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April 5, 2013 / politicsbitesize

Changes to the welfare system

BenefitsChangeUnless you have been hiding under a bush all week you will not have failed to notice that the welfare system is changing.  The Welfare Reform Bill, implemented this month, is the biggest overhaul to benefits since the 1940s, and it is set to affect hundreds of thousand of households across the UK.

From the 1st April 2013 there will be a raft of amendments to how benefits payments will be made and how much claimants can receive.  Ministers maintain that by reducing the welfare budget the UK’s deficit will begin to shrink.  It is also thought that the measures will provide greater incentives for people to go out to work rather than claim benefits.

So what are the key changes to the system and how might they affect you?


The under-occupancy penalty or the ‘bedroom tax’
The first benefit to be affected is housing benefit.  Claimants living in council or social housing considered to be too big for their needs will see the amount of housing benefit they receive cut.  Under the new rules one bedroom is allowed per couple, another bedroom for two children of the same gender aged between 10 and 16 and one for two children under 10 to share no matter what their gender.  Any claimant who is deemed to have one under-occupied bedroom will see a cut of 14%, which will rise to 25% for two bedrooms or more.

Although the measure is expected to save £500m a year, the new rule will affect some vulnerable people in society.  For example, parents who are separated but see their children regularly might be penalised for having an ‘under-occupied’ bedroom on the grounds that it is only being used for half of the week.  It might also affect some disabled people who have specially adapted houses.


Council tax benefit
The changes to this benefit are more complicated in that they affect who pays the benefit.  Under the old system the rules that assessed who was entitled to a reduction in council tax were set by central government. However, from 1st April 2013, the government will provide funding to local authorities in England and to the Scottish and Welsh governments to design their own systems of Council Tax support, know as Council Tax Support Schemes.

In a further blow, the government will only give each local council 90% of the funds required, which means that the local authorities will have to either absorb the 10% deficit or add it to each households’ bill. The government claim that the measure will save £420m a year, but critics are wary of the changes because it will mean different levels of support in different regions.


Disability Living Allowance (DLA) to be replaced
From 8th April a new benefit called the Personal Independence Payment (PIP) will replace DLA for working-age claimants.  According to the BBC website, ‘the changes are expected to reduce spending by about £2.2bn a year by 2015-16, with one fifth of current DLA claimants expected to be ineligible for PIP’.  Disability charities are dissatisfied with the changes and claim that a high number of people who need the living allowance will be without it from 2015.


Benefit cap
Along with the announcement, in the Autumn Statement, that in-work benefits will rise by only 1% – a below inflation cap – there comes a cap on the total amount of benefits that people of working-age (16-64) can receive.  From 15th April, people of working age will receive up to a maximum amount, which is to be set at the average earnings of a UK working household.  The cap is estimated to be £350 per week for a single adult with no children and £500 per week for a couple or lone parent regardless of the number of children they have.

Analysis from the Department for Work and Pensions estimates that around 50,000 households will be affected, with lone parents suffering the most.  The government estimates that the cap will save £275m.


Universal Credit
By the end of April the Tax Credits system will be replaced with Universal Credit in the North-East of England and across the rest of the UK by October.  In an article at the beginning of March, Politics:bitesize discussed the potential positive and negative effects of this new way of receiving in-work benefits.  The government are keen to state that across the 5.9m households who will be affected by this change there will be an average gain of £16 per month.


Whether you are for or against the new reforms, the fact of the matter is that millions of people will be affected: some will lose much needed income and others will gain.  But a loss in income to an individual household will generate a shortfall in the country’s economy as a whole.  People will see their disposable incomes decrease month on month and this will lead them to tighten their belts further.  The knock on effect is that as people stop spending, the amount of money circulating in the economy will be reduced and so businesses will also be required to tighten their belts, which could result in people losing their jobs and relying on the benefits system.  It is easy to see how, with a system that is unable to provide a decent safety net for people, this problem will continue to snowball.


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