Welfare Summary from the Treasury

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Spending Review 2010 – Welfare reform

20 October 2010 13:30
HM Treasury

The Spending Review today announces reforms which will tackle the fundamental drivers of welfare dependency by delivering a simplified system in which work always pays.

In the June Budget the Government announced that it would save £11billion per annum from welfare spending by 2014-15.

To put welfare on an affordable footing, the Spending Review announces further savings of £7 billion, bringing total welfare savings to £18 billion per annum by 2014-15.

Over the next two Parliaments the current complex system of means-tested working-age benefits and tax credits will gradually be replaced with the Universal Credit, an integrated payment that will sharpen work incentives and reduce fraud and error.

£2 billion has been set aside in DWP’s DEL settlement over the next four years to fund the implementation of the Universal Credit. Further details will be set out in DWP’s forthcoming White Paper.

These reforms to the benefits system will be complemented by the new Work Programme, which will provide personalised support for those with the greatest barriers to employment. Private and third sector providers will be paid on the basis of the additional benefit savings they secure, thereby incentivising higher performance levels and delivering net savings for the taxpayer.

The Government will use some of the savings from withdrawing Child Benefit from families with a higher rate taxpayer to fund significant above indexation increases to the Child Tax Credit. This will ensure that the overall impact of the Spending Review will have no measurable impact on child poverty in the next two years. The Government’s longer-term strategy for tackling child poverty will be set out by the end of March 2011, and will take into account the conclusions of the Frank Field review.

The table below sets out further details of the package of welfare reforms announced today.

Measure Detail Savings
Time limiting the contributory Employment Support Allowance (ESA) to 1 year for those in Work Related Activity Group ESA is a benefit for those who are unable to work because of a disability or health condition. An individual on ESA can receive between £91 and £97 per week, depending on the severity of their disability. ESA can be paid on a contributory or an income-related basis, and there are currently no limits on how long people can receive the benefit.

This new proposal will time limit claims to contributory ESA for those in the Work Related Activity Group (WRAG) to one year.

The measure will not affect anyone in the Support Group which includes the terminally ill, those on certain types of chemotherapy or those with severe limitations.

Around 1 million claimants will be affected.

£2.0 billion per annum by 2014-15
Cap total household welfare payments As already announced, from 2013, household welfare payments will be capped on the basis of median earnings after tax for working households, which we estimate to be around £500 per week by 2013. All welfare payments included except one-off payments. All DLA, Working Tax Credit and War Widow Pension claimants are exempted from the cap. £270 million per annum by 2014-15
Withdrawing Child Benefit payments from higher rate taxpayers As already announced, the Government will withdraw Child Benefit from families with a higher rate taxpayer from January 2013.

This is a fair way of reducing the deficit, ensuring that those on lower incomes are not subsidising those better off.

£2.5 billion per annum by 2014-15
Freeze the Working Tax Credit for 3 years from April 2011 From April 2011, the basic and 30 hour elements of the Working Tax Credit will be frozen for three years, after which they will be uprated by CPI.

Elements of tax credits are usually uprated on an annual basis. In the June Budget 2010, these elements along with most other elements in tax credits were switched from being uprated by RPI to CPI. The 30 hour element is currently worth £790 per annum and the basic element is currently worth £1,920 per annum.

£625 million per annum by 2014-15
Changes to Working Tax Credit Eligibility from April 2012 From April 2012, couples with children must work 24 hours between them, with at least one working 16 hours, to gain entitlement to the Working Tax Credit, rather than at least one working 16 hours as now. £390 million per annum by 2014-15
Changes to the childcare element of the Working Tax Credit From April 2011, the proportion of costs covered by the childcare element of the Working Tax Credit will be reduced from 80% to 70% of costs.

This is a reversal of the April 2006 increase, which is now unaffordable.

£385 million per annum by 2014-15
Extending Shared Room Rate in Local Housing Allowance to all single claimants under 35 The Shared Room Rate currently applies to single people aged under 25 years old living in the private rented sector who receive Housing Benefit under the Local Housing Allowance rules. These claimants are restricted to the rate for a single room in a shared house, rather than the rate for a self-contained one bedroom property. Claimants in receipt of the severe disability premium in HB are exempt. This measure will increase the age limit of the SRR to cover all single people aged less than 35 years old, subject to the same exemptions. Around 88,000 claimants will be affected, all of whom will be single, aged 25-34, living in private rented accommodation, and not in receipt of severe disability premium in Housing Benefit. £215 million per annum by 2014-15
Cease paying DLA mobility component to claimants in residential care This will end payment of the mobility component of Disability Living Allowance (DLA) to claimants in residential care from 2012-13. Those who fully self-fund their own care would be unaffected by the change.

It will affect the estimated 58,000 DLA claimants in care homes who are in receipt of the mobility component. These customers receive on average £33.40 per week.

£135 million per annum by 2014-15
Reducing spending on Council Tax Benefit (CTB) by 10% and localising it from 2013-14 Council Tax Benefit spending will be reduced by 10% from 2013-14, and localised to local authorities and devolved to Wales and Scotland. LAs will be given flexibility to tailor the scheme to meet local priorities and to manage spending within lower limits, while protecting the most vulnerable. The precise flexibilities to be given to local authorities are yet to be determined. Alongside this, the Government will consider providing greater flexibilities to local authorities to manage pressures on council tax. £490 million per annum from 2014-15
Freezing the maximum Savings Credit award in Pension Credit for 4 years from 2011-12 This measure will freeze the maximum award paid to those aged over 65 on modest incomes who have some retirement savings in addition to their State Pension until 2015. The maximum award is £20.52 for a single pensioner and £27.09 for pensioner couples. Around 1.8m households will be affected. £330 million per annum by 2014-15
Using real time PAYE information to inform tax credits calculations By linking real time PAYE information of individuals’ earnings to the tax credits system, the emphasis on the customer to notify HMRC of income changes will be reduced. Using the information recorded on the PAYE system will reduce error and fraud and subsequent overpayments. £300 million in 2014-15
Measure Detail Cost
Increasing the child element of Child Tax Credit The government will increase the child element of the Child Tax Credit by £30 above indexation in 2011-12, with a further £50 above indexation in 2012-13. This is in addition to the above indexation increases announced in the June Budget of £150 in 2011-12 and £60 in 2012-13. £560 million per annum by 2014-15
Permanently increase the Cold Weather Payment award to £25 Cold Weather Payments are paid to older and disabled people on income related benefits when the average temperature falls or is forecast to fall below a certain level for 7 consecutive days. Households can receive more than one award for continued cold weather. Around 4.2 million households are currently eligible for payments £50 million per annum from 2011-12
Extend temporary Support for Mortgage Interest measures for 1 year Extending for a further year the temporary measures to reduce the waiting period for new working age claimants to 13 weeks and increase in the limit on eligible mortgage capital to £200,000. These were due to expire in January 2010.

This offers continued support to homeowners until the housing market recovery is secured. 85,000 claimants will benefit from the waiting period remaining at 13 weeks, and about 14,000 will benefit from the increased capital limit.

£90 million over the next two years
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