LRD Booklets April 2016

State benefits and tax credits 2016

[pages 5-9]


State Benefits and Tax Credits 2016 is the latest edition of the Labour Research Department’s annual guide to the benefits system. It concentrates on the benefits and rates of benefit available for people in work effective from 6 April 2016, and includes changes to the rules for claiming benefits and tax credits from this date.

Trade unions can play an important role in helping members and their families claim the in-work benefits to which they are entitled. Research published by the TUC shows that tax credits and benefits are crucial for lifting low-paid workers out of poverty, particularly the six million workers across the UK who earn less than the Living Wage rate of £8.25 an hour outside London and £9.40 an hour in London. 

It is vital for union reps to be aware of the latest reforms in order to give accurate initial advice on benefit entitlements. This guide is designed for that purpose. It is not intended to be a definitive guide to state benefits which is a complex area requiring specialist advice. Organisations and publications giving this specialist advice are listed on pages 95-96, and web references for downloading application forms and other relevant information relating to different benefits are listed throughout. 

State Benefits and Tax Credits 2016 enables reps to access the current benefit rates and basic rules for qualification in order to indicate to members whether or not they are eligible to apply for them. Thousands of low-paid workers are unaware of their entitlements and consequently these are not taken up.

According to an analysis of figures published by the Department for Work and Pensions (DWP) in June 2015, Income-Related Benefits: Estimates of Take-up — Financial Year 2013-14 (experimental), by the Daily Mirror newspaper, the total amount of unclaimed benefits is likely to be between £11.6 billion and £13.23 billion a year — around 10 times the amount lost to benefit fraud which HMRC estimates to be around £1.2 billion a year.

As well as entitlements for those who are on a low income, this booklet covers benefits and tax credits for parents and children, help for those sick, injured at work or disabled (and those looking after them), pensions, help with housing costs and help for someone whose husband, wife or civil partner dies.

The reforms introduced under the previous Conservative-led coalition government were the most fundamental changes to the social security system for 60 years. And as public services union UNISON has pointed out, the current Conservative government is continuing the "emphasis on the freeze, cuts, removals and reductions of benefits and tax credits entitlements along with the abolition of important key measures to target a reduction in poverty". 

This new edition of the booklet covers the changes announced by chancellor George Osborne in the summer Budget 2015. Measures in the Welfare Reform and Work Act 2016 will account for around 70% of the summer Budget 2015 welfare savings in 2020-21. Others will be brought in by regulations, and there will also be changes as a result of the continued roll out of Universal Credit (UC), which is replacing a range of existing benefits. 

In addition to the previous coalition government’s extensive reforms to the social security system set out in the Welfare Reform Act 2012, the Conservative government has moved quickly to enact many of the proposals in their 2015 election manifesto, which included some £12 billion in cuts to the welfare system over the next three years. These cuts are on top of the £15 billion welfare cuts brought in under the previous Parliament. The changes are complex and wide ranging and are set out in detail in Chapter 1. 

While the government has been forced to back down on a number of measures originally proposed, the introduction of a lower Benefit Cap (see page 20), a four-year freeze on most social security benefits and tax credits, cuts to tax credits and universal credit, cuts to Employment and Support Allowance (ESA), changes to “conditionality” for parents with young children and other changes will mean that the reforms will not only continue to cause severe hardship for many thousands of unemployed people and their families, but will reduce the household incomes of many working households too.

The Welfare Reform and Work Act 2016 will reduce the benefit cap for families with children from £500 per week to £442 in London (from £26,000 to £23,000 per year) and £385 per week outside London (from £26,000 to £20,000 a year) and allow the Secretary of State to review the cap each year. This is due to be phased in from autumn 2016. 

Homeless charity Shelter has expressed concern that the cap ignores the high and variable housing costs paid by families across the country, and needlessly increases the risk of homelessness for low-income families. In addition, the announcement of a four-year freeze to the Local Housing Allowance — despite continuing rises in rent across the country — will make low-income families even more vulnerable in an increasingly volatile private-rented sector with rents skyrocketing in many parts of the country. Ninety-five per cent of households hit by the existing benefit cap are families with children.

After pressure from charities and a damning report from the Resolution Foundation think tank, the chancellor was forced to reverse his decision to cut Child Tax Credits by over £5 billion in April. Although millions of families no longer face the immediate withdrawal of the vital benefit, around 800,000 people will still be hit because this U-turn did not include reducing the so-called “income-rise disregard” from £5,000 to £2,500 (see page 27). This cut could cost affected households in the region of £200 to £300 a year, despite the measure being blocked by the House of Lords in October 2015. Shadow chancellor John McDonnell called on chancellor Osborne to use the March Budget to reverse the cut, which is aimed at saving the Treasury £170 million in 2016-17 and £230 million by 2018-19. However, the reduction will go ahead from April 2016.

In addition, the cut is mirrored in the changes to work allowances under UC, which will be greatly reduced in April 2016 from what was originally planned. Those with children will be able to earn up to £397 a month if they do not require the housing element, and £192 per month if they do. For claimants without children, the work allowance will be removed altogether. 

The proposed cuts to UC set out in the 2015 autumn statement (see page 11) effectively absorb the cancelled reduction in Child Tax Credits as a result of the U-turn, so many families will still find themselves worse off in the long run. The introduction of UC will cut annual benefit spending by £2.7 billion annually, as the system eventually replaces the tax credit system.

Families will also be hit by the removal of the Family Premium from housing benefit (worth up to £17.45 per week) for new claims and new births from May 2016. 

The TUC has highlighted the importance of tax credits and other in-work benefits for low-paid families. Freezing these benefits is likely to increase the number of people who are working poor, as well as the depth of their poverty (see page 11 — IFS report on the long-term impact of UC on incomes). 

In the March 2016 Budget, chancellor George Osborne announced a further £4.4 billion cut in benefits for disabled people over the course of the Parliament by cutting Personal Independence Payments (PIPs). However, the government abandoned these particular cuts in the wake of Iain Duncan’s Smith’s dramatic resignation as work and pensions secretary. Duncan Smith declared that he was resigning over the chancellor’s “deeply unfair” Budget and “indefensible” welfare cuts. Nevertheless, other disability benefit cuts will go ahead. 

From 1 April 2017, new Employment and Support Allowance (ESA) claimants who are placed in the Work-Related Activity Group will receive the same rate of payment as those claiming Jobseeker’s Allowance and the equivalent in Universal Credit — a cut of around £30 a week in benefit. 

On a positive note, there is an additional element of support under UC to help towards the costs of registered childcare, mirroring the childcare element of Working Tax Credit. From April 2016, this is rising from 70% to 85% of childcare costs, capped at £646 per month for one child or £1,108 for two or more children per month. It is available to all lone parents and couples where both members work, regardless of the number of hours they work, removing the previous requirement to work 16 hours.

State Pension changes

State benefits and tax credits 2016 also outlines changes as a result of the introduction of a new State Pension in April 2016. A new single-tier State Pension replaces the basic State Pension for those reaching the State Pension Age on 6 April 2016 and after. The full new State Pension is £155.65 per week, compared with the standard rate of Basic State Pension for a man or woman with a full contributions record, of £119.30 a week. Although this sounds like a big increase, the new single-tier pension replaces not only the Basic State Pension, but the second state pension (SP2), Additional Pension (which used to be called the SERPS earnings-related pension), and “outdated” pensions such as the Category D pension and the Age Addition. These have all been abolished for new pensioners. 

The National Pensioners Convention (NPC) reports that there is considerable evidence to show that six out of 10 people retiring in the first five years of the new scheme will actually get less than £155.65 a week, and therefore referring to it as single-tier or universal is factually incorrect. 

It says that most of those retiring in the first few years of the new State Pension will not get anywhere near £155 a week and that the pensioners of tomorrow will effectively have to work longer, pay more and get less. It says we now have a two-tier state pension system that no-one understands, which fails to tackle the problem of pensioner poverty and is fundamentally unfair.

Are you/your members entitled?

Rights to some benefits and credits may be based on payment of National Insurance Contributions (NICs) or level of income. 

In some cases, the rules relate to length of time in employment and level of earnings, or length of residence in the UK.

For example, to get income-based Jobseeker’s Allowance (JSA) you must prove that you’ve been living in the UK for the three months before claiming if you are:

• an EU national and you haven’t worked since arriving in the UK; or 

• a UK national who has recently returned from abroad and you haven’t worked since coming back to the UK. 

The previous coalition government brought in this rule change to coincide with the expiry of transitional controls on Bulgarian and Romanian workers and prime minister David Cameron has negotiated further restrictions on the in-work benefits paid to migrant workers as part of the terms of Britain’s European Union (EU) membership he recently renegotiated. These include a proposed “emergency break” on EU migrants claiming in-work benefits for seven years (applying to individual workers for up to four years) and lowering the rate of Child Benefit paid to EU migrants. The rate will be indexed to that paid in a new migrant’s home country with immediate effect. For existing EU migrants, the lower rate will apply from 2020. 

However, some benefits depend on NICs. These are paid on earnings above the lower earnings limit (LEL), which from 6 April 2016 is £112.00 a week. In fact, you only start paying NICs if you earn over £155.00 a week, because for earnings between £112.00 and £155.00 you are credited with contributions. For most benefits, the relevant NICs are Class 1 contributions — those paid by employees. Class 2 contributions are those paid by self-employed people.

Entitlement to Contribution-based Jobseeker’s Allowance, which you can receive for up to 182 days (approximately six months), is based on how much Class 1 NICs you have paid in the last two tax years. The tax year starts on 6 April and finishes on 5 April (12 months).

Income-based JSA is based on your income and savings. You may get this if you have not paid enough NICs, or you have only paid Class 2 contributions for self-employment and you’re on a low income.

The level of your retirement pension will depend on your NICs over your working life (see Chapter 5). Entitlement to Statutory Sick Pay and maternity benefits depends on your being in employment and earning more than the LEL (see Chapters 3 and 4).

There are also other means-tested benefits, including Income Support, Pension Credit and Housing Benefit. These are not tied to NICs, but you can only get them if your income is less than what is called your “applicable amount” (see pages 92-94). Means-testing for Child Benefit was introduced in January 2013 (see page 71).

Benefit freeze

The Welfare Benefits Up-rating Act 2013 capped the annual increases in most working-age benefits at 1% in cash terms for the three years 2013-14, 2014–15 and 2015–16, and in July 2015 the chancellor announced that most working age benefits will now be frozen for four years from April 2016. The freeze, contained in the Welfare Reform and Work Act 2016, affects almost all benefits and tax credits, affecting both in-work and out-of-work households. Universal Credit (UC), Job Seeker's Allowance (JSA), Employment and Support Allowance (ESA), some types of Housing Benefit, and Child Benefit are all frozen; although pensions, maternity pay and disability benefits are excluded from the freeze. 

Claiming benefits

You should be able to claim most working age benefits from your local Jobcentre, Benefits Agency or Jobcentre Plus office (which combines the two). To find out where your nearest office is, look under Jobcentres in your local telephone directory or enter your postcode on the website at:

You can get an estimate of what benefits and tax credits you could get, and find out about claiming specific benefits, from the Benefits Adviser website at: