The Emergency Budget and Benefits Implications
A large number of changes to benefits and tax credits were announced in the Emergency Budget. In particular, people claiming tax credits and private tenants claiming Housing Benefit face new rules about their entitlements, and many will see substantial reductions in their income. A brief description of the main changes is below.
Some changes come into effect relatively soon, such as the reduction in the interest rate used to calculate mortgage interest payments. However, the majority of changes will take place from April 2011 onwards. Entitledto will ensure that its calculators are constantly up-to-date, implementing in-year changes immediately before they occur. Once 2011 rates and rules have been confirmed in the Pre-Budget Report (likely to be in December) we will prepare new 2011 calculators that you will be able to access using a year selector. We expect that this functionality will be available in February or March 2011.
The Emergency Budget changes to tax credits fall into four main categories:
a) reducing the amount households with higher incomes can claim
b) more help for the poorest households with children
c) changes to additional elements for particular groups
d) tighter rules when incomes vary
a) Changes that will reduce the amount households with higher incomes can claim include:
- From April 2011, households with incomes above the first income threshold (£6,420 a year £16,190 a year if you only claim child tax credit) will have their benefit withdrawn by 41p for each £ over that amount, rather than 39p in the £ as at present
- From April 2011, the second income threshold (the income where the family element of £545 per year starts to be reduced) will be £40,000, rather than £50,000 as at present
- From April 2011, the taper rate applying on families with household income above the second income threshold (£40,000) will be 41%, not 6.67% as at present
- From April 2012 the second income threshold will be abolished. This means the family element will be tapered away immediately after the child element.
b) The measure that will provide more help for the poorest households with children is:
- In April 2011 the child element of the Child Tax Credit (currently £2300 per child) will increase by £150 above normal uprating and in from April 2012 by £60 above normal uprating
Against this, however, the index used to uprate elements of tax credits is changing to the Consumer Price Index (CPI) instead of RPI.
c) There are a number of changes to additional elements:
- From April 2011 the Child Tax Credit baby element (currently £545 per year) which is paid when children are under one will no longer exist - the same amount will be paid whatever the age of the child
- From April 2012, the 50 plus element Within Working Tax Credit will be removed. It is not clear whether removing this payment for new workers over 50 also means that they must normally work 30 hours or more to qualify for Working Tax Credit (rather than 16 hours a week as at present)
- From April 2011 people aged 60 and over will be eligible for Working Tax Credit if they work at least 16 hours a week (rather than 30 hours a week as at present)
d) Finally, the rules HMRC use when incomes vary to adjust tax credit awards are changing.
- From April 2011 the income disregard when a household’s income rises will be reduced to £10,000. At present, HMRC use an income disregard of £25,000 when calculating entitlement to tax credits (i.e. income increases of up to £25,000 are ignored when calculating entitlement).
- From April 2013 the income disregard when a household’s income rises will be reduced to £5,000
- From April 2012 a new income disregard of £2,500 for income falls will be introduced. This may mean that tax credits will not increase if income reduces within the new threshold.
- From April 2012 backdating will be reduced from 3 months to 1 month.
Local Housing Allowance (Housing Benefit for private tenants)
- From April 2011 Local Housing Allowance will now be restricted to a maximum of four bedrooms for new and existing claimants
- From April 2011, Local Housing Allowance rates will be capped at:
- £250 per week for a one bedroom property
- £290 per week for a two bedroom property
- £340 per week for a three bedroom property
- £400 per week for four bedrooms or more
- From October 2011 LHA rates will be based on the thirtieth percentile of rents of the local ‘broad rental market area’.
- From April 2013 Local Housing Allowance rates will be uprated in line with CPI
Housing Benefit for private and social tenants
- From April 2011 rates of non-dependant deductions will increase
- From April 2011, Housing Benefit claimants with a non-resident carer will be entitled to funding for an extra bedroom
- From April 2013, people who have been on Jobseeker's Allowance for 12 months or more will see their Housing Benefit award reduced to 90 per cent of the initial award
- Funding for Discretionary Housing Payments, where people can get additional help for rent and Council Tax not already covered by Housing and Council Tax Benefit, will be increased from April 2011 onwards
Mortgage interest support
- From October 2010, the standard interest rate used to calculate Support for Mortgage Interest payments will be reduced from 6.08% to the Bank of England’s published monthly Average Mortgage Rate (currently 3.67%)
- From October 2011, lone parents whose youngest child is aged 5 or above will be obliged to claim Jobseekers Allowance rather than Income Support and to look for work. Currently lone parents are expected to claim Jobseekers Allowance and to start seeking work when their youngest child is seven years old
- From April 2012 existing claimants will be transferred from Income Support to Jobseekers Allowance and obliged to look for work
Disability Living Allowance
- From April 2013 Disability Living Allowance will be reformed to introduce the use of medical assessments for all DLA claimants. The test will apply to new and existing claimants and will replace the current application forms
Passported benefits and other entitlements
- From August 2010 Child Trust Fund payments will be reduced and from 1 January 2011 the Child Trust Fund will be abolished completely
- From 1 January 2011 the £190 Health in Pregnancy Grant will be abolished
- From April 2011 the £500 Sure Start Maternity Grant will only be paid for an individual’s first child
- The Saving Gateway, a scheme to help low income families save, will no longer be introduced in July 2010.
- Entitlement to free school meals will not be extended to working families in September 2010 (as was previously announced)
- The Home Access scheme (computers for kids) will be limited to children with profound disabilities or Special Educational Needs
Uprating for working age: from April 2011 all benefits (apart from Child Benefit, the basic pension, Pension Credit, see below) will be uprated in line with the Consumer Price Index (CPI) instead of the Retail Prices Index (RPI. The CPI is usually lower than RPI as the CPI doesn't count housing costs.
Uprating for pensioners: from April 2011 the basic State Pension will rise by the highest of earnings, prices (CPI measure) or 2.5 per cent. The standard minimum income guarantee in Pension Credit will increase in April 2011 by the cash rise in a full basic State Pension.
Uprating for Child Benefit: from April 2011 rates of Child Benefit will be frozen for three years at £20.30 for the first or only child and £13.40 for other children