Benefit Cap

The new government is proposing changes to the benefit system to ensure that everyone is getting what they are entitled to and to reduce the amount of money that is being spent on benefits each year. To this effect from April 2013 the amount that an individual or a couple can receive in benefits will be subjected to a benefit cap. This means that there is an upper limit of money that any one person can claim in benefits but certain benefits will be exempt from this cap. The idea of this cap is to ensure that people not in work are not getting more money than the average person who is in work.

At the moment it is possible to get more money in benefits for not working that you get if you are, which means that people are really not encouraged to get into work if they are unemployed. If you are already struggling to survive on benefits and going back to work will make you worse off then you are not inclined to seek employment that will make it harder for you to survive. If going back to work has added incentive with a wage as well as certain back to work packages then more people will be inclined to see paid employment.

What is this new benefit cap?

It is an upper limit to the amount of benefits that can be received by a person aged between 16 and 64. This is the age the government deem to be called the working age, although even within this age group there will be exceptions to this cap. It also means that a household with two working age people will have an upper limit to the amount of benefit they are able to receive.

It is to make the benefits being brought into a home become about the same level as the average household wages after tax and national insurance have been removed. Within this home they count the claimant/s, their partners and any dependent children that live with them. So a household or home could mean a single parent on their own, a single parent with children, a couple or a couple with children.

If you are at work and surviving on a low income there are benefits that will be available to top up your wages such as working tax credit and this will make your financial situation actually more secure than someone who is not working.

It is possible to find out how much the benefit levels will be capped for your household by using the on-line benefit cap calculator. This calculator takes the information that you input into it and works out what benefits your family will be entitled to under the new benefit reforms of 2013. The questions will be about the amount of benefits that you currently get so be sure to have that information to hand when you start the calculation process.

What is the benefit level going to be capped at?

It is not known at this point (June 2012) what the exact figures are for the benefit cap as this information will not be available until later this year. Speculation puts the figures at a cap of £350 a week if you are a single person alone. This means either that you have no children or your children do not live with you. If you are a couple with or without children at home or a single person with children at home then it is presumed that the benefit cap will be at £500 per week.

This seems a bit strange at first when you consider that a couple with children will need lots more money per week that a single person on their own, but it does add up to £2000.00 per month. The people who this applies to have to be out of work altogether and are there for not entitled to Working Tax Credit at all as this produces a different set of circumstances.

If you get Working Tax Credit (WTC), Disability Living Allowance (DLA), the new Personal Independence Payment (PIP) that will replace DLA in April 2013, Attendance Allowance (AA), Industrial Injuries Benefit (IIB), Employment and Support Allowance – but only if it is paid with the support component or War Widow’s or War Widowers Pension.

Which benefits is the benefit cap targeting

You may wonder after seeing the list of benefits that are exempt from the tax which benefits it is actually targeting? What will happen with the benefit cap is that the amounts from all the other benefits will be added together and you will lose housing benefit if your other benefits take you over the benefit cap. You will then be expected to make up the remainder of your rent costs from the income bought in by the other benefits.

These benefits are Bereavement Allowance (BA), Carer’s Allowance (CA), Child Benefit (CHB), Child Tax Credit (CTC), Employment and Support allowance that is not paid with the support component included, Guardians Allowance (GA), Housing Benefit (HB), Incapacity Benefit (IB), Income Support (IS), Jobseekers Allowance (JSA), Maternity Allowance (MA), Severe Disablement Allowance (SDA), Widowed Parent’s Allowance (WPA), Widowed Mother’s Allowance (WMA), Widows Pension (WP), Widows Pension Age Related. Many people will be entitled to multiples of these benefits so with the advent of the Benefit Cap the benefits they get will be added up and should they be in excess of the cap the relevant reductions will be made.

As we have explained previously the purpose behind the benefit cap is to put people’s benefits in line with the current average claim to reduce money being spent on the benefit system all together. If you are currently in receipt of any of the relevant benefits you will get a letter from the people at the Department for Work and Pensions (DWP) to explain what will happen sometime before April 2013.

If you are unsure about any of this and are already getting help from one of the government agencies available to assist people back to work then you will continue to get that help and you can ask them for advice about the benefit cap. If this does not apply to you then you can just ask your benefit adviser or local Jobcentre Plus advisor for more information about the Benefit Cap and how it will affect you.

It is important to note that at any time getting paid employment can make you ineligible for the Benefit Cap. Any employment that makes you eligible for Working Tax Credit will automatically render you unable to have your other benefits capped.