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Changes to welfare benefits in 2016

The situation is very complex with more than twenty changes implemented during the year. The review below probably misses some out. There is a very useful guide provided by Turn2Us at https://www.turn2us.org.uk/Benefit-guides/Benefit-Changes/Benefit-Changes-Timetable-2016 (they produce this guide every year and it’s recommended!)

There are also guides produced by CPAG at http://www.cpag.org.uk/content/autumn-statement-tweaks-dwarfed-summer-budget-cuts-jams and the Joseph Rowntree Foundation at https://www.jrf.org.uk/report/joseph-rowntree-foundation%E2%80%99s-budget-2016-submission-treasury

Other organisations try to work out the impact of all these changes, which of course interact with each other, on individuals and families, for example Institute for Fiscal Studies (see https://www.ifs.org.uk/uploads/publications/budgets/as2016/as2016_sa.pdf) and the Resolution Foundation (see http://www.resolutionfoundation.org/app/uploads/2016/02/Audit-2016.pdf)

1. First the background

The 2016 changes come on top of the austerity programme since 2010, which has cut back all sorts of aspects of the welfare state. They are also in a context where cuts have reduced help from other sources, especially local councils. This bears on social housing, provision for homeless people, community care budgets, adult services, children’s services and so on. Housing costs for most people, especially renters, have increased sharply. However earnings have started to rise, employment is high and income tax thresholds have been raised.

The result is that overall living standards for low to middle-income families have not changed very much on average since 2004-5. Wages stagnated (especially after the 2007-8 recession) but tax credit and rent benefits made up most of the difference to about 2012/13. After that real wages started to rise faster than inflation, but sharper benefit cuts have wiped out any gain. Current predictions are that there won’t be much change overall for the bottom half of the population by income before 2020.

Talking in average terms disguises differences between groups.

  • For people at the very bottom, incomes improved (due to benefit and minimum wage increases) up to about 2010 and then fell back as a result of benefit cuts.
  • Benefit cuts have hit working age families with children more than those without especially since 2013;
  • The triple lock and new flat rate pension mean that pensioners have real increases in income.
  • Regionally there are big differences between the South especially the South-East, where the economy remains buoyant with low unemployment, and the Midlands and North (Canterbury is a fringe south-east town: some prosperity from London and local industry but a lot of very low-paid and precarious jobs in seasonal agriculture and tourism and leisure. The City doesn’t fully share the prosperity of West Kent or areas nearer London.)
  • For more on the big picture see: http://www.resolutionfoundation.org/app/uploads/2016/11/Under-new-management.pdf

2. Changes in 2016

The big changes (most of them announced in 2015 but now being introduced) are:

Cutting benefits

The cuts to Universal Credit (UC) work allowances: This policy has reduced the amount that families can earn before their UC award starts being tapered away, both reducing incomes among working families and lowering incentives to work. It is due to save almost £3 billion by 2020-21, but will reduce incomes in the poorest half of the income distribution by an average of 0.8 per cent when UC is fully rolled-out, with annual losses of up to £2,800 for a working single parent for example. (Universal Credit is being rolled out for new claimants from April 2016)

Removing the ‘family element’ in UC: This flat £545 award is still payable to all recipients with children, but it has been removed for all new claims. It is expected to save £0.6 billion in 2020-21, building to almost £2 billion a year once affecting all recipients.

The four-year cash freeze to working-age benefits (Jobseeker’s allowance, housing benefits, tax credits, and Universal Credit): This freeze replaced the default uprating of benefits in line with price inflation from April 2016. It has had no effect this year because prices actually fell, meaning benefits would have been unchanged even in the absence of the freeze, but its bite will grow worse. It had been expected to save £3.6 billion by 2020-21, but the outlook for higher inflation means we now estimate the savings will rise to £4.6 billion. The effect on the bottom half of households is to reduce incomes by 1 per cent on average.

Benefit Cap: On 7 November 2016 the government reduced the Benefit Cap for families to £23,000 in London (£15,410 single claimants) and £20,000 elsewhere (£13,400 single claimants). Exemption for carers on universal credit.

The introduction of a two-child policy: This move has limited support to a maximum of two children within the family for new claimants (and for existing claimants who give birth to an additional child), costing those who miss out £2,800 per extra child a year. This move is expected to save £1.6 billion by 2020-21, raising child poverty by an estimated 200,000 once fully in effect.

State Pension Age: Plans to bring women’s pension age in line with men’s will be sped up from April 2016 so that women’s pension age reaches 65 in November 2018.

Pension age for men and women will then increase to 66 from April 2020 to October 2020. The Government has also proposed raising the State Pension age from 66 to 67 gradually between 2026 and 2028.

Increasing benefits

New National Living Wage: From April 2016 the New National Living Wage will be introduced- starting at £7.20 an hour for workers aged 25 and above. This brings the Minimum Wage/ National Living Wage back up to its 2010 level in relation to average earnings.


It will then rise to £9.00 an hour by 2020, but the gain will be more than wiped out by the reduction in tax credits as UC is rolled out.

Universal Credit (UC) - Roll out: An additional £200m of support will be provided within Universal Credit, which is equivalent to covering 85% of childcare costs for households qualifying for the Universal Credit childcare element where the lone parent or both earners in a couple pay income tax.
This is planned to be phased in from April 2016 as childcare support moves from tax credits into Universal Credit.

Reduction in Social Sector Rents The government will reduce rents paid by tenants in social housing in England by 1% a year for 4 years from 2016 (positive for rent-payers, very bad news for Housing Associations).

New Single Tier Pension: The Government is introducing a flat rate (single tier) State Pension for people who reach state pension age from 6 April 2016 at £155.65 a week.

Personal Tax Allowance Increased: The tax free Personal Tax Allowance, the amount you can earn before paying income tax, will be increased from £10,600 to £11,000 from April 2016.

Minor changes

Limiting backdating in Housing Benefit: From April 2016, Housing Benefit claims will be backdated for a maximum of one month (period was previously six months).

Support for Mortgage Interest (SMI): Waiting Period Increased From 1 April 2016, the SMI waiting period will change from 13 weeks and will return to the pre-recession length of 39 weeks, but the capital limit will be maintained at the higher level of £200,000.

Health Start Food Vouchers: From 1 November 2016, Universal Credit will be a qualifying benefit for the vouchers, for families with net earnings of £408 or less per month.  Healthy Start is a voucher scheme for women who have young children or who are pregnant and receiving certain benefits.

3. Looking to the future – up to 2020

IFS calculate what difference the various changes will make in the future. Of course, this is in a context where there will be real increases in earnings for most people so the cut-backs are to incomes that will go up by perhaps 5 or 6 per cent for most people. The people who will be really hard hit are those on benefits at the bottom. According to IFS, the poorest fifth of the population will lose 7 or 8 per cent of their income (mainly from cuts in housing benefits, the benefit freeze and the benefit cap) and the proportion lost then tapers off until you get to a loss of about one per cent at the middle of the income distribution. As you get to the top there are real gains (mainly from cuts in income tax) and the richest fifth get an increase of 1 or 2 per cent.


Looking at it another way, pensioner households only lose out in the bottom fifth by much smaller amounts (1 or 2 percent); working age household with children lose the largest amounts, nearly 15 per cent in the bottom fifth. Working-age households without children at the bottom lose about 10 percent.


4. Conclusion

The general direction of policy since 2010 has been to cut state spending but to make sure that the cuts are heaviest for those at the bottom and to protect pensioners as much as possible. In 2016 the pattern of cuts hitting working age families and individuals and especially those with children (who get the most in benefits) continued. Current plans indicate that this strategy will continue to 2020.

Professor Peter Taylor Gooby OBE, Canterbury Food Bank trustee