How will upcoming benefits changes affect my DMP?

posted by in Living with debt

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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