MoneyMagpie

Apr 02

Who are the winners and losers with the benefits changes?

The government has announced a number of benefits changes and tax credit changes which come into force on 6 April 2013, affecting millions of households. But who are the winners and losers?

Winners

Pensioners come out as the biggest winners with the basic state pension increasing by 2.5% to £110.15 per week as of April. This extra boost of £2.70 will help millions of retirees living off the state pension. Despite caps on high earners retirement funds, the Chancellor said this is in line with inflation and average earnings. The Carers Allowance and disability benefits will also rise with inflation by 2.2% in April which allows them to keep up with rising living costs.

Public sector workers will benefit from a 1% pay rise after a three-year wage freeze. Whilst this is great news for those who have not seen their wages, it does not match the 15% wage loss in real terms felt by public sector workers over the three-year freeze. Anyone who earns should be better off as the personal tax threshold is going up by £1,100 to £9,440. This means you can earn up to £9,440 without paying any tax at all.

Losers

Chancellor George Osborne announced in the Autumn Statement that there will be a three-year cap of 1% increases in most benefits and tax credits from April 2013. The problem with this 1% freeze is that it won’t fall in line with inflation meaning that as the cost of living increases, the amount in benefit people receive won’t. This is bad news for those who rely heavily on benefits such as jobseeker’s allowance, working tax credit , child tax credits and even those who need maternity, paternity and adoption pay.

If the Chancellor had linked benefits to the Consumer Price Index (which is currently 2.7%), there would be likely to rise by 2.2% in April – illustrating just how much people are missing out now and more so over the next few years. To make matters worse, more households are likely to seek out benefits thanks to a withdrawal of child benefits to higher earners in January.

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Housing benefits

Those receiving housing benefit are likely to have their benefits capped or reduced. If you are in a couple with or without dependentbenefits changes children, the cap will be £500. It is the same for single parents, however single adults who don’t have children or children who live in another property will be capped at £350.

If the combined income from certain benefits is more than the cap, housing benefit will be cut. Changes to housing benefit will penalise people with a spare bed in their home. The ‘bedroom tax’ is being introduced to housing association tenants. Those with one spare room will see their benefits cut by 14% or 25% if they have two or more spare rooms. This will not affect private sector tenants.

Council Tax

Council Tax Reduction Schemes are being introduced in April whereby local authorities determine how much is paid to whom.  No new claims for council tax benefits will be accepted but pensioners will still be able to get a full discount, however they must meet certain criteria.

Universal Credit

Universal Credit will replace six different benefits; income-based jobseeker’s allowance, income-related employment and support benefits changesallowance, income support, child tax credits, working tax credits and housing benefits. This means that claimants will receive just one monthly payment in their bank account, much like a salary allowing them to manage their rent, income and other outgoings.

Whilst Universal Credit acts as an easy solution to the welfare system, it could make life much harder for some low-income families. The risk of falling into debt and rental arrears increases for those who already struggle to manage their finances. Universal credit is initially being launched in certain areas of North-West England in April before it is rolled out across the country later in the year.

See our essential article on Universal Credit for more information.

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