Budget July 2015 - Bigger Briefing

10th July 2015

UK Government Summer Budget - July 2015

Benefits and Welfare

1.
Background
1.1
The Chancellor has announced further changes to the benefits and welfare system as part of the summer budget. These measures will be phased in and will not affect any claimants until April 2016 at the earliest, with many changes affecting only new claimants.

2.
Benefit Cap

2.1
The UK government believes that those out of work should not receive more from benefits than many working families earn. The government will lower the cap on the total amount of benefits an out of work family can receive, from £26,000 to £20,000, except in London where the cap will be £23,000.

2.2
A cap at
o £26,000 is equivalent to typical pre-tax earnings of around £35,000.
o £23,000 is equivalent to typical pre-tax earnings of around £29,000
o £20,000 is equivalent to typical pre-tax earnings of around £25,000

2.3
Households are exempt from the cap where someone is entitled to working tax credit or is in receipt of benefits relating to additional costs of disability, or war widow's and widower’s pension.

2.4
18 households are affected by the present benefit cap in The Highland Council area. Overall these 18 households currently have £1,011.75 per week or £52,611 per annum deducted from their housing benefit entitlements; an average of £56.20 per week or £2,923 per annum per household.

3
Housing benefit/Universal Credit (housing element)

3.1
From April 2016, housing benefit claims will be backdated for a maximum of four weeks. The current applicable backdate periods are 6 months for working age and 3 months for non-working age.
872 backdated housing benefit applications were made to The Highland Council during 2014/15; many would have been made out-with the proposed 4 week period.

3.2
The family premium for housing benefit will be removed for new claims and new births from April 2016.
The Highland Council currently has 1,866 housing benefit family premiums in payment. This premium is currently worth £17.45 per week or £907.40 per annum to each household. Based on current figures, the removal of this premium for the existing caseload would result in a £1.693m loss to the local economy.

3.3
From April 2017, those out of work aged 18 to 21 making new claims to universal credit will no longer be automatically entitled to the housing element and who were living independently and working continuously for the preceding six months will be exempt from this measure.

3.4
Applicable amounts for housing benefit and local housing allowance rates will be frozen for four years from April 2016. For 2015/16, the local housing allowance rate for a 3-bedroom house with a Highland postcode is £126.92.

4.
Tax credits and Universal Credit

4.1
Changes announced will see expenditure on tax credits return to 2007-2008 levels in real terms. In 2016-2017, five in ten families with children will be supported through tax credits. In the current year, six in ten families with children are supported through tax credits (nine out of ten in 2010).

4.2
From April 2016 changes to the taper rates in tax credits will see the taper rate increased from 41 per cent to 48 per cent of gross income so that, once claimants earn above the income threshold, their award will be withdrawn at a rate of 48 pence for every extra pound earned.

4.3
From April 2016 there will be changes to tax credits income thresholds and universal credit work allowances. The amount you are able to earn to qualify for working tax credits will be reduced from £6,420 to £3,850 per year. Work allowances (the amount you can earn before your benefit is affected) in universal credit will be abolished for some claimants.

4.4
The child element of tax credits and universal credit will no longer be awarded for third and subsequent children born after 6 April 2017. This will also apply to families claiming universal credit for the first time after April 2017. Households, who have been in receipt of tax credits or universal credit, with an interruption of less than six months, will be protected and children with disabilities will continue to receive the disabled child element or severely disabled child element in tax credits and the equivalent in universal credit. Multiple births will be protected in both systems and the DWP and HMRC will develop protections for women in exceptional circumstances.

4.5
From April 2016, the amount by which a claimant’s income can increase in-year compared to their previous year’s income before their tax credit award is adjusted (the income rise disregard) will be reduced from £5,000 to £2,500.

4.6
From April 2017, the family element in tax credits and the higher first child element in universal credit will no longer be awarded when a first child is born. This will also apply for families with children making their first claim to universal credit.
Households who have been in receipt of tax credits or universal credit with an interruption of less than six months will be protected and children with disabilities will continue to receive the disabled child element or severely disabled child element in tax credits and the equivalent in universal credit.

4.7
HMRC will recover overpayments of working tax credit from payments of child tax credit, and recover overpayments of child tax credit from payments of working tax credit. HMRC will also extend the use of the private sector to improve the collection of tax credit debt; this will target tax credit debt in excess of £3,000 that has already passed the extending tax credits debt collection process.

4.8
At April 2015, The Highland Council area had 13,900 individuals or families claiming child tax credits, working tax credits or a mixture of both.

5.0
Freezing benefit rates

5.1
Most working-age benefits will be frozen for four years from April 2016.

5.2
Benefits excluded include maternity allowance; statutory sick pay; statutory maternity pay; statutory paternity pay; statutory shared parental pay; statutory adoption pay; disability, carers’ and pensioners’ premiums in the frozen benefits; the employment and support allowance support group component; and other disability, carer and pensioner benefits, which will continue to be uprated in relation to the consumer price index or earnings as applicable.
The uprating freeze will extend to child tax credit and working tax credit (excluding disability elements). As detailed at paragraph 3.4, this freeze will also apply to housing benefit and local housing allowance. All disability elements will continue to be uprated by prices each year.

6.
Employment and support allowance – work related activity group
6.1
From April 2017, new claimants of employment and support allowance (ESA) who are placed in the work-related activity group will receive the same rate as those claiming jobseeker’s allowance – currently £73.10 for those aged 25 and over.
6.2
The work related activity group is for claimants that the Department for Work and Pensions consider will be capable of work at some time in the future or work related activities immediately. This change will see new claimants to ESA lose £29.05 per week premium (15/16 rate) if placed in this group.
6.3
The most up to date information available shows 2,090 people within The Highland Council area in the ESA work related activity group. Based on these figures if this premium was removed from the current ESA caseload it would result in a reduction of £3.157m per annum to the local economy.
7.
Universal Credit : Parent conditionality
7.1
From April 2017, with support from Jobcentre Plus, parents claiming universal credit, including lone parents, will be expected to prepare for work from when their youngest child turns two, and to look for work when their youngest child turns three.
8.
Support for mortgage interest (SMI)
8.1
From 1 April 2016, claimants will have to wait 39 weeks before support for mortgage interest (SMI) can be claimed. This waiting period returns to the pre-recession rules and the capital limit will be maintained at the higher level of £200,000. From April 2018, new SMI payments will be paid as a loan. Loans will be repaid upon sale of the house, or when claimants return to work. Loan payments will be subject to interest charges.
9.
Protecting pensioner benefits
9.1
The ‘triple lock’ on the state pension will be maintained and other benefits for pensioners, including the winter fuel allowance and free TV licences for over 75s, will be protected in this parliament.
9.2
The ‘triple lock’ was introduced in 2010 and was a guarantee to increase the state pension every year by the higher of inflation, average earnings or a minimum of 2.5%.
10.
Living wage
10.1
From April 2016, a new national living wage of £7.20 an hour for the over 25s will be introduced. This will rise to over £9 an hour by 2020.