How will upcoming benefits changes affect my DMP?

posted by in benefits, DMP

UPDATE: This article was published in July 2015. Make sure you’re up to date with the 2016 benefit changes and how they may affect you.

The July Budget revealed plans to reduce welfare benefits by £12bn. There are two questions that are likely to be on your mind if you’re on a debt management plan (DMP). Firstly: what benefits are going to be affected? Secondly: how will these changes impact my finances and my DMP?

We’ve summarised the biggest changes, when they’re going to happen and who’s likely to be affected by them. We’ve then covered some likely questions that might crop up if you’re on a DMP.

What benefits are going to be affected?

Tax credits for 3 or more children

What is changing? Tax credits will not be paid for newly born children in families that already have two or more children.

When? April 2017

Who’s affected? Families that have two or more children already and have more children after April 2017. If you already have three or more children you’ll continue to be able to claim tax credits for those children. This change only affects parents of children born after April 2017.

Tax credit criteria changes

**UPDATE November 2015 – George Osborne’s Autumn Statement cancelled the proposed changes to tax credits.

What is changing? The maximum income you can earn and still be eligible for the maxium award of Working Tax Credits will reduce from £6,420 to £3,850. The rate that tax credits decrease once you start earning is also going to go up to 45%. So for every £1 extra you earn there’ll be a 45p reduction in your tax credits.

When? April 2016

Who’s affected? Anyone receiving tax credits could potentially be affected by these changes. The Guardian has a quick checker that estimates the impact of changes to tax credits. This tool only gives a rough idea though, so the figures might not be reliable for anything other than getting a general idea.

Employment Support Allowance (ESA)

What is changing? New claimants of Employment Support Allowance (ESA) will no longer be eligible to receive the £30 a week additional Work Related Activity Group element available to current claimants.

When? April 2017

Who’s affected? People making a new claim for ESA after April 2017. Existing claimants current claims won’t be affected.

Housing benefit

What is changing? People aged between 18 and 21 will no longer be automatically entitled to housing benefit. Parents with dependent children, vulnerable adults and people that have worked continuously for six months before claiming will be excluded from this change.

When? April 2017

Who’s affected? People aged between 18 and 21 that are unemployed and applying for help with housing costs.

Universal Credit

What is changing? Parents claiming Universal Credit whose youngest child is 3 or more will be expected to look for work. The Universal Credit will also have new qualifying criteria that matches the tax credit criteria changes mentioned above.

When? April 2017

Who’s affected? Anyone that has been moved onto Universal Credit by April 2017 (Universal Credit is a new benefit which replaces several existing benefits and is currently being phased in).

Benefit freeze

What is changing? Benefits for people of working age will be frozen for four years, which means there will be no annual increase.

When? April 2016 to April 2020

Who’s affected? Anyone claiming working age benefits.

Benefits cap

What is changing? The maximum benefits a family can receive will be capped at £23,000 in London and £20,000 outside of London. Not all benefits are included in the calculation though and the following are excluded: Working Tax Credit, Disability Living Allowance, Personal Independence Payments and the Work Related Activity Group element of ESA

When? April 2017

Who’s affected? Anyone with annual benefit claims that are higher than the new caps. Larger families with 3+ children and people living in high-rent areas such as the South East are most likely to be affected.

Support for mortgage interest (SMI)

What is changing? SMI helps households who live in mortgaged property and are claiming income-based benefits such as income support JSA, ESA or pension credit. SMI pays part or all of the interest on your mortgage. Currently you have to wait 13 weeks (3 months) between first claiming an income-based benefit before SMI starts, unless you’re getting pension credit where your SMI starts straight away. This waiting period is due to increase to 39 weeks (9 months). SMI is currently a cash benefit paid directly to your mortgage company, but it will soon be in the form of a loan with interest added, and you’ll need to pay it back once you’re working again.

When? The waiting period increases for new claims from April 2016, and SMI becomes a loan from April 2018.

Who’s affected? Anyone with an outstanding mortgage who needs to start claiming benefits because their income drops.

Increase in social housing rents

What is changing? People on higher incomes living in council or housing association property will have their rent increased to match private rents in their area.

When? April 2017

Who’s affected? Anyone living in social housing with total household earnings above £30,000 (or £40,000 in London).

How will these changes affect me if I’m on a DMP?

If you’re on a DMP and your income from benefits is set to reduce because of these changes you are likely to find your overall income reduces. The changes won’t happen until April 2016 at the earliest, so there is some time to prepare but making additional income to cover the reduction may not be easy.

The principle behind a DMP is that you pay less to your creditors to make sure your income can cover your most important expenses. So if your income reduces it’s important to review your situation and understand your options.

What can I do now?

There’s little that can be done in advance of these changes. Trying to either increase income or reduced expenses to offset the impact of benefits changes is a good idea if it’s practically possible. However, it’s likely you’ll have already explored most of these options if you’re on a DMP.

When do I need to get in touch?

There’s no need to contact us until you know for certain how much you stand to lose from these changes. Once you have received confirmation of the reduced amounts of income then it’s a good idea to review your DMP.

You can carry out a review over the phone or if you’d prefer you can also review your DMP online.

Will I have to stop my DMP?

Payments can be reduced on a DMP rather than stopping it all together but it’s worth remembering that by reducing payments, it will take longer to pay back the debt. It’s worth reviewing your DMP to check it’s still the right option for you. It may be that other debt solutions are more suitable to your situation if your DMP is going to take too long to clear your debts.

What does StepChange think about the budget changes?

Our chief executive, Mike O’Connor has spoken out about the benefit cuts announced in the July 2015 budget. He’s said that by making these changes the government “risks taking away vital lifelines for the people we help.”

I’ve got questions that aren’t answered here, what should I do?

If there’s anything that you’re not sure on then please leave a comment below and we’ll try and find an answer for you. If your question is about your StepChange DMP then we’d recommend you give us a call and we’ll be able to give you further advice.

James Winterbottom has been a debt advisor for six years. Away from work he is an amateur app developer and writes fiction. James is a lifelong supporter of Huddersfield Town football club, which suggests he is either very loyal or very daft. He also likes to talk about himself in the third person in bio pages.

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  • Chrissy Dargue

    As a parent of disabled children, I get disability / severe disability elements in my tax credits. Although the children’s DLA will not seemingly be affected, will this separate element of tax credits be included in the planned cuts? Or are disabled children / adults exempt from any cuts related to their disability? Thank you.

    • moneyaware

      Hi Chrissy,

      I’ve not heard anything about these specific elements of tax credits being changed. So current plans only seem to be more about changing tax credits across the board rather than specifically targeting disability elements.

      Kind regards

      James

      • Gillian Warwick

        I want to know how this is going to affect housing and council tax benefits. I receive working and child tax credits. But if my income is going Down due to changes to my tax credits , does that not then mean I should receive more housing and council tax ? I’m set to lose around £1400 per yr after the cuts to tax credits. Maybe more .

  • Jodie Campbell

    So now if people have a council house its going to be as expensive as privare rent? This is unreal.

    • moneyaware

      Hi Jodie,

      This change is due to come in April 2017 but that’s the general idea of it. I don’t have a lot of detail about how this will be implemented but I’d expect local authority housing departments and social housing providers will have more information for those affected by this change.

      Kind regards

      James

      • Brian Wright

        Well I might as well rent private. As my council house is like a shoe box. It’s small with single glazed windows and I spend a fortune on my gas and electric through the winter months. They won’t do anything to help at all. The windows bend with wind and the curtains blow in also that’s how bad they are. Last year a pane of glass fell out from upstairs and smashed in the back garden. They weren’t even bothered about the fact we have 2 young kids playing in there. So yes I think if this comes into force, I’ll be looking to move.

  • Catriona Sharp

    So they are basically scrapping the Working Tax Credit altogether because anyone on minimum wage working the 16 hours that you need to work to qualify for tax credits is already going to be earning more than the new earning limit.

  • How and when do these changes affect disabled people. I get WTC and CTC with the disabled element included, I also get PIP daily living at standard rate – how much is my family going to lose?

  • Sinead

    I am a mum of 2 and I currently work 30 hours a week, how will I be affected by the changes In tax credits 2016, and is there a way of working more hours to recuperate the loss.

    • moneyaware

      Hi Sinead,

      Our online benefits checker at http://www.stepchange.entitledto.co.uk/ could help you work out your entitlement to benefits. Although we’re not sure if it will include the 2016 changes.

      I hope this helps,

      Rory

  • Jackie Blackmore

    so is working tax credits being stopped next year ? I’m confused as it only mentions tax credits

    • moneyaware

      Hi Jackie,

      Thanks for your message. No, Working Tax Credits aren’t being
      stopped next year, but the maximum income you can earn and still be eligible for them will change.

      As of April 2016, you’ll only be eligible to receive Working Tax Credits if you earn under £3,850. The article discusses this in a
      bit more depth under the sub-header ‘Tax credit criteria changes’.

      If you’re concerned about the impact this could have on your financial situation, you might find it useful to look at this calculator on The Guardian website to get a rough idea: http://www.theguardian.com/money/ng-interactive/2015/jul/08/budget-calculator-summer-2015-impact-household-finances

      I hope this answers your question.

      Kind regards,

      Laura

      • Jackie Blackmore

        Hi,Thank you so much for your reply

        Subject: Re: Comment on How will upcoming benefits changes affect my DMP?

      • michael

        That is not the case – it remains the same as it is now, they backtracked – so it is still £6420 – that means that if you earn under £6420 in the previous tax year, you will get full tax credits. This is not a cut off point!! If you earn above £6420, then for every extra pound you will lose 48pence, so it is a gradual taper, not a cut off. Make sure that you get this right moneyaware, otherwise you are misleading people.

      • moneyaware

        Hi Michael,

        Thank you for your message and for flagging up this issue.

        I’ve deleted the content of the message you replied to as the information in it was out of date and incorrect.

        Kind regards

        James

  • Kel

    Hi, I’m a stay at home mum and my partner works we get a little help for housing benefit but from what I’ve read and heard my partner can earn up to £33000!untill my child tax stops (we have 2 kids) so how does it affect us I keep seeing £26000 going down to £23000 but the first figure doesn’t apply to us from what I’ve heard on the news a little while ago as I was still entitled to child tax credit wen my partner earned over £29000 and the estimate for the next yr was £31000 and I was still allowed to claim a little bit a week (he doesn’t earn that much now as he changed jobs lol.

    I’m very confused and worried

    • moneyaware

      Hi Kel,

      Thanks for posting.

      As our expertise is in helping people deal with their debts,
      it’s best to get in touch with your local benefits office to find out how this will affect you.

      They’ll be able to give you a more specific answer.

      Kind regards,

      Jen

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  • Marion King

    Is there going to be any changes on payment of disablity for the over 65s, April we got nothing

    • Becca Drury

      Hi there Marion, thanks for posting.

      As we’re a debt charity, our primary focus is providing free and confidential debt advice. We wouldn’t know in advance of any impending benefit changes in April 2017 apart from the information listed above. Should this change, we will of course update this blog to make people aware.

      Our free to use benefits calculator can tell you if you’re claiming all the benefits you’re entitled to: http://www.stepchange.entitledto.co.uk/

      If you’re struggling with unsecured debts, please know that we’re here to help. Our online advice tool Debt remedy can help you put together a personal action plan in around 20 minutes. https://www.stepchange.org/DebtRemedy.aspx

      Kind regards

      Becca

  • Marion King

    Is the winter payment towards keep pensioners warm still at £200, it wasnt clear ?

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