Over the last 6 months we have seen a number of government announcements about planned changes to the benefits system. In particular both the June Budget and the autumn Spending Review outlined various cuts to the benefits and tax credits system - these changes will amount to the biggest shake-up to the welfare system in generations.

Disability Living Allowance (DLA) changes

Disability Living Allowance is the main benefit paid to disabled children. It has two separate components – a care component paid where someone needs a lot of care or supervision and a mobility component paid where someone has difficulties in getting around out of doors.

From April 2011, the DLA rules will change to allow those aged 3 or over with severe visual impairments to qualify for the high rate of the mobility component.

Tax credits changes

The Tax credits system provides financial support to families on low to middle incomes. There are two types of tax credits – working tax credits which can be claimed by working families and child tax credit which is paid to families both in and out of work. The amount of tax credits that you could receive depends on your family circumstances and your annual taxable income.

A number of changes have been announced to the tax credits system – many of which will make the system less generous.

From April 2011, Tax credits entitlement is affected by income. Families whose income is below certain set thresholds qualify for the maximum amount of tax credits for a family of their size. However if family income goes above a threshold figure then the amount of tax credits you receive is reduced – so the higher your income, the lower your tax credits. Currently you lose 39p tax credits for every £1 of excess income you have. From April 2011 you will lose 41p tax credits for every £1 of excess income.

Also the baby element of child tax credit will be scrapped in April 2011. At present If you have a child aged under 1 year, you can receive an extra £10.40 per week in child tax credits. This additional payment is being scrapped.

Currently a family is guaranteed a minimum payment of at least £545 child tax credits per year as long as their annual taxable income is under £50,000. From April 2011 this guaranteed minimum payment will be withdrawn from families on more than £40,000 and from April 2012 there will be no guaranteed minimum payment. Please note some families (e.g. with high childcare costs or several disabled children) with an income of more than £40,000 will still qualify for tax credits based on a full means test.

Working Tax Credit can include help towards the costs of registered childcare. However the proportion of childcare costs that can be met will reduce from April 2011. This shortfall may make it more difficult for parents with disabled children to consider moving from benefits into work.

In April 2011 the child element of CTC will increase by £150 a year above inflation and by £60 above inflation in April 2012 – this means higher than inflation rises in tax credits for some families on the very lowest incomes.

A tax credit award is normally based on previous year’s income. However under current rules if your income increases by more than £25,000 your award is instead based on your current-year’s income minus £25,000. From tax year 2011/12 only the first £10,000 of an increase in annual income will be ignored and from April 2013 this will be reduced further to a disregard of only £5000. As a result of these changes tax credits will be less generous for many people who move into work or who increase their earnings. It is also likely that this change will see an increase in the number of tax credit overpayments.

A tax credit award is normally based on your previous year’s income rather than your income in the current year. However if your income is expected to fall your award can be based on an estimate of your current year’s income instead. This means that your tax credit award can be increased immediately to take into account your drop in income. From April 2012 tax credits will not be increased to take into account the first £2500 fall in your annual income – leaving those whose income drops (e.g. because they have to cut their working hours due to caring responsibilities) worse off than under current rules.

At the moment a claim for tax credits can be backdated 3 months from the date that you first claim. Similarly if you tell the Tax Credits Office about a change in your circumstances that leads to extra tax credits, this increase can be backdated 3 months. From April 2012 backdating will be limited from 3 months to 1 month. This change will make it even more important that families do not delay in telling the Tax Credits Office about a change of circumstances (such as a child being awarded DLA) that increases their award.

Currently a couple with children are eligible to claim WTC if one partner works at least 16 hours a week. From April 2012 a couple wishing to get WTC will need to have one partner working at least 24 hours or they will need to work 24 hours between them with one partner working at least 16 hours a week. Many couples with disabled children may struggle to work these additional 8 hours given their caring responsibilities. Loss of entitlement to WTC would include the loss of any help towards childcare costs.

Changes to income support for lone parents

From October 2011 lone parents whose youngest child is aged 5 or above will not be able to claim income support on the grounds of being a lone parent. Unless they are able to claim income support on some alternative grounds they will be expected to sign on and claim job seekers allowance instead. As such they will have to be available for work and take active steps to look for work in order to claim benefit. Initially this change will only apply to new claimants but from April 2012 lone parents already on income support whose youngest child is aged 5 or above will also face having to move onto job seekers allowance.

This change to the rules should not affect any lone parent looking after a disabled child on DLA at the middle or high rate for personal care. Lone parents in these circumstances should be able to continue getting income support regardless of the age of their children. This is because they can claim income support on the completely separate grounds that they are a carer. Under income support rules you are a carer if you provide regular and substantial care to someone on the care component of DLA at the middle or higher rate or to someone getting Attendance Allowance (a disability benefit for elderly people). You can also be treated as a carer for up to 6 months if you care for someone who is awaiting a decision on a claim for Disability Living Allowance or Attendance Allowance.

Unfortunately lone parents looking after a child on the care component at the low rate or those who look after a child who only gets DLA mobility component will not be treated as carers and will need to consider claiming job seekers allowance once their youngest child turns 5.

Other benefit changes of interest:

From January 2011

• Since the 3rd January 2011 the Government have stopped issuing new child trust fund vouchers. Where a child has a child trust fund account and received DLA at some point in 2010-11, they may still receive a payment of £100 (£200 if DLA high rate care) at some point during 2011. However no further payments will be made for any future years.

• Education Maintenance Allowance (EMA) is to be scrapped in England. No new EMA applications are being accepted from 1st January. Existing EMA recipients will continue to receive payments for the current academic year but not for future years. EMA in England will be replaced by an enhanced learner support fund – this is administered by the individual school or college allowing them to make discretionary payments to those students they believe to be in greatest need. EMA is expected to continue in Scotland, Wales and Northern Ireland.

• The Health in Pregnancy grant has been abolished for women who reach the 25th week of their pregnancy after 1st January 2011. This was a non means- tested lump sum of £190.

From April 2011

• Child Benefit payment rates will be frozen for three years.

• Payment of a SureStart Maternity Grant will be restricted to a first child (or children where the first is a multiple birth). The grant is a lump sum of £500 paid to pregnant women who are in receipt of certain means - tested benefits. Currently it can be claimed each time you have a baby.

• The annual uprating of benefits and tax credits will be done in line with the Consumer Price Index (CPI) rather than the Retail Price Index. Since CPI is expected to be lower than RPI for the foreseeable future this is likely to lead to lower annual increases in benefit rates than would otherwise have been the case.

From April 2012

The government intends to scrap the Employment and Support Allowance (ESA) youth rules. These special rules allow people aged 16-19 to claim contributory ESA despite having insufficient national insurance contributions.

Payment of contributory Employment and Support Allowance (cESA) will be limited to only 12 months for those claimants in the work related activity group. Currently cESA can be paid indefinitely. The government proposes that the most severely disabled ESA claimants who fall into the ‘support group’ will continue to receive this benefit without restriction. However the majority of claimants, who fall into ‘the work related activity group’ (i.e. those who are currently unable to work but who have been assessed as having a chance of eventually moving back into employment with support and training) will only receive cESA for 12 months.

Those affected by these changes to ESA (i.e. young disabled people with insufficient national insurance contributions and those claiming cESA in the work related activity group) should be no worse off so long as they have little income or capital. This is because they should be able to get payments of income-related ESA instead. However those claimants who have other income or capital above certain levels may be worse off than under current rules. Some current cESA claimants may have no entitlement under the new rules at all (i.e. those with capital above £16,000 or a partner who is working full-time).

From January 2013

Child benefit is to be withdrawn from families with a higher rate taxpayer.

From April 2013

• Introduction of a ‘benefit cap’. The total amount of benefits and tax credit that a household can receive will be capped on the basis of average earnings after tax for working households. It is estimated that this will be approximately £500 per week for a family with children by 2013. This cap will not apply to households in receipt of DLA, working tax credit or war widow's pension.

• Scrapping of community care grants, budgeting loans and crisis loans (i.e. the current system of one-off lump sum payments that help claimants pay for hard to budget for items). Community Care Grants and Crisis Loans will be replaced by ‘locally administered assistance’ (i.e. financial help from local councils). Budgeting loans will be replaced by payments on account (e.g. an advance payment by the Department of Work and Pensions to be recovered by reducing future payments).

For more information on any of the above topics please call the freephone helpline number

0808 808 3555

Source: Contact a family