LRD Booklets April 2018

State benefits and tax credits 2018



[pages 5-10]

State Benefits and Tax Credits 2018 is the latest edition of the Labour Research Department’s annual union reps’ guide to the benefits system. It focuses on the types and rates of in-work benefits and tax credits available from 6 April 2018, and includes any changes to the rules for claiming these from this date.

There have been massive changes and huge cuts to benefits and tax credits as a result of the “welfare revolution” started by the Tory-led coalition government and continued under subsequent Conservative administrations. The reforms are the most fundamental changes to the social security system for 60 years and are causing hardship and misery among both unemployed and working households. 

The new benefit, Universal Credit (UC) is gradually replacing income-related Jobseeker’s Allowance, Housing Benefit, Working Tax Credit, Child Tax Credit, income-related Employment and Support Allowance and Income Support. Its aim was supposedly to simplify the benefits system and “make work pay”. The government gave assurances that no one would be worse off under the new system.

However, new Resolution Foundation research published in March says that the benefit changes coming into effect this April will be the second biggest welfare savings in a single year since the financial crash, and the £2.5 billion cut will hit “just about managing” (JAMs) families hard. 

Over 1.5 million workers are set to benefit from a 4.4% pay rise as the National Living Wage rises from £7.50 to £7.83 on 1 April. But the think tank says this will be outweighed by the working age benefit cuts that will affect 11 million families including five million JAMs. They are set for an average loss of £190 this year, with some families thousands of pounds worse off. 

A November 2017 report by the Child Poverty Action Group (CPAG) and the Institute for Public Policy Research (IPPR) makes clear that “the promise of greater rewards from work made to working families has been broken as a result of cuts to Universal Credit and tax credits.” In many cases the losses are reaching thousands of pounds. 

The report, The Austerity Generation, shows that cuts to UC will put one million more children into poverty. Families already at greater risk of poverty, including lone parents, families with very young children, larger families and those with a disability, will be especially hard-hit by a decade of cuts to the incomes of families with children.

The report sets out that, for example:

• working families stand to lose £930 a year on average from cuts in the tax credit system and £420 a year from cuts to UC;

• freezes and cuts to UC work allowances will leave lone parents worse off by around £710 a year. For couples the figure is £250 a year; and 

• in order to make up the losses from work allowance cuts, a couple already working full time on the National Living Wage would have to work 17 extra days a year, and a lone parent an extra 41 days a year — in effect, a 14-month year.

“This report is the closest anyone has come to producing a cumulative impact assessment of a decade of social security cuts on families with children,” said CPAG chief executive Alison Garnham. “It’s an incredibly detailed piece of work but its basic story is straightforward and shaming: since 2010, rather than investing in our children, government policy has been creating an Austerity Generation whose childhoods and life chances will be scarred by a decade of political decisions to stop protecting their living standards.” 

In addition, benefit and tax credit rates are subject to a freeze, which began in April 2016 and will continue for four years in total. The benefits affected by the freeze are: 

• Child Benefit;

• Jobseeker’s Allowance;

• Employment and Support Allowance;

• Income Support;

• elements of Housing Benefit; and

• basic, couple and lone parent elements of Working Tax Credit, and family and child elements of Child Tax Credit.

The freeze followed three years during which the annual rise for most working-age benefits was capped at 1% in cash terms. 

A November 2017 report by the Institute for Fiscal Studies (IFS), produced with funding from the Joseph Rowntree Foundation, estimated that between 2015-16 and 2021-22 the freeze to most working-age benefits means that around 7.5 million low income households will see their benefit entitlements cut by over £500 per year in real terms. 

In addition, it says that the limiting of tax credits and UC to two children means that some low-income families will receive over £2,500 less in benefits than they otherwise would have.

The impact of the welfare cuts, freezes, reductions and removals is explained in more detail throughout this booklet. According to reports by unions, charities, think tanks, government agencies and parliamentary committees and others, they are reducing the incomes of millions of working households, as well as unemployed people and their children.

In March 2018, the Equality and Human Rights Commission (EHRC) published a report showing that households with three or more children will lose around £5,600 as a result of the cumulative impact of tax and welfare reforms, and an extra 1.5 million children will be in poverty.

The cumulative impact of tax and welfare reforms report looks at the impact the 2010-2018 reforms will have on various groups across society in 2021 to 2022. It suggests children will be hit the hardest as:

• an extra 1.5 million will be in poverty;

• the child poverty rate for those in lone parent households will increase from 37% to over 62%; and

• households with three or more children will see particularly large losses of around £5,600.

It also finds:

• households with at least one disabled adult and a disabled child will lose over £6,500 a year, over 13% of their annual income;

• Bangladeshi households will lose around £4,400 a year, in comparison to “white” households, or households with adults of differing ethnicity, which will lose between £500 and £600 on average;

• lone parents will lose an average of £5,250 a year, almost one-fifth of their annual income; and

• women will lose about £400 per year on average, while men will only lose £30.

The negative impacts are largely driven by changes to the benefit system, in particular the freeze in working-age benefit rates, changes to disability benefits, and reductions in Universal Credit rates.

Equality and Human Rights Commission chair David Isaac said: “It’s disappointing to discover that the reforms we have examined negatively affect the most disadvantaged in our society. It’s even more shocking that children — the future generation — will be the hardest hit and that so many will be condemned to start life in poverty. We cannot let this continue if we want a fairer Britain.”

The report can be found on the EHRC website. 

The role of unions

The booklet also shows how unions, campaign groups and charities are fighting the cuts. At local level, trade unionists can play an important role in helping members and their families claim the in-work benefits they are entitled to. Tax credits and benefits are crucial for lifting low-paid workers out of poverty, particularly the more than one in five (5.5 million) workers across the UK who earn less than the voluntary Living Wage rate of £8.75 an hour outside London and £10.20 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 page 86, and web references for downloading application forms and other relevant information relating to different benefits are listed throughout the booklet. 

State Benefits and Tax Credits 2018 enables reps to access the current in-work 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.

A new report by the Resolution Foundation, says that around 300,000 people are not claiming the benefits they are entitled to and that “a significant minority” of these are in work, but on such low hours that they are still entitled to support. Falling through the cracks, published in January 2018, says they are missing out on financial support from the state worth at least £73 a week and could also be missing out on so-called passported benefits such as maternity grants, energy discounts and free school meals. The report points out that people can earn up to £80 a week and still claim Jobseeker’s Allowance, or £116 under UC. 

Official figures published by the Department for Work and Pensions (DWP) for the financial year 2015-16, in Income-related benefits: Estimates of take-up, shows that only 59% of those entitled to income-based Jobseekers’ Allowance claimed the benefit; 67% of those entitled to Pension Credit claimed it; 85% of those entitled to Housing Benefit claimed it; and 86% of those entitled to Income Support or income-related Employment and Support Allowance claimed it. According to the DWP figures, millions of families who were entitled to claim these benefits did not claim them and lost out on up to £12.4 million.

Claiming benefits

Claimants are increasingly having to make claims for benefits over the phone and online rather than face-to-face. According to the public and commercial services PCS union, the DWP now employs over 300,000 fewer staff than in 2010 because of job cuts. The union has been campaigning against plans to close more than 100 jobcentres and back-of-house offices by the end of March 2018, with dozens more earmarked for closure in the period up to 2023. PCS members at Eastern Avenue jobcentre in Sheffield went on strike for more than 40 days. In addition to 750 job losses across the country, the union says the closures will mean claimants having to travel further and will undermine support to help them get back to work. 

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:

Do your members have an entitlement? 

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 Jobseeker’s Allowance (JSA) you must prove that you have 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 have not worked since coming back to the UK. 

There are also special rules for claiming Child Benefit for families moving to the UK from abroad.

Some benefits depend on NICs. These are paid on earnings above the lower earnings limit (LEL), which from 6 April 2018 is £116 a week. In fact, you only start paying NICs if you earn over £162 a week, because for earnings between £116 and £162 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. In the 2016 Autumn Statement the government confirmed that it would abolish Class 2 NICs. Instead of paying two classes of NICs (Class 2 and Class 4), the self-employed will pay just Class 4 contributions in the future. However, in November 2017, the government announced a one-year delay and Class 2 NICs will now be abolished from 6 April 2019 rather than 6 April 2018.

Entitlement to contribution-based JSA, which you can receive for up to 182 days (approximately six months), is based on how many 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 in 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 6). Entitlement to Statutory Sick Pay and maternity benefits depends on you being in employment and earning more than the LEL (see Chapters 4 and 5).

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 your “applicable amount” (see page 84). Means-testing for Child Benefit was introduced in January 2013 (see Chapter 5). 

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

Benefits devolved to the Scottish government

The Scotland Act 2016 gave the Scottish government new powers relating to social security, including responsibility over certain benefits. 

• Ill Health and Disability Benefits:

◊ Disability Living Allowance;

◊ Personal Independence Payment;

◊ Attendance Allowance;

◊ Severe Disablement Allowance; and

◊ Industrial Injuries Disablement Benefit.

• Carers Allowance;

• Sure Start Maternity Grant (replaced by the Best Start Grant);

• Funeral Expenses;

• Cold Weather Payments and Winter Fuel Payments;

• Discretionary Housing Payments;

• some powers in relation to Universal Credit (for example, the ability to split payments between household members)

Benefits that remain reserved to the UK Government

• Universal Credit;

• Contributory Job Seeker’s Allowance;

• Contributory Employment Support Allowance;

• Child Benefit;

• Maternity Allowance;

• State Pension;

• Pension Credit; and

• Bereavement benefits.

This year, the Scottish government used its new social security powers for the first time to increase the frequency of Universal Credit payments and give claimants in full service areas (see page 13) the option of being paid fortnightly instead of monthly.