Uni CreditJan 2012 4 - 0

Benefits After The Bill
The Future of Benefits following the Welfare Reform Bill
Gareth Morgan
Examining the effects of the changes to the UK benefits system following the Emergency Budget, the Comprehensive Spending Review, the Autumn Statement 2011 and the Welfare Reform Bill 2011.
Revised February 2012
Ferret Information Systems
February 2012 4.2
1 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill
Contents
Benefits After The Bill ............................................................................................................................. 4 The Welfare Reform Bill ...................................................................................................................... 4 Consolidated Cuts and Increases from the Budget and CSR............................................................... 5 Universal Credit: welfare that works The White Paper ....................................................................... 7 The Welfare Reform Bill .......................................................................................................................... 7 Some notes on the effects of the Welfare Reform Bill ....................................................................... 8 Abolition of unemployment ............................................................................................................ 8 Disregards ....................................................................................................................................... 8 Mortgage Support in work .............................................................................................................. 8 Capping of total benefits................................................................................................................. 8 Self-Employed assumed to earn at least minimum wage............................................................... 8 Transitional Protection ................................................................................................................... 8 Two systems from 2013 - ? ............................................................................................................. 9 One standard deduction rate of 65% .............................................................................................. 9 Housing support goes local ............................................................................................................. 9 Sanctions and penalties .................................................................................................................. 9 On-Line benefit claims and automatic operation ......................................................................... 10 Contributory benefits time limited and means-tested ................................................................. 10 Social Tenants ............................................................................................................................... 10 Minimum payments of Universal Credit ....................................................................................... 10 Youngest qualifying age for Pension Credit .................................................................................. 10 Youth condition in ESA abolished. ................................................................................................ 11 Capital Cut-Off In Universal Credit ............................................................................................... 11 Housing Credit in Pension Credit .................................................................................................. 11 Pension Credit Capital Cut-Off ...................................................................................................... 11 Personal Independence Payment ................................................................................................. 11 Lone parent increased conditionality ........................................................................................... 11 February 22, 2012 Entitlement to Work ..................................................................................................................... 11 Civil Penalties ................................................................................................................................ 12 Administrative Penalties ............................................................................................................... 12 Modelling and Examples ....................................................................................................................... 13 Methodology..................................................................................................................................... 13 Examples and notes. ............................................................................................................................. 14
Ferret Information Systems 2012
4.2
2 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill Steady state examples ...................................................................................................................... 15 Example 1. Example 2. Example 3. Example 4. Example 5. Steady State Tenant .......................................................................................... 15 Steady State Owner........................................................................................... 17 Steady State - Tenant 4 children ........................................................................ 19 Single, childless owner ......................................................................................... 21 Single Childless Tenant.......................................................................................... 23
Examples following changes of circumstance .................................................................................. 25 Example 6. Example 7. Example 8. Example 9. New Employment - Home Owner 2 Children........................................................ 25 New Employment - Tenant 2 children ................................................................ 27 Lost Job Home - Owner 2 Children....................................................................... 28 Lost Job - Tenant 2 children ................................................................................. 30
Mortgage limits ................................................................................................................................. 32 Example 10. Owner 2 Children .................................................................................................... 32 Housing Cost Variations .................................................................................................................... 34 Example 11. Full-time work mortgage support exclusion ......................................................... 35
The Effect of Children on Benefits. ................................................................................................... 37 Example 12. Example 13. Example 14. Example 15. Example 16. Example 17. Couple Tenants, Working 35 Hours, 15,000 pa Varied by Children ............ 37 Couple Tenants, Working 15 hours, 15,000 pa Varied by Children .............. 39 Couple Tenants, Unemployed Varied by Children ......................................... 41 Owners, Working 35 Hours 15,000pa Varied by Children .............................. 43 Owners, Working 15 Hours 15,000pa Varied by Children .............................. 45 Couple Owners, Unemployed Varied by Children .......................................... 47
The Benefits Cap ............................................................................................................................... 49 Capping in the Current System ..................................................................................................... 49 Universal Credit and Capping........................................................................................................ 50 The Effects of Capping in the Current System .................................................................................. 51 Example 18. February 22, 2012 Renting Four Children and No Children............................................................ 51
The Universal Credit Benefits Cap A Better-Off Bonus? ............................................................ 53 Example 19. Example 20. Couple Renting - Four Children ......................................................................... 53 A Cliff-Edge Cap ..................................................................................................... 54
Earnings Disregards............................................................................................................................... 55 Childcare in Universal Credit ................................................................................................................. 57 Single Parents and Childcare......................................................................................................... 58 Example 21. 2 Children................................................................................................................ 58
4.2
3 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill Example 22. 4 Children ............................................................................................................ 60
Couples and Childcare................................................................................................................... 62 Example 23. Example 24. 2 Children ........................................................................................................... 62 4 Children ........................................................................................................... 64
Childcare Effects ............................................................................................................................... 66 Consultation on Support for Mortgage Interest ............................................................................... 67 Conclusion ............................................................................................................................................. 70 Main Benefits Related Measures in the Emergency Budget ................................................................ 71 Financial Results of the Budget Measures ........................................................................................ 73 The Comprehensive Spending Review .................................................................................................. 75 Main Benefits Related Changes in the Comprehensive Spending Review ....................................... 75 Autumn Statement 2011 ...................................................................................................................... 78 Ferret Information Systems .................................................................................................................. 80 Individual advice systems ............................................................................................................. 80 Data collection, transformation and assessment ......................................................................... 80 Sustainability and affordability ..................................................................................................... 80 Workflow, embedding and batch processes................................................................................. 80 Pilot and local ................................................................................................................................ 80 Employment and HR ..................................................................................................................... 81 Specialist assessments .................................................................................................................. 81 Consultancy ................................................................................................................................... 81
February 22, 2012
4.2
Benefits After The Bill

Not for publication without written permission. January 2012
The Welfare Reform Bill

The government published the Welfare Reform Bill 2011 on February 16th 2011 and, after passing through its initial stages in the Commons and Lords is now in the ping-pong stage. We now have a clearer picture of the redesign of social security that this government, with some consensus, wants to introduce. The Bill encapsulates much that has been pre-announced. Three sets of announcements have given us a picture of short term cuts and a longer term ambition for a more integrated, simpler in the view of the government, Universal Credit for supporting people of working age, whether in-work or not. The Emergency Budget of June 22nd introduced net cuts to the welfare system of 11bn a year by 2015. The Comprehensive Spending Review of October 20th added another 7bn to that. The White Paper Universal Credit: welfare that works published on November 11th 2010 looked forward to the system which will replace the current mix of benefits for those of working age and is the basis for the Bill. The Autumn Statement of November 2011 removed a proposed increase in Child Tax Credit and froze some elements of Working Tax Credit.
It is important to recognise that the development of the Universal Credit has overlapped the introduction of the cuts in welfare and that there are some contradictions between the targeting of the cuts and the structure of the new benefit. In particular, some of the changes to Tax Credits seem at odds with the seamless approach of Universal Credit. It is also important to note that, even while the Bill will be making its progress, changes will be coming into force following the Budget and CSR. As mentioned above some of these changes will, if the Bill is successful, be in force for only a short time before the new scheme takes over. In this paper we have used a real present value approach, as described in the methodology on page 9 and carried this forward into Universal Credit. The cuts and additions made in the Budget are described in more detail on page 76 and those made in the CSR can be found on page 80. The overall impact is shown in figure 1 and figure 2. It will be seen that the largest impact is made by moving from uprating benefits in line with RPI, and the Rossi Index, to uprating by the, usually lower, CPI. It is for this reason that we have used present values in the modelling.
February 22, 2012
4.2
Consolidated Cuts and Increases from the Budget and CSR
Total Welfare Cuts

25.00
20.00
2.70 0.49 1.23 2.01
15.00 2.02
Other CTB Disability benefits ESA 2.42 Housing Benefits Child Benefit
10.00
Tax Credits CPI Indexing 4.51
5.00
5.80
February 22, 2012
0.00 Billions
Figure 1
4.2
Total Additional Spending and Savings

25.00
20.00
15.00 Net Savings 17.59 Cold Weather Payments Pension reforms Child Tax Credit 10.00
5.00
1.00 2.55 0.00
February 22, 2012
Billions
Figure 2
4.2
Universal Credit: welfare that works The White Paper

The White Paper owed much to the work of the Centre for Social Justice and its publication of Dynamic Benefits: Towards Welfare That Works in 2009. It described many of the core elements of the new benefit but much of the detail in the governments proposals is very different from the scheme as suggested.
The Welfare Reform Bill

Although the Bills most important feature is the introduction of Universal Credit (UC), it also introduces the Personal Independence Payment (PIP), which will replace Disability Living Allowance (DLA), and makes a number of changes to current schemes. It is clear that, initially at least, Universal Credit will share much of the existing structure of benefits and credits. The way in which the needs section of the means-test is determined will be an amalgam of existing benefits. So will much of the means section mirror the way in which existing schemes look at income and capital. The major change occurs in the way in which the use of these elements to determine the amount payable will be carried out. Instead of several separate benefits carrying out their own assessments with complex interlinking, passporting and overlapping, there will be one single method of withdrawal of benefit from a maximum figure. If this can be made to work, simply and efficiently, it will be welcomed. If it can do this and meet the needs of those it helps, it will be a breakthrough. Launching the White Paper Iain Duncan Smith, the Secretary of State, said: At its heart, the Universal Credit has a simple ambition to make work pay, even for the poorest. This will finally make it easier for people to see they will be consistently and transparently better off for each hour they work and every pound they earn. It will cut a swathe through the massive complexity of the existing benefit system and make it less bureaucratic to run. However, it is already clear that there are numbers of technical anomalies appearing, as will be seen in some of the examples, which will need to be addressed during the passage of the Bill or in later regulations. February 22, 2012 As always in areas of social support, simplicity of approach collides with the reality that people live in complex ways. Any scheme, unless it is astoundingly generous, must balance the needs of administrative and financial rigour against the special circumstances of small numbers of those within it. It is at that point that the tweaking begins and simplicity starts to unravel. Nonetheless, there are numerous changes, some radical, many welcome, to the structure of support that has been in place for over 20 years and it is worth noting some of these, from the Bill and from announcements in the Budget and CSR.
4.2
Some notes on the effects of the Welfare Reform Bill

Abolition of unemployment There will be no clear division between unemployment and employment. People will remain on the same benefit as their hours of work move up and down from zero to what is now considered fulltime. Only earnings will matter, hours of work will be irrelevant for most decisions. The traps and rewards attached to certain numbers of hours will largely disappear except perhaps for some important areas such as conditionality, capping and mortgage support. How this will affect some things which are passported by unemployment is unclear, even concessionary rates for tickets often use unemployment as a test. Disregards The disregard the amount of earnings which people are allowed to keep before it affects their benefits will be made much larger for some groups in Universal Credit. During the course of the bill the disregards have been increased, and a disregard introduced for single people, to compensate for potential Council Tax Benefit changes. This disregard will however be reduced sharply, with a much lower minimum, for those who need help with their housing costs. There is a clear policy intention to reward those who lower their housing costs. Mortgage Support in work Help with mortgage interest for home owners will not be available to all, instead, as with the current system, it is being limited to those not in full-time work. The draft regulations do not set out the rules which will determine full-time but it clearly makes the situation of those with varying hours of work or pay very difficult to reconcile with the announced smoothness of support for those people. A consultation document is now seeking responses to a proposal, inter alia, that no support will be paid in respect of anyone who works at all1. Capping of total benefits Total amounts of benefit, for those not in receipt of DLA, war widows or qualified to receive Working Tax Credit, will be limited to the median level of earnings of working families or single people. It will be seen later that, applied in the way announced, this can cause large poverty traps. Self-Employed assumed to earn at least minimum wage Self-employed people will be assumed to have a minimum level of earnings for the hours they work. They must meet conditionality requirements for the remaining hours. Transitional Protection Transitional protection, possibly for a long period, will make sure that nobody getting benefits will move onto a lower cash amount when transferring to Universal Credit. How this will work in more complex situations such as later reconciliation of tax credits or limited periods of mortgage support is not clear. The ending of this protection because of changes of circumstance is expected to require a major change rather than a trivial one.
February 22, 2012
Support for Mortgage Interest - Informal call for evidence December 2011. DWP.
4.2
9 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill Two systems from 2013 - ? The old and new systems will run in parallel for some years from 2013. No transfer from old to new systems in recent years has been achieved in the target period. Child Support and Child Tax Credit are worrying precedents. The announced timetable is: between October 2013 and April 2014, 500,000 new claimants will receive universal credit in place of jobseeker's allowance, employment and support allowance, housing benefit, working tax credit and child tax credit at the same time a further 500,000 existing claimants (and their partners and dependants) will also move on to universal credit as and when their circumstances change significantly, such as when they find work or when a child is born from April 2014, the second phase will give priority to households who will 'benefit most from the transition' such as those working tax credit claimants who currently work a small number of hours a week but 'could work more hours with the support that universal credit brings' overall 3.5 million existing claimants (and their partners and dependents) will be transferred onto universal credit during this second phase the last and final phase, which begins at the end of 2015 and runs through to the end of 2017, will see around 3 million households being transferred to universal credit by local authority boundary with a focus on safeguarding financial support, such as housing benefit payments to claimants as the old benefit system winds down.
One standard deduction rate of 65% There will be one single, standard rate of deduction from net earnings, ensuring that people will keep some of the increase in earnings as they earn more. The real marginal deduction rate will be higher after tax and national insurance. Housing support goes local Housing support for tenants and will become much more localised and variable from place to place. as rent limits for Housing Benefit will become embedded at different levels in different areas. These levels will be increased in line with CPI annually rather than being linked to the rental market. Council Tax support will be localised to councils in England with two schemes, one for older people similar to the current scheme and a working age scheme determined by the council. Scotland and Wales are consulting but seem likely to opt for national schemes. The money available will be 10% less than the current scheme and will cash limited in the future. Sanctions and penalties There will be more conditionality benefit penalties for people who do not meet job-seeking conditions. The groups which must meet these conditions will be extended. The Bill introduces a claimant commitment which will be a formal statement of requirements and penalties.
February 22, 2012
4.2
10 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill On-Line benefit claims and automatic operation Claiming Universal Credit will normally be done over the internet, be much more automated, and there will be a single place for contacting the benefits system. Universal Credit will automatically, month by month, reflect changes in earnings from employment, for most claimants, using a new, yet to be introduced, HMRC PAYE computer system. Contributory benefits time limited and means-tested The White Paper says Under the new system, contributory benefits would retain an insurance element, but in most circumstances would only be paid for a fixed period, only to facilitate a transition back to work. Contributory Employment and Support Allowance will be limited to one year. The White Paper said Contributory Jobseekers Allowance will continue in its current form but with the same earnings rules (such as disregards and tapered withdrawal) as Universal Credit. How this means-testing will operate is unclear. The explanatory notes to the Bill refer only to an earnings taper. Social Tenants The Bill provides that the dwelling size limits for social tenants will be implemented by imposing a percentage cut, linked to the number of additional bedrooms, rather than by the equivalent of a Local Housing Allowance. The government has said that there will be a 14% reduction in Housing Benefit for one extra bedroom and 25% for two or more. This measure was partially defeated in the Report Stage in the Lords so that housing benefit would be paid in full for social tenants where a household has no more than one spare bedroom and no suitable alternative accommodation is available, overturned in the Commons and is now ping-ponging between the two houses. There is a new term to describe Housing Benefit limits - appropriate maximum housing benefit (AMHB) Minimum payments of Universal Credit The Bill provides the power for regulations which will allow for a de-minimis limit on payments of UC. There are implications for passporting to other benefits and services as well as some financial savings. Youngest qualifying age for Pension Credit In an unexpected move the Bill introduces a younger age limit for Pension Credit. The benefit will not be available to couples until the youngest partner reaches the qualifying age instead of, as now, the oldest. The weekly difference between the JSA and the Guaranteed Pension Credit couples allowance is 103.75. The total loss, over the 2.6 years average age difference for married couples, is 14,027. Additionally this will mean that the capital limit will still apply to the household so that, for example, an older partner retiring with a small pension pot, which might be better taken as capital, will be disadvantaged.
February 22, 2012
4.2
11 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill Youth condition in ESA abolished. Young people have been able to claim contributory Employment and Support Allowance without having to made National Insurance contributions. This will be abolished under a provision in the Bill. Capital Cut-Off In Universal Credit The intention is that the treatment of capital will be similar to that under Income Support and other means tested benefits currently. Capital below a certain level will be fully disregarded and there will be a notional income from capital above that amount. Where a claimant has capital above a certain level, they will not be entitled to Universal Credit. In Tax Credits today there is no such concept as a cut-off or notional interest. Real income from capital is used in the same way as for tax. When those currently getting tax credits, with more than 16,000 in capital, claim Universal Credit theyll find that theyre not entitled. Thats estimated by the Social Market Foundation to be 400, 000 families with a further 200,000 hit by the notional interest rules. Housing Credit in Pension Credit The abolition of Housing Benefit, following the introduction of universal credit, means that the elderly will need a replacement which will be introduced as a Housing Credit as part of Pension Credit. The intention is that claimants will be entitled to broadly the same amount of support under the housing credit as they would have been entitled to by way of housing benefit. A person may be eligible for the housing credit without being entitled to either of the other elements of state pension credit, or may receive more than one element if they meet the relevant conditions. There may be a de-minimis rule applying to this credit. Pension Credit Capital Cut-Off Pension Credit will have a capital cut-off introduced. This will be at a substantially higher level than in other means-tested benefits. It is not clear what is going to happen to tariff income from capital when this change takes place. Personal Independence Payment This replacement for DLA is to decide whether an individuals ability to carry out daily living activities or mobility activities is limited or severely limited by their physical and mental condition. This then determines which of the components a person is entitled to, and whether that person is entitled to the standard or enhanced rate for each component. This will involve considering and weighting a persons ability to perform prescribed activities. Prescribed thresholds will determine entitlement to each component and rate. There is much concern amongst people with disabilities as it has been announced that ability will be tested with the use of any aids which are available. Lone parent increased conditionality Lone parents whose youngest child is over 5 will move from Income Support to JSA with all the requirements for that benefit. Entitlement to Work Legal entitlement to work will become a condition of entitlement for contribution-based JSA, contributory ESA, maternity allowance and all statutory payments.
February 22, 2012
4.2
12 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill Civil Penalties Failure to disclose information, report changes or negligence may result in financial penalties. Administrative Penalties These are intended to penalise fraud and are linked to the amount of benefit gained.
February 22, 2012
4.2
Modelling and Examples

This set of modelling compares the effects, for some common circumstances, of the changes to tax and benefits rules announced in the Emergency Budget of June 2010 and the Comprehensive Spending Review October 2010. It uses announced details and figures from impact assessments and other statements. The modelling uses Ferrets Future Benefits Model (FFBM) a detailed model of personal tax and means-tested benefits and credits which forecasts, year by year, for five years into the future.
Methodology
The examples in this document consolidate the changes to tax and benefits rules announced in the Emergency Budget of June 2010, the Comprehensive Spending Review October 2010 and the Autumn Statement 2011. This document includes modelling for the effects of reductions in real values of benefits caused by government changes to up-rating methods. Assessments start with the current values, rules and rates in force on uprating in April 2011 and progress from those. Values used are based on starting figures and then adjusted in 3 ways: Earnings, other incomes, tax bands etc. use current values. Benefits which are to be up-rated by CPI in future have their current values reduced by the cumulative year by year difference between RPI and CPI Benefits, and elements of benefits, which have been frozen have their current values reduced by the cumulative RPI.
This, crudely, allows comparison of the real future values of income to be compared with starting values. The CPI and RPI forecast figures used are those produced by the Office for Budget Responsibility. The 2012/2013 figures use a CPI of 5.2% and RPI of 5.6%. Universal Credit assessment has been modelled by using forecast benefit values together with the tapers and disregards proposed in impact assessments and emerging during the progress of the Bill. For private rents the LHA figures have been treated in the same way using the CPI reduction in following years when the LHA figures will be up-rated by CPI. Examples for cases with carers, elderly or disabled claimants are not included as insufficient detail is yet available. Council Tax Benefit is now included in the FFBM with a continuation of the current scheme for older people and a 16% reduction from the proposed date for working age examples.
February 22, 2012
4.2
Examples and notes.

Most of these examples are based on the situation of a couple with two children. They are both aged 45 and have 2 children aged 8 and 10. They do not have any childcare costs and make no pension contributions. They pay rent of 86.54 per week which is exactly the Local Housing Allowance (LHA) for their home (the figure is chosen to match the mortgage interest payable in the examples for home owners with a mortgage of 100,000 at an interest rate of 4.5%) They pay council tax of 1250 per annum.
February 22, 2012
4.2
Steady state examples

In these examples we are considering circumstances which have persisted for some time and which are likely to continue in the same way. The variations in the examples are largely caused by changes in the real value of benefits, because of the method of indexation, and by announced changes to some benefit rates and rules. Example 1. Steady State Tenant
The first example looks at steady-state situations, starting with neither partner working and then with one member of a couple working 35 hours a week for annual earnings in steps of 5,000.
Gross Annual Earnings Not Working 5,000.00 10,000.00 15,000.00 20,000.00 25,000.00 30,000.00 35,000.00 Net Income 2011 358.98 422.23 430.01 433.90 438.45 457.92 483.88 547.30
2012 355.89 418.34 426.11 430.01 433.90 450.58 476.54 534.94
2013 348.97 411.29 420.72 425.44 430.17 445.58 471.55 533.76
Current 2014 345.29 407.03 416.46 421.18 425.91 440.71 467.31 532.69
UC 2014 345.29 410.77 430.08 448.60 467.13 489.17 512.06 534.94
Current 2015 340.45 401.52 410.95 415.67 420.40 435.03 466.14 531.52
UC 2015 340.45 406.16 425.47 443.99 462.51 484.33 507.22 531.52
Current Rules
600.00 550.00 500.00 450.00
Not Working 5,000.00 10,000.00 15,000.00 20,000.00
February 22, 2012
400.00 350.00 300.00 2011 2012 2013 2014 2015
25,000.00 30,000.00 35,000.00
4.2
Current to Universal Credit

600.00 550.00 500.00 450.00 400.00 350.00 300.00 2011 2012 2013 2014 2015
Not Working 5,000.00 10,000.00 15,000.00 20,000.00 25,000.00 30,000.00 35,000.00
The increase in the real value of benefits in the Universal Credit scheme follows the increase in floor level earnings disregards announced during the passage of the Bill. This is intended to compensate for potential disincentives that may be caused by changes to Council Tax Benefit (CTB). In this modelling CTB is assessed at 84% of the current rate. The real gain in income created by increases in earnings in the UC scheme can be seen clearly in the second chart. The chart also shows the regressive effect of overall changes for those not in employment or on very low earnings. Minimum wage rules have been ignored for clarity of effect.
February 22, 2012
4.2
17 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill Example 2. Steady State Owner
The circumstances are identical but the housing costs, of the same amount, are made up of mortgage interest on a mortgage of 100,000 at 4.5% per annum.
Gross Annual Earnings Not Working 10,000.00 20,000.00 30,000.00 40,000.00 50,000.00 Net Weekly Income 2011 342.25 389.76 431.96 483.88 612.69 718.49 2012 339.50 383.32 424.85 476.54 600.32 716.60 2013 333.10 376.99 420.19 471.55 599.15 684.79
Current 2014 330.11 372.39 415.59 467.31 598.08 684.79
UC 2014 330.11 401.97 439.01 483.94 598.08 684.79
Current 2015 326.20 366.94 410.14 466.14 596.91 684.79
UC 2015 326.20 398.28 435.33 480.04 596.91 684.79
Current Rules
750.00 700.00 650.00 600.00 550.00 500.00 450.00 400.00 350.00 300.00 2011 2012 2013 2014 2015 Not Working 10,000.00 20,000.00 30,000.00 40,000.00 50,000.00
February 22, 2012
4.2

750.00 700.00 650.00 600.00 550.00 500.00 450.00 400.00 350.00 300.00 2011 2012 2013 2014 2015 Not Working 10,000.00 20,000.00 30,000.00 40,000.00 50,000.00
The chart and table above include mortgage interest, at the SMI level, in the UC calculation where it is used in the same way as rent in the requirement figure and in the calculation of earnings disregards. In the steady state example there is no two year limit on Support for Mortgage Interest (SMI) The drop in income shown in 2013 for the highest earner is caused by the abolition of Child Benefit for high rate taxpayers.
February 22, 2012
4.2
19 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill Example 3. Steady State - Tenant 4 children
Gross Annual Earnings Not Working 5,000.00 10,000.00 15,000.00 20,000.00 25,000.00 30,000.00 35,000.00
Net Income 2011 484.05 563.80 577.51 581.40 585.30 589.76 608.95 634.91 2012 479.06 554.22 571.63 575.52 579.42 583.31 599.72 625.68 2013 470.57 543.30 563.69 568.41 573.14 577.86 593.15 619.11
Current 2014 465.17 536.02 557.51 562.23 566.96 571.68 586.55 612.51
UC 2014 465.17 535.77 557.56 576.08 594.61 613.13 635.19 658.07
Current 2015 458.15 527.22 549.54 554.26 558.99 563.71 578.69 604.65
UC 2015 458.15 528.75 550.70 569.23 587.75 606.27 628.16 651.05
Current Rules
650.00
600.00
Not Working 5,000.00
550.00
10,000.00 15,000.00
500.00
20,000.00 25,000.00
450.00
30,000.00 35,000.00
400.00 2011 2012 2013 2014 2015
February 22, 2012
4.2

700.00 650.00 Not Working 600.00 550.00 500.00 450.00 400.00 2011 2012 2013 2014 2015 5,000.00 10,000.00 15,000.00 20,000.00 25,000.00 30,000.00 35,000.00
February 22, 2012
4.2
21 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill Example 4. Single, childless owner
Net Income 2011 161.35 160.51 201.96 241.58 306.97 372.35 437.74 503.12 2012 161.08 158.12 199.57 241.58 306.97 372.35 437.74 503.12 2013 156.80 154.49 197.61 241.58 306.97 372.35 437.74 503.12
Current 2014 156.19 153.02 196.13 241.58 306.97 372.35 437.74 503.12
UC 2014 156.19 119.73 178.63 241.58 306.97 372.35 437.74 503.12
Current 2015 155.33 151.37 194.48 241.58 306.97 372.35 437.74 503.12
UC 2015 155.33 119.03 178.79 241.58 306.97 372.35 437.74 503.12
Current Rules
600.00 500.00 400.00 300.00 200.00 100.00 0.00 2011 2012 2013 2014 2015 Not Working 5,000.00 10,000.00 15,000.00 20,000.00 25,000.00 30,000.00 35,000.00
February 22, 2012
4.2

600.00 500.00 400.00 300.00 200.00 100.00 0.00 2011 2012 2013 2014 2015 Not Working 5,000.00 10,000.00 15,000.00 20,000.00 25,000.00 30,000.00 35,000.00
This example demonstrates the gradually regressive nature of the benefits changes. In the Universal Credit (UC) chart there is an artificial demonstration of the possible effect of the rules limiting Support for Mortgage Interest (SMI) to those not in full-time work. As single people have a much lower earnings disregard than other categories (an earnings disregard for this group is a late introduction) the loss of SMI may cause a person working full-time to become worse off. In this example, which ignores minimum wage rules, someone on 5,000 earnings becomes worse off than someone not working or earning. 16 hours work, the current hours based determinant for fulltime work, at minimum wage level is actually 5,072.46. The current consultation would apply this
removal of SMI to any level of work.
February 22, 2012
4.2
23 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill Example 5. Single Childless Tenant
Net Income 2011 178.08 208.91 216.69 241.58 306.97 372.35 437.74 503.12 2012 177.46 207.90 215.67 241.58 306.97 372.35 437.74 503.12 2013 172.66 204.65 214.08 241.58 306.97 372.35 437.74 503.12
Current 2014 171.37 203.17 212.60 241.58 306.97 372.35 437.74 503.12
UC 2014 171.37 204.72 224.03 244.49 306.97 372.35 437.74 503.12
Current 2015 169.58 201.21 210.64 241.58 306.97 372.35 437.74 503.12
UC 2015 169.58 203.09 222.40 242.69 306.97 372.35 437.74 503.12
Current Rules
600.00 500.00 Not Working 400.00 5,000.00 10,000.00 300.00 15,000.00 20,000.00 200.00 25,000.00 30,000.00 100.00 35,000.00
0.00 2011 2012 2013 2014 2015
February 22, 2012
4.2

600.00 500.00 Not Working 400.00 300.00 200.00 100.00 0.00 2011 2012 2013 2014 2015 5,000.00 10,000.00 15,000.00 20,000.00 25,000.00 30,000.00 35,000.00
This does not consider the effect of increasing the age threshold for the Shared Room Rate in Housing Benefit from 25 to 35.
February 22, 2012
4.2
Examples following changes of circumstance

Example 6. New Employment - Home Owner 2 Children
Gross Annual Earnings 10,000.00 20,000.00 30,000.00 40,000.00 50,000.00
Net Income 2011 420.12 577.50 727.50 849.27 974.30 2012 405.90 503.47 555.39 607.31 716.60 2013 376.99 420.19 471.55 599.15 684.79
Current 2014 372.39 415.59 467.31 598.08 684.79
UC 2014 401.97 439.01 483.94 598.08 684.79
Current 2015 366.94 410.14 466.14 596.91 684.79
UC 2015 398.28 435.33 480.04 596.91 684.79
Current Rules
1,100.00 1,000.00 900.00 800.00 700.00 600.00 500.00 400.00 300.00 2011 2012 2013 2014 2015 10,000.00 20,000.00 30,000.00 40,000.00 50,000.00
February 22, 2012
4.2

1,100.00 1,000.00 900.00 800.00 700.00 600.00 500.00 400.00 300.00 2011 2012 2013 2014 2015 10,000.00 20,000.00 30,000.00 40,000.00 50,000.00
Taking a new job, in September 2011, after a lengthy period of unemployment. The effects of the changes to the system, and the existing rules, mean that the immediate income on taking a new job is unlikely to be constant. It may take up to two tax years before the income settles and, even then, the effect of the new proposals will make the real value variable. Typically a job taken part way through a year will offer a higher immediate income, when in-work benefits are considered than will be the long term income, because of the large disregard applied to the immediate increase in earnings. The short term increase will often be considerably larger at higher earnings levels. The reduction in this annual disregard from 25,000 to 10,000 (and in April 2013 to 5,000) diminishes, but does not eliminate, this effect.
February 22, 2012
4.2
27 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill Example 7. New Employment - Tenant 2 children
Gross Annual Earnings 10,000.00 20,000.00 30,000.00 40,000.00 50,000.00
Net Income 2011 435.70 577.50 727.50 849.27 974.30 2012 430.35 503.47 555.39 607.31 716.60 2013 420.72 430.17 471.55 599.15 684.79
Current 2014 416.46 425.91 467.31 598.08 684.79
UC 2014 430.08 467.13 512.06 598.08 684.79
Current 2015 410.95 420.40 466.14 596.91 684.79
UC 2015 425.47 462.51 507.22 596.91 684.79
Current Rules
1,100.00 1,000.00 900.00 800.00 700.00 600.00 500.00 400.00 300.00 2011 2012 2013 2014 2015 10,000.00 20,000.00 30,000.00 40,000.00 50,000.00

1,100.00 1,000.00 900.00 800.00 10,000.00 20,000.00 30,000.00 40,000.00 50,000.00
February 22, 2012
700.00 600.00 500.00 400.00 300.00 2011 2012 2013 2014 2015
The same comments apply as in example 6. Ferret Information Systems 2012 4.2
28 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill Example 8. Lost Job Home - Owner 2 Children
In this example, we look at a situation where one member of a couple was working 35 hours a week for annual earnings of 10,000, 20,000, 30,000, 40,000 and 50,000. Their partner has been, and remains in full time employment at 10,000pa. The first member stops work half way through the tax year, in September 2011. Their situation otherwise is as in set 1. They are both aged 45 and have 2 children aged 8 and 10. They do not have any childcare costs and make no pension contributions. They have a 100,000 mortgage at 4.5% which means 86.54 a week interest. They pay council tax of 1250 per annum.
Gross Annual Earnings 10,000.00 20,000.00 30,000.00 40,000.00 50,000.00 Net Income 2011 358.23 325.16 285.74 246.32 244.35 2012 367.55 367.55 367.55 367.55 367.55 2013 376.99 376.99 376.99 376.99 376.99
Current 2014 372.39 372.39 372.39 372.39 372.39
UC 2014 401.97 401.97 401.97 401.97 401.97
Current 2015 366.94 366.94 366.94 366.94 366.94
UC 2015 398.28 398.28 398.28 398.28 398.28
Current Rules
400.00 380.00 360.00 340.00 320.00 300.00 280.00 260.00 10,000.00 20,000.00 30,000.00 40,000.00 50,000.00
February 22, 2012
240.00 220.00 200.00 2011 2012 2013 2014 2015
4.2

450.00 400.00 10,000.00 350.00 300.00 250.00 200.00 2011 2012 2013 2014 2015 20,000.00 30,000.00 40,000.00 50,000.00
The effects of one partner losing a job in a couple where both are working can mean a greater immediate drop in income than will be the long term situation. In this example, where one partner remains in full time work earning 10,000 a year, it can be seen that the immediate drop is greater, the higher the previous earnings.
February 22, 2012
4.2
30 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill Example 9. Lost Job - Tenant 2 children
In this example, we look at a situation where one member of a couple was working 35 hours a week for annual earnings of 10,000, 20,000, 30,000, 40,000 and 50,000. Their partner has been, and remains in full time employment at 10,000pa. The first member stops work half way through the tax year, in September 2011. They are both aged 45 and have 2 children aged 8 and 10.
Gross Annual Earnings 10,000.00 20,000.00 30,000.00 40,000.00 50,000.00 Net Income 2011 424.09 411.70 372.28 332.86 330.89 2012 423.16 423.16 423.16 423.16 423.16 2013 420.72 420.72 420.72 420.72 420.72
Current 2014 416.46 416.46 416.46 416.46 416.46
UC 2014 430.08 430.08 430.08 430.08 430.08
Current 2015 410.95 410.95 410.95 410.95 410.95
UC 2015 425.47 425.47 425.47 425.47 425.47
Current Rules
440.00 420.00 400.00 10,000.00 380.00 360.00 340.00 320.00 20,000.00 30,000.00 40,000.00 50,000.00
February 22, 2012
300.00 2011 2012 2013 2014 2015
4.2

440.00 420.00 400.00 10,000.00 380.00 360.00 340.00 320.00 300.00 2011 2012 2013 2014 2015 20,000.00 30,000.00 40,000.00 50,000.00
February 22, 2012
4.2
Mortgage limits
Example 10. Owner 2 Children
Net Weekly Income 2011 342.25 352.25 352.25 352.25 352.25 363.39 389.54 405.35 2012 339.50 349.50 349.50 349.50 349.50 360.95 387.11 402.92 2013 263.29 273.29 273.29 301.90 329.82 357.02 384.22 400.66
Current 2014 260.30 270.30 270.30 299.86 327.57 354.77 381.97 398.41
UC 2014 260.30 308.38 356.46 401.10 407.56 413.51 419.46 427.58
Current 2015 256.39 266.39 266.39 297.30 324.71 351.91 379.11 395.56
UC 2015 256.39 304.47 352.55 397.19 403.36 409.31 415.26 423.38
Current Rules
450.00
400.00
350.00
5,000.00 7,500.00
300.00
10,000.00 12,500.00 15,000.00
250.00
17,500.00
February 22, 2012
200.00 2011 2012 2013 2014 2015
4.2

450.00
400.00
350.00
5,000.00 7,500.00
300.00
10,000.00 12,500.00
250.00
15,000.00 17,500.00
200.00 2011 2012 2013 2014 2015
The charts and tables above demonstrate the effect of the two year limit in JSA for receipt of mortgage support. They also demonstrate an interesting effect of the earnings disregards in Universal Credit. Because the mortgage interest is removed from the benefits calculation the earnings disregard increases to such an extent for this example (2 children, 1 of a couple working 12 hours a week and a mortgage of 100,000) that, for earnings over 5,000 a year when the disregard is made full use of, the claimant is better off than under the current rules with mortgage support.
February 22, 2012
4.2
Housing Cost Variations

Where housing costs vary because of changes in mortgage interest for example, then there is a very different result in those cases where the mortgage amount puts the claimant in the group with earnings disregards between the maximum and floor levels. In a simple example, assuming that the claimant stays within the UC calculation for all stages, an increase in housing costs of 10 a week has two effects: On the needs side of the equation it increases the maximum Universal Credit by 10 a week. On the resources side of the equation it decreases the earnings disregard, until the floor level is reached, by 1.5 times the amount - 15 a week. However it is not a simple net reduction in Universal Credit of 5 a week. The reduction in earnings disregard of 15 a week means that an additional 15 is available as net earnings in UC terms. This is then tapered by 65% or 9.75 giving a reduction in the income used in the calculation of UC of 9.75 and an increase in UC, and total income, of 25p a week for an increase in the governments standard rate for mortgage support of 10. This buffer effect means, of course, that a reduction in housing costs has the reverse effect. A fall in the housing cost of 10 a week leads to a reduction in UC of only 25p a week. However where the mortgage amount is large enough to mean that it reduces the earnings disregard to the floor level this buffering effect does not happen and a 10 increase, or decrease, is reflected directly in the benefit. The same effect is true for rents although unlike mortgages, where interest rates tend to rise and fall, rents have tended to move only upwards. Moving to a property at a different rent may demonstrate the effect, subject to any restrictions on housing costs. The levels of mortgages, at the current 3.63% SMI rate are:
Mortgage amount to reach floor level of earnings disregard.
Single Couple +1 child +2 children +3 Children 19,834.71 88,337.92 83,562.90 78,787.88
February 22, 2012
Lone Parent +1 child +2 children +3 Children 114,233.24 109,458.22 104,683.20
The mortgage examples here do not consider the limits of 100,000 and 200,000 which apply in the current rules.
4.2
35 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill Example 11. Full-time work mortgage support exclusion In another exception to the seamless and smooth working of Universal Credit, it has been decided that, as in the current scheme, support for mortgage interest will not be available to those in fulltime work. Although it is not yet certain what criteria will determine the status, we have modelled the effect of increasing hours with a 16 hour cut-off as is used in the current means-tested benefits.
Max Disregard 2014 330.11 366.69 389.47 369.99 395.35 400.15 407.20 414.25 2014 139.42 139.42 139.42 139.42 139.42 139.42 139.42 139.42 Floor level Disregard 2014 51.92 51.92 51.92 51.92 51.92 51.92 51.92 51.92 Actual Disregard 2014 51.92 51.92 51.92 139.42 139.42 139.42 139.42 139.42
Hours Not Working 6 12 18 24 30 36 42
Current 2014 296.15 340.11 340.11 266.09 350.96 370.27 378.49 386.71
WTC 2014 0.00 0.00 0.00 0.00 55.94 54.27 39.27 24.27
JSA 2014 173.70 147.12 110.54 0.00 0.00 0.00 0.00 0.00
UC
In the table above, we have looked at a couple with two children working for different numbers of hours at minimum wage with a mortgage of 100,000. The changed 24 hours Working Tax Credit qualification for a couple with children is used in this example and the result can clearly be seen at 18 hours where they have lost JSA with SMI but not acquired entitlement to WTC. The overall income effect of the loss of mortgage income support can be seen in the chart below and may be seen as less dramatic than expected given that the amount in the example, on the current standard interest rate, is 69.81 a week.
Hours / Income & Mortgages

430.00 410.00 390.00 370.00 350.00 330.00 310.00 290.00 270.00 250.00 Current UC Not Working 6 12 18 24 30 36 42
February 22, 2012
In the current scheme the loss of SMI at 16 hours is dramatic; under UC, at the same point, there is a real drop but this offset by the higher earnings disregard which is applied as there is no longer a reduction caused by housing costs. The earnings disregard is discussed further below.
4.2
36 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill If the proposal in December 2011s consultation2 that SMI will not be payable, in UC, where any work is undertaken the results are shown below.
Max Disregard 2014 330.11 296.88 333.46 369.99 395.35 400.15 407.20 414.25 2014 139.42 139.42 139.42 139.42 139.42 139.42 139.42 139.42 Floor level Disregard 2014 51.92 51.92 51.92 51.92 51.92 51.92 51.92 51.92 Actual Disregard 2014 51.92 139.42 139.42 139.42 139.42 139.42 139.42 139.42
Hours Not Working 6 12 18 24 30 36 42
Current 2014 296.15 340.11 340.11 266.09 350.96 370.27 378.49 386.71
WTC 2014 0.00 0.00 0.00 0.00 55.94 54.27 39.27 24.27
JSA 2014 173.70 147.12 110.54 0.00 0.00 0.00 0.00 0.00
UC
Hours / Income & Mortgages

430.00 410.00 390.00 370.00 350.00 330.00 310.00 290.00 270.00 250.00 Current UC Not Working 6 12 18 24 30 36 42
There is a substantial fall in income for those in mini-jobs below 16 hours a week and poverty traps can easily be created at low income levels.
February 22, 2012
Support for Mortgage - Interest Informal call for evidence December 2011. DWP
4.2
The Effect of Children on Benefits.

One of the dangers in the proposed changes appears to be the effect on families who are outliers, exceptions to the norm. In particular this seems to affect those with high housing costs or large numbers of children. It may, in future also affect some of those with disabilities but we do not yet know the detailed proposals for those cases. We will look later at some other effects of the capping proposals but we will start with the clear effects on families with children. Example 12. Couple Tenants, Working 35 Hours, 15,000 pa Varied by Children
Children 1 2 3 4 5 6 7 8 9 10
Net Income 2011 360.15 433.90 507.65 581.40 655.15 728.90 802.65 876.41 950.16 1,016.79 2012 357.25 430.01 502.77 575.52 648.28 721.04 793.80 866.56 939.32 1,001.53 2013 353.96 425.44 496.93 568.41 639.90 711.38 782.87 854.35 925.10 985.91
Current 2014 350.66 421.18 491.71 562.23 632.76 703.28 773.81 844.33 913.50 973.44
UC 2014 383.24 448.60 513.97 576.08 638.20 700.31 762.43 824.54 886.38 946.32
Current 2015 346.38 415.67 484.97 554.26 623.56 692.86 762.15 831.45 899.24 958.09
UC 2015 379.74 443.99 508.23 569.23 630.22 691.22 752.21 813.20 873.89 932.74
Current Rules
1,200.00 1,000.00 800.00 600.00 1 2 3 4 5 6 400.00 200.00 0.00 2011 2012 2013 2014 2015 7 8 9 10
February 22, 2012
4.2

1,200.00
1,000.00
1 2
800.00
3 4
600.00
5 6
400.00
7 8
200.00
9 10
0.00 2011 2012 2013 2014 2015
Interestingly, families with fewer children are better-off with UC but become worse off as numbers of children increase. There is no capping as the claimant is in full time work.
February 22, 2012
4.2
39 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill Example 13. Couple Tenants, Working 15 hours, 15,000 pa Varied by Children
Children 1 2 3 4 5 6 7 8 9 10
Net Income 2011 342.32 416.07 489.82 563.57 637.32 711.07 784.82 858.58 932.29 994.82 2012 340.17 412.93 485.69 558.45 631.21 703.96 776.72 849.48 922.24 984.58 2013 337.45 408.94 480.42 551.91 623.40 694.88 741.58 762.21 825.20 886.41
Current 2014 334.67 405.20 475.72 546.25 616.77 687.30 741.58 754.66 816.77 877.46
UC 2014 382.21 447.58 512.94 575.06 637.17 699.29 761.40 823.51 885.63 946.32
Current 2015 330.96 400.25 469.55 538.84 608.14 677.44 741.58 745.08 806.07 866.17
UC 2015 378.19 442.44 506.68 567.68 628.67 689.66 750.66 811.65 872.65 932.74
Current Rules
1,200.00
1,000.00
1 2
800.00
3 4
600.00
5 6
400.00
7 8
200.00
9 10
0.00 2011 2012 2013 2014 2015
February 22, 2012
In this example the capping is limited to the amount of Housing Benefit payable as explicitly stated by ministers.
4.2

1,200.00 1 1,000.00 800.00 600.00 400.00 200.00 0.00 2011 2012 2013 2014 2015 2 3 4 5 6 7 8 9 10
This example implements the suggestion that capping will not be applied in UC when earnings exceed 16 times the minimum wage.
February 22, 2012
4.2
41 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill Example 14. Couple Tenants, Unemployed Varied by Children
Children 1 2 3 4 5 6 7 8 9 10
Net Income 2011 296.44 358.98 421.51 484.05 546.58 609.12 671.65 734.19 796.72 859.26 2012 294.30 355.89 417.47 479.06 540.65 602.24 663.82 725.41 787.00 848.59 2013 288.16 348.97 409.77 470.57 500.00 506.50 567.31 628.11 688.92 749.72
Current 2014 285.35 345.29 405.23 465.17 500.00 500.06 560.00 619.95 679.89 739.83
UC 2014 285.35 345.29 405.23 465.17 500.00 500.00 500.00 500.00 500.00 500.00
Current 2015 281.60 340.45 399.30 458.15 500.00 500.00 550.64 609.49 668.33 727.18
UC 2015 281.60 340.45 399.30 458.15 500.00 500.00 500.00 500.00 500.00 500.00
Current Rules
1,000.00 900.00 800.00 700.00 600.00 500.00 400.00 300.00 200.00 100.00 0.00 2011 2012 2013 2014 2015 1 2 3 4 5 6 7 8 9 10
February 22, 2012
The limitation of capping to Housing Benefit under current rules produces a less dramatic result than in previous versions of this paper.
4.2

1,000.00 900.00 1 800.00 700.00 600.00 500.00 400.00 300.00 200.00 100.00 0.00 2011 2012 2013 2014 2015 2 3 4 5 6 7 8 9 10
The difference Capping starts with 5 children. With 10 children the benefit will be capped by over 320 a week in 2013 in todays values. Universal Credit figures are shown as capped.
February 22, 2012
4.2
43 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill Example 15. Owners, Working 35 Hours 15,000pa Varied by Children
Children 1 2 3 4 5 6 7 8 9 10
Net Income 2011 345.36 410.53 475.71 540.88 606.06 671.23 736.40 801.58 866.75 930.25 2012 339.87 404.09 468.30 532.52 596.73 660.95 725.17 789.38 853.60 915.33 2013 335.60 398.59 461.59 524.59 587.59 650.58 713.58 776.58 839.43 900.23
Current 2014 331.87 393.99 456.10 518.22 580.33 642.44 704.56 766.67 828.51 888.45
UC 2014 358.37 420.49 482.60 544.72 606.83 668.95 731.06 793.17 855.01 914.95
Current 2015 327.54 388.54 449.53 510.52 571.52 632.51 693.51 754.50 815.19 874.04
UC 2015 355.81 416.81 477.80 538.80 599.79 660.78 721.78 782.77 843.46 902.31
Current Rules
1,000.00 900.00 800.00 700.00 600.00 500.00 400.00 300.00 200.00 100.00 0.00 2011 2012 2013 2014 2015 1 2 3 4 5 6 7 8 9 10
February 22, 2012
4.2

1,000.00 900.00 800.00 700.00 600.00 500.00 400.00 300.00 200.00 100.00 0.00 2011 2012 2013 2014 2015 1 2 3 4 5 6 7 8 9 10
February 22, 2012
4.2
45 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill Example 16. Owners, Working 15 Hours 15,000pa Varied by Children
Children
1 2 3 4 5 6 7 8 9 10
Net Income 2011 324.37 389.54 454.72 519.89 585.06 650.24 715.41 780.58 845.75 908.28
Current 2012 324.49 390.30 456.12 521.93 587.74 653.56 719.37 785.19 851.00 916.81 2013 322.56 387.10 451.63 516.17 580.71 645.24 709.78 741.58 741.58 741.58 2014 320.84 384.27 447.70 511.12 574.55 637.98 701.41 741.58 741.58 741.58
UC 2014 366.93 433.61 500.29 563.72 627.14 690.57 741.58 741.58 741.58 741.58
Current 2015 318.70 380.74 442.79 504.84 566.89 628.93 690.98 741.58 741.58 741.58
UC 2015 363.06 428.36 493.66 555.70 617.75 679.80 741.58 741.58 741.58 741.58
Current Rules
900.00 800.00 700.00 600.00 500.00 400.00 300.00 200.00 100.00 0.00 2011 2012 2013 2014 2015 1 2 3 4 5 6 7 8 9 10
No capping as no Housing Benefit in payment.
February 22, 2012
4.2

1,000.00 900.00 800.00 700.00 600.00 500.00 400.00 300.00 200.00 100.00 0.00 2011 2012 2013 2014 2015 1 2 3 4 5 6 7 8 9 10
No capping as income is higher than a 16 time minimum wage trigger.
February 22, 2012
4.2
47 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill Example 17. Couple Owners, Unemployed Varied by Children
Children
1 2 3 4 5 6 7 8 9 10
Net Income 2011 279.71 342.25 404.78 467.32 529.85 592.38 654.92 717.45 779.99 842.52
Current 2012 279.91 343.49 407.08 470.66 534.25 597.83 661.42 725.00 788.59 852.17 2013 274.73 337.30 399.88 462.45 500.00 500.00 500.00 500.00 500.00 500.00 2014 271.97 333.47 394.96 456.45 500.00 500.00 500.00 500.00 500.00 500.00
UC 2014 271.97 333.47 394.96 456.45 500.00 500.00 500.00 500.00 500.00 500.00
Current 2015 268.46 328.61 388.75 448.90 500.00 500.00 500.00 500.00 500.00 500.00
UC 2015 268.46 328.61 388.75 448.90 500.00 500.00 500.00 500.00 500.00 500.00
Current Rules
900.00 800.00 700.00 600.00 500.00 400.00 300.00 200.00 100.00 0.00 2011 2012 2013 2014 2015 1 2 3 4 5 6 7 8 9 10
February 22, 2012
4.2

900.00 800.00 700.00 600.00 500.00 400.00 300.00 200.00 100.00 0.00 2011 2012 2013 2014 2015 1 2 3 4 5 6 7 8 9 10
February 22, 2012
4.2
The Benefits Cap

Capping in the Current System As recently as 21st March 2011, Employment Minister Chris Grayling responded to a written question about the criteria for the proposed benefits cap. Chris Grayling: As the spending review announced, households which contain a member who is in receipt of working tax credit will be exempt from the cap. We are still considering the precise criteria for an equivalent exemption under universal credit. This reiterated the governments consistently expressed link between the cap and the receipt of Working Tax Credit (WTC). Our modelling had demonstrated the results of this policy on households where hours were too low, or incomes too high, to receive WTC but remaining benefits were still above the cap level. This created potentially very large poverty traps in some circumstances with small increases in income leading to a drop in net incomes of sometimes hundreds of pounds a week.3 In April, however, an official wrote to us It has always been the policy intention that this exemption should cover those households who work sufficient hours to qualify for Working Tax Credit but whose high earnings result in a "nil" award. When we have referred to households being in receipt of Working Tax Credit in a number of answers to Parliamentary Questions, this was understood to include those people who may qualify for Working Tax Credit but for the level of their earnings. We will make this clearer in future communications. This issue will only exist up until the time households begin to receive Universal Credit and are therefore unable to qualify for Working Tax Credit. Universal Credit will be paid both in and out of work and we are still considering the precise criteria for an equivalent exemption under Universal Credit for those in work. We welcome this clarification and the removal of the poverty trap danger that would have been caused by our previous interpretation, although we confess to being slightly puzzled by the concept that in receipt of should have been read as including not in receipt of. It is not yet clear whether an application for WTC will need to be made, and fail, in order for this to apply. February 22, 2012 As it is now appears that the receipt of WTC is not itself relevant to the avoidance of the cap, but that the test is simply one of hours worked and household composition, our modelling incorporates this.
Benefits after the Bill 1.3 Ferret Information Systems, March 2011
4.2
50 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill Universal Credit and Capping During the committee stage of the Bill, on 28th April, Employment Minister Chris Grayling spoke about the possible ways in which the benefits cap might be applied under Universal Credit. It is unlikely that an hours based cap will be introduced but instead a cap based on a level of earnings, or income, seems more likely. Chris Grayling: We are unlikely to do it on an hours basis. There are a number of ways that we could do it; we could relate hours to the minimum wage and achieve a formula, for example. We are unlikely to seek to use the system to collect hours workedI think it would be extremely difficult to do thatbut we are considering the best way to set the appropriate parameters. . Clearly, we need to set a relationship between hours and amount of money earned. There are only two permutations. Either we calculate the number of hours or the amounts of money, or we find a mechanism to relate the two. We are unlikely to collect hours data, but we might seek to create a formula that linked the two. If someone earns more than the equivalent of the minimum wage for a defined full-time week, they move beyond in-work conditionality. That is an example of how we can set a formula that moves people beyond a certain point in relation to a number of hours without counting them. It would be quite impractical to count them, but we can create a formula that links an income and a number of hours and sets a threshold in cash terms. We will probably want to come up with a formula of that kind. In many ways, this introduces more complexity than the hours step that will now apply to the current scheme as changes in rates of pay (and possibly minimum wage) as well as hours may trigger, or stop, the cap applying. If the Government intend to make this figure relatively low (e.g. at current rates 24 hours at minimum wage would be 142.32 a week just under 7,500 pa) then, while the cap would apply to fewer people, those affected may be more likely to include those on the periphery of employment, often dipping in and out of work, who were intended to be helped by UCs smooth and seamless operation. People in lower paid jobs could be hit by the cap while those, working the same hours on higher rates of pay, would escape. During the committee stage in the Lords, Lord Freud made it explicit that the value of passported benefits, such as free school meals, would not count towards the cap. It is not clear whether childcare payments will fall within the cap which would make much of their value for those in parttime work questionable. February 22, 2012 On the 23rd Nov 2011 in Committee Lord Freud stated that under the current rules the cap will apply only to housing benefit and not to other benefits. The cap will not have full coverage until universal credit comes in. It is not yet clear whether a move onto UC will see transitional protection applied to the cap.
4.2
The Effects of Capping in the Current System

Example 18. Renting Four Children and No Children The figure below shows the situation of a four child couple, and single parent, in a three bedroom house paying the Inner South West London LHA level rent of 346.62 a week (April 2011 after 30 th percentile reduction) and of a childless couple and single parent paying the one bedroom rent of 219.23 in the same BRMA. If we assume an earnings level of 7.51 per hour - London median (entry level: elementary occupations) the results are shown in the table below. The assessment is based on 2013 figures
Hours 0 6 12 15 16 23 24 29 30 35 Single No Children 304.03 309.03 312.31 316.41 317.78 325.55 326.48 331.44 347.07 353.28 Single Parent 500.00 545.06 590.12 612.65 794.74 798.84 799.21 801.06 803.94 805.79 Couple No Children 342.08 352.08 352.08 352.08 352.99 360.77 361.70 366.34 388.49 390.34 Couple with Children 500.00 545.06 590.12 612.65 620.16 662.89 818.07 819.91 822.80 824.64
900.00 800.00 700.00 Single No Children 600.00 500.00 400.00 Single Parent Couple No Children Couple with Children
February 22, 2012
300.00 0 10 20 30 40
4.2
52 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill This clearly reduces the flexibility of work hours, which the White Paper emphasises Establishing a single withdrawal rate, and eliminating the hours rules currently present in Working Tax Credit, has the potential to create a much more flexible labour market. Workers will be able to work the number of hours that most suits their needs and those of their employer, without being constrained by the structure of the benefits system. For example, it will now be financially rewarding for a lone parent to work 15 hours per week, or 17 hours per week (both of which would not have been financially rewarded under the existing system which only recognised 16 hours per week.4 The effect of the cap is to exaggerate this current disincentive. In the case of the couple with children, moving to 24 hours work from 23 will mean that they become entitled to 47.22 a week Working Tax Credit but they also escape a benefits cap of 80.13 as their benefit income will be 580.13. An increase in net income of 80.13 for an extra hour of work becomes a fall in income of 80.13 for the loss of one hour, and its 7.51 gross pay, as capping would, presumably, be applied once more. It is also clearly shown in the chart, because of the change in hours of work requirement which is being introduced for couples with children, that a leapfrog effect is being introduced where single parents entitlement passes that of couples in the same circumstances between 16 hours and 24 hours. It is also clear that there a number of difficulties which will be faced by local authorities if they are expected, as stated, to administer the cap. The amount of information which they will need about the circumstances of claimants, but which they do not currently have access to, is significant. How they are to apply capping in cases where there is a lower amount of HB/CTB payable than the amount to be capped, or where there is no HB claim as in the case of a homeowner has not been made clear.
February 22, 2012
Department for Work and Pensions, Universal Credit: welfare that works, p55, paras 19 and 20
4.2
53 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill The Universal Credit Benefits Cap A Better-Off Bonus? Example 19. Couple Renting - Four Children
A Couple with four children paying private rent of 276.92 a week (3 bedroom LHA figure for Outer South-West London - May 2011 below the LHA cap) and Council Tax of 1,250 per annum. One of the couple is working 20 hours a week at hourly rates from 5 to 11 (Minimum wage rules would apply to 5 a week earnings but this has been ignored for clarity). The assessments are based on the benefits cap stopping once total net earnings reach 24 times the current minimum wage level. This gives a weekly earnings figure of 145.92.
Net Income
800.00 750.00 700.00 650.00 600.00 550.00 500.00 5 6 7 8 9 10 11 Net Income
Per Hour 5 6 7 8 9 10
Net Earnings 100.00 120.00 139.88 154.23 167.83 181.43 195.03
Net Income 600.00 620.00 639.88 746.93 751.69 756.13 758.44
Capped? Capped by Capped by Capped by Not Capped but Excess Not Capped but Excess Not Capped but Excess Not Capped but Excess
Benefits exceed 500 by 127.95 114.95 102.03 92.70 83.86 74.70 63.41
February 22, 2012
11
It is clear that for this family there is a bonus for earning more while working for the same number of hours. Equally, there would be a substantial penalty for a reduction in hourly rates below 8 which far outweighs the drop in net earnings.
4.2
54 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill The shape of the line in the chart showing net income is surprisingly similar to the stepped change possible in the current system, which was criticised in the White Paper and which Universal Credit was intended to remove. Example 20. A Cliff-Edge Cap To demonstrate the instant effect of the point at which capping ceases to apply which equates (for 24 hours work at Minimum Wage level) to 7.39 per hour gross earnings. The two columns in the table below show 7.38, which is capped, and 7.39, which is not capped. The difference of 1p an hour, or 20p a week gross, generates a net income increase, or loss, of 98.23.
Gross Earnings / Net Profit Net Earnings - after Income Tax and N.I. Benefits & Credits Income Working Tax Credit Child Tax Credit Housing Benefit Council Tax Benefit Income Based JSA Pension Credit Child Benefit Other Income Universal Credit Total Net Income 53.09 0.00 523.52 743.98 53.09 0.00 523.43 744.03 Not capped but excess 98.09 645.94 744.03 21.58 21.58
147.60
147.80
145.80
145.93
Weekly Benefits Cap Hit?
Capped by 98.18 645.80 645.80
February 22, 2012
Excess benefit over 500 Weekly Income if capped Actual Weekly Income
4.2
Earnings Disregards
One of the work incentive measures of Universal Credit that has been emphasised by the government is the increase in the amount of earnings that can be kept before any deduction is applied. We want to ensure that people are encouraged to take jobs of only a few hours a week if this is all that is possible for them in the short term. To achieve this we will allow some groups to earn significantly more before their benefit starts to be withdrawn. The level of these earnings disregards will reflect the needs of different families to ensure that work pays.5 As can be seen in the tables below, as an example, that figure was set, in the original proposal, at 109.62 a week for a couple with one child. A substantial increase over the current earnings disregard. BUT... this amount is reduced by one and a half times the rent or mortgage interest element in their UC assessment down to a minimum disregard or 'floor' level of, in this case 20 a week. As can be seen in the table below, that means that if their rent is more than the figure in the fourth column of the tables their disregard will be reduced to the floor level. It doesn't seem likely that many working families will have housing costs at a level where they will get much, if any, of the higher disregard. The most likely beneficiaries may be older workers who have finished paying off their mortgage or, as was seen earlier, those whose Support for Mortgage Interest is not payable because of full time work or length of time on benefit. Those working people living in others households, parents or staying with friends, will have a complex better off calculation to carry out before taking on their own properties, either rented or mortgaged. If the householders they are staying with are in receipt of benefits then there will be an increasing non-dependant deduction applied while they are resident but there may be no earnings disregard reduction. Moving into their own property may increase the needs figure in UC but the reduction in disregard will also increase the income side of the calculation. A substantial change in earnings disregards figures appears in the October Universal Credit Impact Assessment which says February 22, 2012
Specifically, this Impact Assessment sets out higher earnings disregards than were set out in the White Paper. This would allow a reduction in the risk of dual tapering (council tax support and UC being withdrawn simultaneously) ensuring that support can be directed to those who could otherwise be affected by the exclusion of council tax support from UC. To achieve this, additions to the original earnings disregards have been proposed including: An additional earnings disregard to couples with children of 250; Increasing the child element in the earnings disregard from 2,700 to 4,000, and; An increase in the disregard floor per adult of 700, including for single claimants.
White Paper Universal Credit: welfare that works November 2010
4.2
Couple +1 child +2 children +3 Children Lone Parent +1 child +2 children +3 Children

Original Disregards 1
. Maximum 57.69 109.62 109.62 109.62
Floor 10.00 20.00 25.00 30.00
Housing cost at which floor disregard applies 31.79 59.74 56.41 53.08
148.08 148.08 148.08
40.00 45.00 50.00
72.05 68.72 65.38
. Single Couple +1 child +2 children +3 Children 13.46 57.69 139.42 139.42 139.42
Maximum
Floor 13.46 36.92 46.92 51.92 56.92
Housing cost at which floor disregard applies N/A 13.85 61.67 58.33 55.00
Lone Parent +1 child +2 children +3 Children

New Disregards 1
173.08 173.08 173.08
53.46 58.46 63.46
79.74 76.41 73.08
These changes have a number of consequences February 22, 2012 The housing cost which brings the disregard to floor level is lowered for childless couples to 13.85 from the already low figure in the original disregard proposal. This is a side effect of the substantial increase in the floor level for some cases. This disregard increase has had a substantial effect on the net incomes in many of the Universal Credit assessments and has reduced, or removed, the regressive trend seen in modelling of earlier versions, although this is including 90% Council Tax Benefit sum in the net incomes. However, there may be a concern about the impact of Council Tax Benefit changes if this substantial an offset is thought necessary.
4.2
Childcare in Universal Credit

Childcare support in the proposed Universal Credit scheme has clearly been a difficult issue. Under the existing system, childcare support is mainly implemented in Working Tax Credit but is also an important component, for many people, of Housing Benefit and Council Tax Benefit. In all of these there is a minimum working week of 16 hours before childcare costs are considered in the assessments. Universal Credit is intended to provide a seamless system of support, so that moving into and out of work, or varying hours, will not have large administrative burdens or create cliff-edge effects with attendant incentives or disincentives. It had been hoped, therefore, that childcare support would become available to those in work, without an hours barrier, in the new system. This would encourage the take-up of mini-jobs and support the Governments drive towards encouraging employment of those with children. After the Welfare Reform Bill reached the Lords, and after much lobbying, the Government has announced that it will extend the current childcare support system to those working below 16 hours a week rather than the previously more limited options that it had said it was considering. We have looked at the effect of the new scheme, using Ferrets Future Benefits Model (FFBM). We have considered cases of single parents and of couples. For couples, the examples assume that both work the same hours for the same pay. The hourly rate of pay used is the National median (entry level: elementary occupations) rate of 6.95 per hour. Child care costs are used at 3.32 per hour, the England Average, per child for the hours of work. Capping has been applied using a suggested method where capping does not apply to those in work with net pay, after tax and national insurance, of more than the equivalent of 24 hours at the minimum wage. This currently equates to 145.92 per week. Capping has been applied to Universal Credit, Child Benefit and Council Tax Benefit. In these cases, housing costs are treated as rent and council tax. Council Tax has been assumed to be 1,250 per annum in all cases. For consistency, although it downplays capping substantially for larger families, we have kept the housing figure of 85.64 a week. Earnings disregards, in all these cases, are at the lowest floor level as even this low housing cost exceeds those which reduce the disregards to that level. The figures use the 2014 forecasts but at 2011 value figures. This takes account of the reduction in benefit values caused by indexation changes and other reductions, freezes and increases announced in benefit levels.
February 22, 2012
4.2
58 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill Single Parents and Childcare Example 21. 2 Children
Hours Not Working 4 8 12 16 20 24 28 32 36
Net Income with Childcare uc 2014 307.59 353.98 400.37 430.55 458.20 484.26 509.72 535.01 558.05 583.34
Net Income without Childcare uc 2014 307.59 335.39 363.19 374.78 378.48 384.61 390.14 395.49 398.61 403.96
Childcare costs 2014 0.00 26.56 53.12 79.68 106.24 132.80 159.36 185.92 212.48 239.04
Net Disposable Income with Childcare 2014 307.59 327.42 347.25 350.87 351.96 351.46 350.36 349.09 345.57 344.30
700.00 600.00 500.00 400.00 300.00 200.00 100.00 0.00 Net Income with Childcare Net Income without Childcare
February 22, 2012
4.2
450.00 400.00 350.00 300.00 250.00 200.00 150.00 100.00 50.00 0.00 Net Disposable Income with Childcare Net Income without Childcare
February 22, 2012
4.2
60 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill Example 22. 4 Children
Childcare costs 2014 0.00 53.12 106.24 159.36 212.48 265.60 318.72 371.84 424.96 478.08
It must be noted that in this example childcare costs are assumed to be included in the capped amount. The jump in net income with childcare between 20 and 24 hours is caused by the escape from capping as earnings rise. With four children it is also clear that income after childcare costs falls as hours of work increase. This fall accelerates after the maximum childcare support is reached.
800.00 700.00 600.00 500.00 400.00 300.00 Net Income with Childcare Net Income without Childcare
February 22, 2012
200.00 100.00 0.00
4.2
600.00 500.00 400.00 300.00 200.00 100.00 0.00 Net Disposable Income with Childcare Net Income without Childcare
February 22, 2012
4.2
62 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill Couples and Childcare Example 23. 2 Children
Childcare costs 2014 0.00 26.56 53.12 79.68 106.24 132.80 159.36 185.92 212.48 239.04
800.00 700.00 600.00 500.00 400.00 Net Income with Childcare 300.00 200.00 Net Income without Childcare
February 22, 2012
100.00 0.00
4.2
600.00
500.00
400.00
300.00
Net Disposable Income with Childcare Net Income without Childcare
200.00
100.00
0.00
February 22, 2012
4.2
64 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill Example 24. 4 Children
Childcare costs 2014 0.00 53.12 106.24 159.36 212.48 265.60 318.72 371.84 424.96 478.08
900.00 800.00 700.00 600.00 500.00 400.00 300.00 200.00 100.00 0.00 Net Income with Childcare Net Income without Childcare
February 22, 2012
4.2
700.00 600.00 500.00 400.00 300.00 200.00 100.00 0.00 Net Disposable Income with Childcare Net Income without Childcare
February 22, 2012
4.2
Childcare Effects
The childcare proposals viewed solely within Universal Credit become very different when Universal Credit is combined with earnings and other benefits and even more so when the reality of their net effect is examined. The absence of any understanding of the way in which Council Tax Benefit will be implemented by local authorities, making the results here merely speculative, raises serious questions about how parents will be able to determine the value of employment and the clear, simply understood, nature of the scheme even less likley to be achieved. The benefits cap together with the basic levels of Universal Credit for children and the higher housing costs associated with larger families will mean that childcare, and work, may be unaffordable for them. For many people work will not pay.
February 22, 2012
4.2
Consultation on Support for Mortgage Interest

The government published an informal call for evidence on proposals for alterations to the system for Support for Mortgage Interest in means-tested benefits in December 2011. Although not yet set as policy, it is clearly worth considering the effect of these proposals if they were to be introduced. The main elements are: proposing to recoup the SMI paid through a charge on the property, plus interest to cover costs to government from the equity in their property, for new claims - This will apply to long term claimants after two years older people and the disabled.; proposing to introduce a zero earnings rule so that SMI will stop with any work; considering a move away from the automatic mortgage interest direct scheme to paying SMI direct to working-age recipients, except where they are vulnerable, who would be responsible for budgeting and paying their mortgage to their lenders; allowing all loans for housing-related expenses, subject to exclusions, with a cap on the amount payable, equivalent to a percentage of the eligible home improvement loan(s) in each case for example 70 per cent or 80 per cent. proposing to remove the exemption from time-limiting for those recipients moving onto jobseeker's allowance (or the equivalent within universal credit) from income support or income-related employment and support allowance
Some of the effects of these proposals have been looked at briefly in earlier examples but it is worth considering the effects on housing equity of the SMI recovery proposal. The consultation proposes that claimants would repay the sum they received by way of SMI, plus interest to cover costs to government, from the equity in their property. In the examples in the paper they use a 2% surcharge over the SMI rate to cover costs and interest. The charge and repayment would begin after two years in receipt of SMI as part of long term benefits. If, as an example, we look at the resultant effect on the claimants equity in the property, the consequences are stark, although the government has said that it will not pursue recovery into negative equity. A property worth 100,000 with a mortgage of 75,000 at 4.5% gives the claimant an equity value of 25,000 at the start of the period. The charts look at interest only and do not consider any repayment vehicle. February 22, 2012 With 0% house price inflation (HPI) and 0% general inflation, so that value can be compared, the figure below shows the effect on the claimants equity in the home.
4.2
0% HPI
30,000.00 25,000.00 20,000.00 15,000.00 Equity Value 10,000.00 5,000.00 0.00 (5,000.00) (10,000.00) (15,000.00) (20,000.00) (25,000.00) 1 3 5 7 9 11 13 15 17 19 21 Current Future
The previous gentle reduction in equity value, caused by the difference in interest between the lenders rate of 4.5% and the SMI rate of 3.63 being added to the mortgage debt, is replaced by a dramatic fall so that the claimants equity disappears after 9 years. At that point the model ceases to apply the governments recovery of SMI and charging but the addition of the shortfall in mortgage interest by the lender continues. If we consider the effect of a net increase in house price inflation of 1%, the result is shown here.
1% HPI
30,000.00 25,000.00 20,000.00 Equity Value 15,000.00 10,000.00 5,000.00 0.00 Current Future
February 22, 2012
(5,000.00) (10,000.00)
11 13 15 17 19 21
The increase in equity caused by the HPI broadly offsets the additional interest added to the mortgage account under the current scheme but in the proposed scheme the existing equity is taken by the governments recovery after about 10 years.
4.2
69 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill A period of negative HPI produces, as would be expected, an earlier loss of equity and a more severe fall into negative equity.
-1% HPI
30,000.00 25,000.00 20,000.00 15,000.00 Equity Value 10,000.00 5,000.00 0.00 (5,000.00) (10,000.00) (15,000.00) (20,000.00) (25,000.00) 1 3 5 7 9 11 13 15 17 19 21 Current Future
If this proposal is implemented there will be a number of detailed concerns in addition to the loss of equity. What will be the effect of lenders continuing to add the interest difference to the mortgage account after a negative equity level would have been reached with the governments charge? What will the situation be for a local authority which wishes to place a charge on the home to cover care costs? The effect of this proposal will be greater than the benefits related consequences. Issues of inheritance, long term care funding, equity release and housing affordability will mean that complex considerations will have to be studied in detail before the proposal can be taken forward.
February 22, 2012
4.2
Conclusion
The combination of the changes announced in the budget and the additional changes in the comprehensive spending review were shown to be broadly regressive when examined in terms of the real value of benefits. The surprisingly large effect of the changes to earnings disregards has changed this somewhat. It is clear that, as in the current system, individual circumstances will affect benefits entitlement greatly. This may be seen as a factor raising some doubt about the potential for simplification without impacting some families unfairly. The initial apparent advantages of simplicity and seamlessness of the proposals in the White Paper have been substantially reduced by the subsequent introduction of the overall benefits cap, housing caps, childcare limits and the limitation of mortgage support to those not working full time. Much of the effect will be felt locally; both the changes in Housing Benefit and Local Housing Allowance rules will disproportionately affect those in higher cost urban areas, particularly London. The Council Tax Benefit changes, if introduced, may permit some local authorities to attempt some social engineering and this has usually, historically, again been tried by the higher cost urban areas. If you would like to receive further papers, or get more information about the modelling behind the examples in this paper, please contact Ferret.
February 22, 2012
4.2
Main Benefits Related Measures in the Emergency Budget

22nd June 2010 Benefits and tax credits to be up-rated by the consumer price index (CPI) The budget announced that all non-pensioner benefits will be up-rated by the CPI instead of the RPI or Rossi index. The CPI normally rises at a lower rate than the RPI. This means that the real value of benefits is likely to fall, or rise less than earnings, and is expected to fall compared to previous uprating rules. The budget estimates the change will cut spending on benefits by 5.8bn a year by 2014. On the September figures, normally used for benefits uprating, the CPI was 5.2% while the RPI was 5.6%. From 2012 pensioner benefits will rise in line with earnings. This continues the previous administrations generous treatment of the elderly. But see the later Triple Guarantee. An annual Child tax credit (CTC) increase of 150 above CPI in 2011-12 and 60 above CPI in 2012-13 The headline increases, for each child, will, of course, be worth less in real terms because of inflation and increased prices by the time they are introduced. The Autumn Statement in 2011 removed the proposed increase in 2012 -2013. Child benefit frozen for the next three years Although this is a universal benefit, it forms a higher proportion of the income of low income families and the consequent real reduction will affect such households more. Withdrawal of child tax credit for higher income families Almost two million families currently receive just the 10.50 a week family element of child tax credit. At the moment, when a households gross income reaches 50,000, this element starts to be reduced. From 2011 this family element will start to be reduced at a gross income of 40,000. About half a million families will stop being entitled to tax credits. From 2012, there will no longer be any flat rate entitlement to the 10.50 family element which will be tapered away as part of the normal Tax Credit assessment at lower incomes. Baby element of child tax credit abolished from 2011 Families with babies under one will lose the 545 baby element of child tax credit. February 22, 2012 Tax Credits taper rises from 39% to 41% The increased rate at which tax credit entitlement is reduced as incomes rise, means that only those on the lowest incomes will benefit from the announced increase in child tax credit. It will, however, also cut entitlement to working tax credit for households without children. Introducing a 2,500 disregard for households with a drop in income from April 2012 A reduction in income will not be immediately reflected in increased Tax Credits. Only if income is more than 2,500 a year lower than in the previous year will the award increase. Ferret Information Systems 2012 4.2
Reducing the income disregard for increased income The generous income disregard which was increased from 2,500 to 25,000 in 2006/07, largely to avoid the political storm caused by the harsh recovery of overpayments caused by in-year increases of income, will be reduced to 10,000 in April 2011 and to 5,000 in April 2013. This will reduce the, sometimes large, immediate income increases in the first years of entering, or returning to, employment. Over-fifties returning to work The 50-plus element in Tax Credit is for claimants over 50 returning to work after six months or more unemployment. From April 2012, this will be abolished. Local Housing Allowance (LHA) caps and restriction to 4 bedroom rate From April 2011 the weekly LHA rates, which determine maximum Housing Benefit, will be capped at maximum figures set centrally. The impact of these caps will only affect Greater London but may be substantial for some tenants there. The higher LHA rate for families needing five bedrooms will be abolished.
LHA to be set at the 30th percentile LHA is currently set at the median of local private rents in the broad market area. From April 2011, for new claims, the figures will be based on the 30th percentile instead. These new rates will be used to assess claimants entitlements on the annual review of their LHA. The effect of this change will be to lower the maximum rental figure from which Housing Benefit is assessed, lowering benefit levels where rent is in excess of that.
CPI linking of LHA From 2013/14 LHA rates will be up-rated in line with the CPI rather than being linked to actual rental figures.
Non-dependant deductions to be increased An amount is deducted from housing support in the benefits system where other people, typically relatives, share the household. These figures have not increased since 2001. From April 2011 they will be increase in steps until they reach the level they would have been had they been fully up-rated since 2001. February 22, 2012
Social rented sector limiting rents From 2013/14, working age claimants in council and housing association tenancies will be treated in the same way as private tenants, with their HB entitlement restricted to the rent for an appropriately sized property.
4.2
73 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill HB reduced to 90 per cent of assessed entitlement after 12 months of receiving JSA From 2013/14 any claimant on JSA for more than 12 months will have their HB entitlement cut by 10 per cent. This proposal will not now be introduced as part of the Welfare Reform Bill. A medical assessment for Disability Living Allowance from 2013 for new and existing claimants. This will move to a more objective, less discretionary, assessment which is expected to reduce the number of recipients.
Financial Results of the Budget Measures

The overall annual saving from these measures is forecast to reach about 11bn by 2014/15.
2010 385 2011 2,010 2012 4,710 2013 2014 8,150 11,040
Specific welfare measures - Millions Benefits, tax credits and public service pensions: switch to CPI indexation from 2011 - 12 Disability Living Allowance: reform gateway from 2013-14 Lone parent benefits: conditionality extended to those with children aged 5 and above from October 2011 Health in Pregnancy Grant abolished Sure Start Maternity Grant: applies to first child only from 2011-12 Support for Mortgage Interest: payments set at the average mortgage rate from October 2010 Saving Gateway: not introduced in July 2010 Housing Benefit reforms: Local Housing Allowance: set at the 30th percentile of local rents from 2011-12 Deductions for non-dependents: reverse previous freezes on uprating and maintaining link with prices from 2011-12 Social sector housing: limit working age entitlements to reflect size of family from 2013-14 Switch to CPI indexation for Local Housing Allowance from 2013-14 Reduce awards to 90% after 12 months for claimants of Jobseekers Allowance Additional bedroom for carers from 2011-12 Local Housing Allowance: caps on maximum rates for each property size, with 4-bed limit from 2011-12 Additional Discretionary Housing Payments from 2011-12
0 0
1,170 0
2,240 0
3,900 360
5,840 1075
0 40 0
0 150 75
50 150 75
150 150 75
180 150 75
15 10
-75 0
-10 75
40 110
65 115
65
365
415
425
125
225
320
340
0 0 0 0
0 0 0 -15
0 0 0 -15
490 300 100 -15
490 390 110 -15
February 22, 2012
0 0
55 -10
65 -40
70 -40
65 -40
4.2
74 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill Tax Credits Tax credits second income threshold: reduced to 40,000 from 2011-12 First and second withdrawal rates: increased to 41% from 2011-12 Child Tax Credit: taper the family element immediately after the child element from 2012-13 Child Tax Credit: remove the baby element from 2011-12 Working Tax Credit: remove the 50 plus element from 2012-13 Child Tax Credit: reversed the supplement for children aged one and two from 2012-13 Reduced the income disregard from 25,000 to 10,000 for two years in 2011-12 then to 5,000 from 2013-14 Introduced an income disregard of 2,500 for falls in income from 2012-13 New claims and changes of circumstances: reduce backdating from 3 months to 1 month from 2012-13 Child Tax Credit: increased the child element by 150 in 2011-12 and 60 in 2012-13 above indexation Child Benefit: rates frozen for three years from 2011-12 Basic State Pension: introduce triple guarantee from 2011-12 Pension Credit Minimum Income guarantee: matching basic State Pension cash increase in 2011-12 Child Trust Funds: phased abolition of Government contributions from 2010-11
0 0
140 640
145 710
155 730
145 765
0 0 0 0
0 295 0 0
510 275 35 180
515 270 40 180
480 275 40 180
0 0
105 0
140 550
340 560
420 585
315
320
330
0 -1200 -1845 0 0 365 0 695 -195
-1930 940 -420
-1995 975 -450
0 320
-415 540
-535 550
-535 560
-535 560
Cuts Additions Total February 22, 2012
385 3725 7350 11090 0 -1715 -2640 -2940 385 2010 4710 8150
14075 -3035 11040
4.2
The Comprehensive Spending Review

October 20th 2010.
Welfare spending has been widely seen as bearing the brunt of the cuts in the CSR and Emergency Budget. As in the Budget, much of the saving is spread over future years and is achieved by up-rating more slowly and freezing some benefit rates so that inflation will reduce real values. There are some larger savings from targeting particular groups. Some of the changes are hard to quantify precisely as details have not yet been revealed. The CSR also confirmed the intention of the government to introduce a simpler, seamless Universal Credit to be phased in over the next two parliaments. The Government have expressed their intention to ensure that work really does pay more than staying on benefits. It seems strange then that the main in-work welfare benefit, WTC, is being effectively cut. Perhaps the intention is simply to ensure that in-work benefit is cut less and therefore the net gain increased The CSR has produced an additional 7bn of reduction in welfare in addition to the cuts made in the Emergency Budget.
Main Benefits Related Changes in the Comprehensive Spending Review

Capping benefits The government will cap household benefit payments from 2013 at around 500 per week for couple and lone parent households and around 350 per week for single adult households, so that no family can receive more in welfare than median after tax earnings for working households. All Disability Living Allowance claimants, War Widows, and working families claiming the working tax credits will be exempt from the cap. This will have the greatest effect on families with larger numbers of children or high housing costs as can be seen in later examples. Child Benefit The government will withdraw Child Benefit from families with a higher rate taxpayer from January 2013. The intention is to save 2.5 billion a year by 2014-15. This proposal has created political furore because a working couple with overall income of over 80,000 a year could continue to receive Child Benefit while a couple with single earner would lose the benefit at about 44,000. The Chancellor said that he did not propose to make any further cutbacks to child benefit. February 22, 2012 Tax Credits The percentage of childcare costs that parents can claim through the childcare element of the Working Tax Credit (WTC) is being reduced from 80 per cent to 70 per cent in April 2011, saving 385 million a year by 2014-15. 60% of recipients of this help are single parents. The eligibility rules for Working Tax Credit will mean that couples with children must work 24 hours a week between them, with one partner working at least 16 hours a week in order to qualify for the WTC, saving 390 million a year by 2014-15. Previously the requirement was simply for 16 hours work. This means that couples where the hours of work are between 16 and 24 will be working too
4.2
76 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill few hours to receive in-work benefits but, even where the claimant is working less than 16 hours, their income may be too high to receive JSA. The basic and 30 hour elements of the WTC are being frozen for three years from 2011-12, saving 625 million a year by 2014-15 The child element of Tax Credit is being increased above indexation by a further 30 in 2011-12 and 50 in 2012-13, in addition to the 150 and 60 increases provided at the June Budget. The government state that this will ensure that the overall outcome of the Spending Review will have no measurable impact on child poverty in the next two years. Pre-announcing such additions means, of course, that the real value of the increases will be reduced by the RPI index when introduced as well as the reduction in real values of the normal up-rating caused by the move to CPI from RPI. The Autumn Statement in 2011 removed the proposed increases for 2012 -2013. Employment and Support Allowance Time limiting contributory Employment and Support Allowance for those in the Work Related Activity Group to one year is intended to save 2 billion a year by 2014-15. Those with no other resources will move onto the means-tested equivalent but those who, for example, have working partners will lose the entire income. Housing Benefit The government is increasing the age threshold for the Shared Room Rate in Housing Benefit from 25 to 35 in 2012, saving 215 million a year by 2014-15. This means that single people will not qualify for the one-bedroom rate of LHA but only the lower shared room rate for another 10 years. Once again this may impact urban areas where young people tend to wish to live independently. It may be that shared accommodation is more likely to be rented furnished than self-contained properties. Council Tax Benefit The government has announced that it is reducing spending on Council Tax Benefits by 10 per cent and localising it, saving 490 million a year from 2013-14. In addition, the Government will provide greater flexibilities to local authorities to manage pressures on council tax from the same date. Council Tax Benefit will be devolved to Scotland and Wales. Although details have not been released it is understood that CTB is to be replaced by grants to local authorities in April 2013, who can then choose their own way of using money to rebate CT bills Grants are expected to be lower than current spending on CTB. This saves 0.5bn a year, but means losses amongst poor households. The move in many ways goes directly against ideas behind Universal Credit with different levels of government running different parts of the benefit system. It may create a postcode lottery or local authorities could use the scheme to persuade low-income households to live elsewhere. Experience shows that, as in many areas, giving policy creation powers to LAs results in radically different policies. The government announced in late 2011 that its intention is to retain the current CTB scheme for pensioners while local authorities set-up their own schemes for working age people.
February 22, 2012
4.2
77 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill Disability Living Allowance The government are removing the mobility component of Disability Living Allowance from people in residential care, except for those who are self-funding, saving 135 million a year by 2014. Following campaigning, it has now been decided not to go ahead with the proposal Pension Credit In one of the few moves affecting the elderly, the government are freezing the maximum Savings Credit award in Pension Credit for four years, saving 330 million a year by 2014-15. This is the element which rewards those who have made some provision for their retirement. Capping the maximum increases the number of people who will see a penny for penny reduction in benefit for increases in income. Support for Mortgage Interest The government is extending for a further year the temporary change to the Support for Mortgage Interest scheme, to reduce the waiting period for new working age claimants to 13 weeks and increase the limit on eligible mortgage capital to 200,000, both of which were due to expire in January 2011 The two year limit of SMI for Job-Seekers Allowance claimants which first affected people in January 2011 has been extended into UC. Cold Weather Payments The Chancellor said that he was making permanent the temporary increases to Cold Weather Payments provided in the past two winters, at a cost of 50 million a year, so that eligible households receive 25 for each seven day cold spell recorded or forecast where they live. Pensions The government reiterated their promise to uprate the basic State Pension by a triple guarantee of earnings, prices, or 2.5 per cent, whichever is highest The Government will speed up the pace of State Pension Age equalisation for women from April 2016 so that Womens State Pension Age reaches 65 in November 2018. The State Pension Age will then increase to 66 for both men and women from December 2018 to April 2020. Following the faster increase to 66, the Government is also considering future increases to the State Pension Age to manage the ongoing challenges posed by increasing longevity, and will bring forward proposals in due course. In addition, the Government says that they will improve the quality and access to pensions in the Spending Review period. February 22, 2012 Educational Maintenance Allowance The Educational Maintenance Allowance which pays 16-18 year olds to remain in education in England is to be replaced by locally managed discretionary funds to target support. More details will be given later. For families with numbers of older children, even though the payments are made to the children themselves, household incomes could be severely affected.
4.2
78 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill Social Housing Landlords in England will be able to set rents between social and market levels for new tenants. They will also be able to offer fixed-term tenancies rather than agreements for life. As current HB rules allow full benefit payments for social rents we would assume that this change will presage the application of LHA levels to, at least new, social rents. Again this can be expected to affect high rent, high demand urban areas most.
Autumn Statement 2011

As well as the alterations to previous announcements, included above, the statement also froze the couple and lone parent elements of Working Tax Credit for 201213.
February 22, 2012
4.2
79 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill CSR Measures - Millions Contributory Employment and Support Allowance: time limit for those in the Work Related Activity Group to one year Housing Benefit: increased age limit for shared room rate from 25 to 35 Total household benefit payments capped on the basis of average take-home pay for working households Disability Living Allowance: remove mobility component for claimants in residential care Savings Credit: freeze maximum award for four years from 2011-12 Support for Mortgage Interest: extend temporary changes to waiting period and capital limit until January 2012 Cold Weather Payments: increase rate permanently to 25 from November 2010 Council Tax Benefit:10% reduction in expenditure and localisation Child Benefit: remove from families with a higher rate taxpayer from January 2013 Working Tax Credit: freeze in the basic and 30 hour elements for three years from 2011-12 Working Tax Credit: reduce payable costs through childcare element from 80% to 70% restoring 2006 rate Child Tax Credit: increase the child element by 30 in 2011 and 50 in 2012 Working Tax Credit: increase working hours requirement for couples with children to 24 hours Child and Working Tax Credits: use real time information Cuts Additions Total 2011 / 2012 2012 / 2013 2013 / 2014 2014 2015
1,025
1,530
2,010
130
225
215
225
270
60
130
135
165
215
260
330
-70
-20
-50
-50
-50
-50
485
490
590
2,420
2,500
195
415
575
625
270
320
350
385
-190
-510
-545
-560
February 22, 2012
0 0 630 -310 320
380 0 3135 -580 2555
385 0 6585 -595 5990
390 300 7650 -610 7040
4.2
Ferret Information Systems

Ferret is the worlds leading company specialising in the application of technology to advanced advice and information for the individual. We focus on areas linked to social welfare, assessment and support. In 30 years of innovation Ferret has grown out of a Citizens Advice Bureaux project, into a multiaward winning company whose worlds firsts include the worlds first large scale roll-out of mobile technology in government and the worlds first Web based benefits assessment system in 1995. Ferret specialises in holistic assessment of financial circumstances, coupled with a software development methodology which offers a high level of flexibility and rapid updating to reflect rule changes. Ferret works in partnership with many companies and organisations using our expertise, and that of our partners, to develop effective products and services. For example our work with the Council of Mortgage Lenders in developing Fintal, the ground breaking tool for advice and compliance needs in lifetime mortgages, quickly established itself as the industry standard for this essential task. Individual advice systems Our systems are designed to enable advisers to provide information to individual customers, using our predictive rule sets. This enables users to give advice and information not only about current entitlements but also to look ahead to the individuals situation under new rules and schemes. The systems are available on multiple platforms including mobile and the Web, and also in variants for expert and generalist advisers or for customer self-use. Data collection, transformation and assessment For multi-agency and administrative working we have developed our own granular representation, agnostic to purpose, of a customers circumstances. This, extremely modular and extensible, structure enables multiple assessments in one interview but is also designed to transform and aggregate the data into directly usable data for multiple back office systems or reporting engines. It makes use of a unique, user configurable, push pull model of customer driven dialogue entry for speed and accuracy in collecting rich data. Sustainability and affordability Combining our predictive income modelling, the common financial statement and bespoke elements and rules we are able to generate robust assessments of affordability and sustainability in areas such as new employment and house purchase or rental. The application of this to debt advice and arrears proposals is extremely powerful. February 22, 2012 Workflow, embedding and batch processes We are able to supply black-box systems for embedding into other systems and applications but our systems can also stand-alone as batch processing engines where complete customer sets can be run against changes in rules or rates. Pilot and local The modularity of our systems enables the easy introduction of pilot and local schemes into otherwise standard systems for individual users or areas.
4.2
81 Benefits After The Bill The Future of Benefits after the Welfare Reform Bill Employment and HR For employers, and employees, our unique ability to look ahead provides a real bottom-line figure for the overall income of employees from earnings, Tax Credits and benefits. Being able to see the effects of changes in rules, that will come into effect in the future, helps people to understand the situation that they will be in and to make plans with time to spare. Specialist assessments We have modules for CRAG, Fairer Charging, Disabled Facilities Grants and many other specialist assessments which can be integrated into our core systems or run stand-alone. Consultancy Ferret provides consultancy to companies, organisations and government on the impact of legislative and policy changes on their business and customers. Ferrets Future Benefits Model (FFBM) is widely used by agencies and specialists needing detailed future information on benefit changes and their impacts.
Contact details Ferret Information Systems Ltd 4 Coopers Yard Curran Road Cardiff CF10 5NB Telephone: 029 2064 3333 Fax: 029 2064 3331 http://www.ferret.co.uk info@ferret.co.uk
February 22, 2012
4.2

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Benefits After The Bill

The Future of Benefits following the Welfare Reform Bill

Revised February 2012

Ferret Information Systems

February 2012 4.2

Ferret Information Systems 2012

Ferret Information Systems 2012

February 22, 2012

Ferret Information Systems 2012

Benefits After The Bill

The Welfare Reform Bill

February 22, 2012

Ferret Information Systems 2012

Consolidated Cuts and Increases from the Budget and CSR

Total Welfare Cuts

2.70 0.49 1.23 2.01

Tax Credits CPI Indexing 4.51

February 22, 2012

Ferret Information Systems 2012

Total Additional Spending and Savings

1.00 2.55 0.00

February 22, 2012

Ferret Information Systems 2012

Universal Credit: welfare that works The White Paper

The Welfare Reform Bill

Ferret Information Systems 2012

Some notes on the effects of the Welfare Reform Bill

February 22, 2012

Ferret Information Systems 2012

February 22, 2012

Ferret Information Systems 2012

February 22, 2012

Ferret Information Systems 2012

February 22, 2012

Ferret Information Systems 2012

February 22, 2012

Ferret Information Systems 2012

Modelling and Examples

February 22, 2012

Ferret Information Systems 2012

Examples and notes.

February 22, 2012

Ferret Information Systems 2012

Steady state examples

2012 355.89 418.34 426.11 430.01 433.90 450.58 476.54 534.94

2013 348.97 411.29 420.72 425.44 430.17 445.58 471.55 533.76

UC 2014 345.29 410.77 430.08 448.60 467.13 489.17 512.06 534.94

UC 2015 340.45 406.16 425.47 443.99 462.51 484.33 507.22 531.52

Not Working 5,000.00 10,000.00 15,000.00 20,000.00

February 22, 2012

400.00 350.00 300.00 2011 2012 2013 2014 2015

25,000.00 30,000.00 35,000.00

Ferret Information Systems 2012

Current to Universal Credit

Not Working 5,000.00 10,000.00 15,000.00 20,000.00 25,000.00 30,000.00 35,000.00

February 22, 2012

Ferret Information Systems 2012

Current 2014 330.11 372.39 415.59 467.31 598.08 684.79

UC 2014 330.11 401.97 439.01 483.94 598.08 684.79

Current 2015 326.20 366.94 410.14 466.14 596.91 684.79

UC 2015 326.20 398.28 435.33 480.04 596.91 684.79

February 22, 2012