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Welfare Reform Act 2012

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Nicola Rowlings, PSL at Mills & Reeve, explains the changes that are happening to the benefits system as a result of the Welfare Reform Act 2012.

  • Throughout 2013, changes are happening to the benefits system thanks to the Welfare Reform Act 2012 ("WRA 2012"). Depending upon where a client lives and their personal circumstances, they might have very different entitlements in the coming year than they would have done before the changes.  

    This note provides a broad guide to these changes, to help you understand what the changes are and who they will affect.  

    The "bedroom tax" or under-occupancy

    From April 1 2013, no matter where they live in the country, If an individual rents their home from a social housing landlord (for example, the council or a housing association) and they are of working age, their housing benefit may be cut if their home is considered too large for them.  

    The WRA 2012 sets out clear rules about the number of bedrooms a household needs depending upon how many people live in the property. Under the new rules, if an individual's home has more bedrooms than they need, it will be considered too big for them and they may lose some or all of their housing benefit as a result.  

    An individual's home will be considered too big for them if they have more than one bedroom for each of the following people: 

    • each adult couple
    • each other person over 16
    • two children of the same sex under 16
    • two children under 10, regardless of their sex
    • any other child
    • an overnight carer (who is needed but who doesn't normally live with the individual)

    In practice, this means that: 

    • children of different sexes under the age of 10 will be expected to share a bedroom
    • children of the same sex under 16 will be expected to share a bedroom
    • each adult or couple can have their own bedroom 
    • no extra rooms will be allowed for when someone visits - this includes where a child comes to stay with a parent that they do not normally live with. Only one parent can have the room allowance for the child. 
    • no extra rooms will be allowed for medical reasons, for example where a couple need separate rooms because one of them is ill or recovering from an operation

    There are some people who may be allowed a spare bedroom because they fall into the "special circumstances" category – for example, if there is a disabled child living at the property or the family are foster carers.  

    If an individual has 1 more bedroom than they need, their housing benefit will be cut by 14% 

    If an individual has 2 or more bedrooms than they need, their housing benefit will be cut by 25%

    Note: the "bedroom tax" does not affect those who rent their home from a private landlord, even if they still receive housing benefit to meet the rent payments.  

    Universal Credit 

    Universal credit will be the new way in which benefits are paid to those whose income falls below a certain level.  It is a means tested benefit so the amount paid will depend upon the other money coming into an individual's household – the higher the household income, the less universal credit an individual or family will be entitled to.  

    Universal credit will be replacing the following benefits: 

    • housing benefit; 
    • income support; 
    • income-based jobseekers allowance; 
    • income-related employment support allowance; 
    • child tax credit; and
    • working tax credit. 

    To begin with, only new benefits claimants in certain areas (Tameside, Oldham, Wigan and Warrington) will get universal credit; by October 2013, all new benefits claimants in England, Wales and Scotland will be on the universal credit system. By 2017, all benefits claimants will have transferred onto universal credit.  

    There will be conditions attached to getting universal credit. For example, if an individual isn't already working, they may have to show they are taking steps to prepare themselves for work. For those working part-time, they may have to show that they are taking steps to increase their hours. These conditions are called "work-related conditions" and are part of the claimant's commitment they have to sign up to before they can get universal credit. If a claimant does not uphold their end of the deal, they may lose some or all of their benefit.  

    To qualify for universal credit an individual must be: 

    • aged between 18 years old and the age below which they qualify for pension credit; and
    • live in the UK; and 
    • be entitled to reside in the UK. 

    They must also be:

    • working – either employed or self-employed; or
    • unemployed; or
    • sick or disabled; or
    • caring for children or someone's who disabled. 

    Universal credit is likely to be paid monthly to most people, direct into a bank account.  

    For those individuals already in receipt of tax credits or the other benefits listed above, they will continue to get their payments for the time being. The Department of Work and Pensions will write to claimants telling them when they will be transferred to universal credit.  

    Some benefits will be completely unaffected by universal credit. These are: 

    • statutory sick pay;
    • statutory maternity pay;
    • maternity allowance;
    • attendance allowance;
    • industrial injuries disablement allowance; and
    • bereavement benefits. 

    Some other benefits will continue to be paid alongside universal credit but the rules about who can claim them may change. These benefits are:

    • Contributory jobseeker's allowance and contributory employment and support allowance – if an individual is entitled to one of these alongside universal credit, the contributory benefit will be worked out according to the rules of universal credit.
    • Disability living allowance – this will eventually be replaced by the personal independent payment ("PIP"). However, whilst it still exists, it will be paid on top of the universal credit payment for disability or chronic illness. 
    • Child benefit – will continue to be paid on top of universal credit but remember that higher income families are affected by the child benefit clawback (which came into force in January 2013). 
    • Passported benefits – for those individuals on certain benefits, they are automatically entitled to other financial helps such as free dental treatment or free school meals. These are known as "passported benefits". For those who qualify for universal credit, their entitlement to passported benefits will depend upon their income; where their income goes above a certain level, their passported benefits will be gradually withdrawn.  

    Benefits cap

    Starting from April 2013 in four pilot areas (all of which are London authorities), for people who receive housing benefit (and later universal credit) the benefits cap will start to be phased in. From 15 July 2013, the pilot will be rolled out to the rest of the country. 

    The cap sets a limit on how much one household can receive in certain benefits. A single person (of working age) can receive up to £350 per week in benefits and a couple (with or without dependent children) or a lone parent (again of working age) can receive up to £500 per week. Any amount over this will be stopped from the individual's housing benefit or universal credit.

    The cap works by looking at the combined income a household received from certain benefits. If the combined income is more than the cap, than the housing benefit the individual or household receives will be cut; this may mean some people lose all of their housing benefit (except for a nominal 50p payment per week).  

    Let's look at the benefits which will be included in the cap. The cap will apply to the combined household income from: 

    • bereavement allowance;
    • carer's allowance;
    • child benefit;
    • child tax credit;
    • employment and support allowance (except where it is paid with the support component); 
    • guardian's allowance;
    • housing benefit (but not if the individual lives in supported accommodation); 
    • incapacity benefit;
    • income support;
    • jobseeker's allowance;
    • maternity allowance;
    • severe disablement allowance;
    • widowed parent's allowance;
    • widowed mother's allowance; and
    • widow's pension.

    "Household" means an individual and their partner and any children for whom they are responsible and with whom they live.

    Only benefit income will be taken into account when applying the cap; so, income from other sources will not count.  

    The benefits cap will not affect those who qualify for working tax credits nor those households where someone claims one of these benefits: 

    • disability living allowance or personal independence payment;
    • attendance allowance;
    • the support component of employment and support allowance; 
    • industrial injuries benefits and equivalent payments as part of a war disablement pension or armed forces compensation scheme; and
    • war widow's or war widower's pension.

    Council Tax Support

    From 1 April 2013, council tax benefit will be abolished. Instead, each local authority in England will be responsible for running their own "council tax reduction" scheme. These reduction schemes are designed to reduce the amount of council tax charged to those people on low incomes.  

    Each local authority will run its own reduction scheme and will set the rules as to who is entitled to receive reduced council tax. This means there will be variations as to entitlement across the country. A council tax reduction scheme may involve:

    • a discount worked out as a percentage of your council tax bill;
    • a discount on an amount set out in the scheme; or
    • a discount on the whole amount of the council tax bill.

    The Government has provided a "default" scheme – some local authorities will adopt this. This default scheme is very similar to the present council tax benefit so, if an individual lives in one of these default areas, they are unlikely to see much change. However, because the government has given councils less money for their new schemes than they gave out under council tax benefit, many councils have decided to cut the amount of support they award. As mentioned above, decisions will be taken locally as to what support to offer and to who.  

    These new rules will only affect people of working age; pensioners will still be able to get a full discount on their council tax bill (provided they do not get one of the specified benefits such as income support or universal credit). 

    For those of working age, it is unlikely that they will continue to receive a full council tax rebate; individuals will now have to budget for paying something towards their council tax. This represents a big change.  

    Personal Independence Payments

    For those who have long term health conditions or disabilities, they may be entitled to benefits to help support them. From April 2013, a new benefit, called the personal independent payment will be introduced. This benefit will replace the disability living allowance.  

    The personal independence payment is designed to help individuals with the extra costs of having a long-term health condition or disability. It will not be means tested and so can be paid on top of other benefits, including universal credit.  

    The payment will be made up of two parts:

    • a daily living component; and 
    • a mobility component.

    An individual may be entitled to either or both components; within each component, there will also be a standard rate and an enhanced rate.  

    In order to qualify, an individual will need to be assessed by a healthcare professional and score a certain number of points. The assessments will usually be face to face and will involve assessing the individual's ability to carry out certain key daily activities and mobility. These include preparing food, washing and bathing, verbal communication and making decisions about money.  

    The personal independence payments will first be introduced to new claimants (i.e. those not already in receipt of the disability living allowance) in North West England or parts of the North East from April 2013. From June 2013, new claimants across the UK will be able to make a claim for a personal independence payment. Gradually, those already receiving the disability living allowance will transfer over to the new scheme. 

    Once claimed, the payment will be paid monthly. However, it is likely that the payment will only be paid for a fixed period of time; after that time, the claimant will need to re-apply and will be re-assessed.


Published: 29/03/2013

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