for information from their Housing Associations
  • 14% for 1 room and 25% for 2 rooms
  • As rents are higher in London, this will mean more in cash terms than it will elsewhere, even though under-occupancy is more of a problem in rural and Northern areas
  • There are no exemptions but it will only affect working age households
  • 600,000 households affected, with a saving to government of £500 million per year
  • DHPs targeted only on those with disability adaptations or foster carers
council tax
Council Tax
  • Council Tax Benefit will be abolished in April 2013
  • It will be replaced by different local authority systems, similar to the current exemptions and reductions system i.e. single occupancy, empty home
  • The Government will be reducing each local authorities’ budget by 10% and they will be expected to make this up by reducing entitlements
  • DHPs will NOT be available
  • Westminster will be absorbing the cost, so there will be no changes to entitled in 2013, but there probably will be in 2014/15.