The Chancellor announced a range of benefit changes to help boost people’s income if they need to claim income-based benefits and we have updated our calculator with these new measures. We set out below what the government’s changes are and how we have interpreted them.

The changes announced by the Chancellor fall into three categories: help for employees, increased benefit rates and help for private renters.

Help for employees

The effect of this measure is a maximum wage floor of £2,500 a month has been put in place to ensure wages continue to be paid. This is not a benefit reform and so has no effect on the entitlements we generate.

Increased benefit rates

Second is an increase in benefit rates. The government’s press statement announced that “The standard rate in Universal credit and Tax Credits will be increased by £20 a week for one year from 6 April, meaning claimants will be up to £1,040 better off.” 

To add this into the calculator, to use single over 25s as an example, we have increased the 2020/21 standard allowance for Universal Credit from £323.22 a month (£3,879 a year) to £409.89 a month (£4,919 a year). Other rates in Universal Credit for under 25s and for couples have also been increased by £86.67 a month (£1,040 a year).

In tax credits we have increased the 2020/21 basic element from £1,995 to £3,040. We have also assumed an increase in the Child Tax Credit only threshold as a result of this.

The effect is that from 6 April, Universal Credit and tax credit claimants will be up to £20 a week better off than they would have been without this announcement.

More importantly, we have interpreted the announcement to mean a £20 a week increase in Universal Credit and tax credits only. So we have assumed that rates for ‘legacy’ benefits (ESA, JSA and IS) are unchanged. At this stage it is unclear whether this assumption is correct.

Help for private renters

Third are changes to the Local Housing Allowance (LHA) system that limits the amount of support provided to private renters. The effect of the announcement means that the freeze on LHA rates that started in 2016 has been undone and rates returned to what they would have been without the freeze.

This means that, as they were in 2016, LHA rates for 2020/21 are now going to cover at least 30% of market rents in each local 'Broad Rental Market Area'.

However, there is an additional system that caps LHA rates at an absolute level, called the Maximum Local Housing Allowance. These usually only affect some areas in London and the south-east. This cap has been set at £417 a week for properties with 4 or more bedrooms (with lower caps for smaller properties).

We have applied these additional caps, so the LHA rates for 2020/21 are set at the 30% point of rent levels or the maximum LHA if that is lower. This maximum LHA rate only affects private rents in inner London and some outer London areas for 2020/21.

It's worth noting, the increase in LHA rates many not benefit all claimants as it may push some into the Benefit cap, where their housing costs are restricted. Until it is confirmed otherwise we have assumed the cap is still in place.