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Welfare and benefits - Spending Review

  • Published: Wednesday, 20 October 2010

The Chancellor's Spending Review statement delivered on 20 October included announcing a fundamental reform of the welfare system, releasing savings of £7 billion each year by 2014-15.

Universal Credit

Proposals are being drawn up to replace all working age benefits and tax credits with a single, simple Universal Credit. Its guiding rules will be that it always pays to work, and those who get work will be better off than those who don’t.

Universal Credit will be introduced over the next two Parliaments, going alongside a new Work Programme. Using the resources of the voluntary and private sectors, the Work Programme will provide intensive help to those looking for work, and support for those who could look for work but currently lack the confidence or skills to try.

Savings in the welfare budget

The Chancellor announced further welfare savings to those identified in the June Budget:

  • a time limit to contributory Employment and Support Allowance for those in the Work Related Activity Group of one year
  • an increase in the age threshold for the shared room rate in housing benefit from 25 to 35, so that Housing Benefit rules reflect the housing expectations of people of a similar age not on benefits
  • greater flexibility to local authorities to manage council tax together with direct control over Council Tax Benefit, within an overall budget that will be reduced by 10 per cent from April 2013
  • alignment of the rules for the mobility and care elements of Disability Living Allowance paid to people in residential care
  • a freeze on the maximum Savings Credit award in Pension Credit for four years

These welfare measures, plus those to tax credits, will save £7 billion a year.

Tax credits

The Chancellor announced a number of changes relating to tax credits:

  • freezing the basic and 30 hour elements of tax credits for three years
  • changing the Working Tax Credit eligibility rules from 6 April 2012 so that couples with children must work 24 hours per week between them
  • returning the childcare element of the Working Tax Credit to its previous 70 per cent level from 6 April 2011
  • increasing the child element of the Child Tax Credit by a further £30 in 2011-12 and £50 in 2012-13 above indexation, meaning annual increases of £180 and then £110

Cap on benefits

It was also announced that no family that doesn’t work will receive more in benefits than the average family that does go out to work.

However, the cap does not apply to those in receipt of Disability Living Allowance, Working Tax Credit or the War Widows Pension

Universal benefits

Child Benefit was removed from families with a higher rate taxpayer in an earlier announcement. But Child Benefit will continue to be paid in the normal way to the great majority of the population, from birth until a child leaves full time education at the age of 18 or even 19.

Universal benefits for pensioners will be kept, namely:

  • free eye tests
  • free prescription charges
  • free bus passes
  • free TV licenses for the over 75s

Winter Fuel Payments will remain as budgeted for by the previous government.

The temporary increase in the Cold Weather Payments introduced by the last government is made a permanent increase.

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