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How will the April 2016 benefit changes affect my DMP?
UPDATE 17 March: Further benefit changes have been announced since this article was original published in February, and the article has been updated with further details. Our benefits checker can tell you what benefits you may be entitled to.
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The government plans to reduce benefits spending by £12bn by 2020. There are two questions that are likely to be on your mind if you’re on a debt management plan (DMP). Firstly: which benefits are going to be affected? Secondly: how will these changes impact my finances and my DMP?
Another question that you could have been concerned about Tax Credits, but that was answered in the Autumn Statement. The chancellor George Osborne made a U-turn on his proposals for Tax Credits changes FOR April 2016, but there are still changes to come in 2016 and 2017, and equivalent changes in Universal Credit.
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.
Changes to benefits due in April 2016
Benefit freeze
What’s changing? Benefits (including tax credits) for people of working age will be frozen for four years, which means there will be no annual increase. This means as the costs of goods and services goes up, the frozen benefits won’t stretch as far. Disability benefits and a handful of other benefits are exempt from this freeze. Check the full list on the Entitledto website here.
When? April 2016 to April 2020
Who’s affected? Anyone claiming working age benefits.
Universal Credit (UC)
(Universal Credit is a new benefit which replaces several existing benefits and is currently being phased in. If you’re eligible for tax credits, you should start your claim before Universal Credit is rolled out in your area. Identical claimants may receive less under Universal Credit than under tax credits, and the amount you receive will be more until your circumstances change. Check your eligibility here).
What’s changing? If you claim Universal Credit, there will be a reduction in the work allowance – the maximum amount you can earn before your benefit payment is reduced. Your Universal Credit payment is reduced by 65p for every £1 you earn above the work allowance limit.
When? April 2016
Who’s affected? Disabled people and parents will see a reduction to £192 per month if they have housing costs and £397 per month if they don’t have housing costs. For the full list of changes, dependant on your circumstances, see the Entitledto website here.
The work allowance will be abolished altogether for non-disabled, childless claimants. This means that your Universal Credit payment is reduced as soon as you start earning.
What else is changing? The childcare cost element of UC will actually increase from 70% to 85%, meaning you can claim back more of your childcare costs.
When? From April 2016, parents can claim up to a monthly limit of £646 if they have one child attending childcare, or £1108 for two or more children in childcare.
Who’s affected? Universal credit claimants who claim back their childcare costs will directly benefit from this change.
Housing Benefit
What’s changing? The family premium included in Housing Benefit (worth £17.45 per month) will be removed.
Who’s affected? Families making a new claim for Housing Benefit from 1 May 2016.
When? May 2016
What else is changing? The allowed period for Housing Benefit backdating will drop from six months to four weeks. This means that you will lose out if you’re unable to put your request for a backdated payment in before the four week deadline.
When? May 2016
Who’s affected? Anyone claiming Housing Benefit and wishes to make a backdated claim.
Support for mortgage interest (SMI)
What’s 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 income-based benefits, for example because they’ve lost their job.
Working / Child Tax credits
What’s changing? At the moment, any household income increases of up to £5,000 during the tax year is ignored when calculating your entitlement for that year. This will be reduced so that any income boost of more than £2,500 will be taken into account. This means more people will be classed as having an overpayment of tax credits and will find their future payments reduced as a result.
When? April 2016
Who’s affected? Anyone claiming Working or Child Tax credits whose income goes up.
State Pension
What’s changing? A new State Pension is being introduced to replace the basic State Pension and State Second Pension system we currently have. It’ll consist of a single amount to be awarded in full if you have 35 qualifying years of National Insurance contributions.
If you haven’t made enough contributions to qualify for the full pension, you’ll still receive a pro rata amount as long as you have a minimum number of qualifying years (between 7 and 10). If you don’t have the minimum number of qualifying years you’ll be able to claim the single tier pension. Any contributions made under the current pension system will still count toward the new State Pension.
When? April 2016.
Who’s affected? Anyone reaching pension age from 6 April 2016, so all women born on or after 6 April 1953 and all men born on or after 6 April 1951.
Other important benefit changes coming in April 2016
- There’ll be an increase in minimum wage to £7.20 per hour for over-25s
- Most social housing rents will see an annual reduction of 1% until 2020
- Personal Tax Allowance: the amount you can earn before you have to pay tax – will rise from £10,600 to £11,000
- Housing Benefit and Pension Credit temporary absence: Payments will stop if you go abroad for four weeks or more. Previously you could continue claiming for up to 13 weeks if you went abroad (UPDATE: This will now come into force in May 2016 rather than April 2016).
- Pension Credit Assessed Income Period abolition: New Pension Credit claimants will have to report changes in circumstance as they happen. Before, they were often given five year fixed periods where income changes were not reported
- Savings Credit abolition: From April 2016 there will be no new claims processed for savings credit
Changes to benefits due in Autumn 2016
Benefits cap
What’s changing? The benefits cap – the total amount of allowed benefits a household can claim – will reduce
When? Not known yet, but expected Autumn 2016
Who’s affected? London residents will see a cap reduction from £26,000 to £23,000 a year. Everyone else will see their benefits cap reduce to £20,000 a year. If you or your partner have been in employment for at least 50 weeks out of the 52 weeks before your last day of work, you will be exempt from this cap. This means if you lose your job, you have 2 weeks to start a claim before losing this exemption.
(UPDATE: The Government will introduce exemptions for people who claim Guardians Allowance, Carer’s Allowance and the carers element of Universal Credit from the household benefit cap from Autumn 2016.)
Changes to benefits due in April 2017 and beyond
Personal Independence Payment (PIP)
What’s changing? There will be a reduction in the number of assessment points awarded for needing to use an aid or appliance to carry out two of the ‘daily living’ activities. In practice this means fewer disabled people are provided with the means to get the aid or appliances they would have got previously. The government estimates that 640,000 disabled people will be affected by 2020.
When?: January 2017
Who’s affected? new PIP applicants and re-assessments
Tax credits for 3 or more children
What’s changing? Tax credits will not be paid for third and subsequent children.
When? April 2017
Who’s affected? Families that have two or more children and have more children after April 2017. If you already have three or more children and start a claim before April 2017 you’ll continue to be able to claim tax credits for those children. This change only affects parents of children born after April 2017, or new claims after April 2017.
What else is changing? Removal of the family element in tax credits and UC.
When? April 2017
Who’s affected? Anyone who wants to make a new claim for child tax credits. What’s more, anyone making new family claims for Universal Credit will lose £45pm after April 2017.
Employment Support Allowance (ESA)
What’s changing? New claimants of Employment Support Allowance (ESA) will no longer 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.
What else is changing? Automatic entitlement to benefits for 18-21 year olds will come to an end after 6 months of ‘employment inactivity’.
When? April 2017
Who’s affected? Anyone aged 18-21 and in need of benefits.
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 who are unemployed and applying for housing benefit.
Universal Credit
What’s 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.
What else is changing?: Universal Credit for children will be reduced as Child Tax Credit, limited to 2 children.
When? April 2017
Who’s affected? Parents with three or more children.
What else is changing? . New claims or new births will not be eligible for the ‘first child premium’. This means that the child element for the first child will be the same rate as for the second child. This translates into a loss of £45 per month.
When? April 2017
Who’s affected?: Parents who have an additional child after the rule is put into effect in April 2017.
Increase in social housing rents
What’s changing? Households 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).
Housing Benefit in the social rented sector
What’s changing? new or renewed tenancies in the social sector will be subject to the cap on Housing Benefit at the relevant Local Housing Allowance rate.
When: April 2017
Who’s affected? Tenants who rent from the social housing sector
How will these benefit 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. Many of the most of these changes will occur in 2017 and beyond, so there is some time to prepare for these. However, you may find it a struggle to make additional income to cover the reduction.
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 falls it’s important to review your situation and understand your options.
What can I do now?
If you are entitled to a benefit and are not claiming it, do so before April 2016. You can calculate your benefit entitlement on the StepChange website. This is because in some cases you will receive less benefit income for the same benefit after April 2016. Trying to either increase income or reduce expenses to offset the impact of benefits changes is a good idea if it’s practical. However, it’s likely you’ll have already explored most of these options if you’re on a DMP.
Do I need to get in touch with you?
There’s no need to contact us until you know for certain the impact on your finances from these changes. Once you have received confirmation of your 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’ll 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’s 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 give you further advice.
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