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Spending Review- Welfare Benefits and Tax Credits


This is a synopsis of the Government 2010 spending review announced on the 20 October 2010 and the measures affecting Welfare benefits and Tax Credit.  This synopsis was produced by LASA.

This is in addition to the measures already brought in for the emergency Budget in June 2010. (For the emergency Budget report, and accompanying Treasury documents, click through this link 2010 june budget}

Welfare benefit and tax credit measures in today’s Comprehensive Spending Review
Chancellor George Osborne has today announced the results of the 2010 Comprehensive Spending Review to the House of Commons. Setting out the government's four-year spending plans from 2011/2012 to 2014/1015, that includes £7bn of welfare savings in addition to the £11bn announced in June's emergency Budget.

The key welfare benefit and tax credit related measures outlined in the Spending Review include –

  • Universal credit - over the next two Parliaments the current system of means-tested working-age benefits and tax credits will gradually be replaced with the universal credit; 

  • Employment and support allowance - entitlement to contributory ESA for those in the work related activity group will be limited to one year; 

  • Household benefit cap - from 2013, household 'welfare payments' (excluding one-off payments) will be capped on the basis of median earnings after tax for working households, estimated to be approximately £500 per week by 2013, for all households except those in receipt of DLA, working tax credit or war widow's pension;
  • Child benefit - child benefit to be withdrawn from families with a higher rate taxpayer from January 2013; Working tax credit freeze - from April 2011, the basic and 30 hour elements of the working tax credit will be frozen for three years;
  • Working tax credit hours rule - from April 2012, couples with children must work 24 hours between them, with at least one working 16 hours, for entitlement to working tax credit, rather than at least one working 16 hours as now;
  • Childcare element of working tax credit - from April 2011, the proportion of costs covered by the childcare element of working tax credit will be reduced from 80 per cent to 70 per cent of costs;
  • Child element of child tax credit - the child element of child tax credit will be increased by £30 above indexation in 2011/2012, and by a further £50 above indexation in 2012/2013;
  • Tax credits assessments - real time PAYE information will be used to inform tax credits calculations, reducing the emphasis on the claimant to notify HMRC of income changes;
  • Housing benefit shared room rate - the shared room rate in local housing allowance, that currently applies to single people aged under 25, will be extended to all single claimants under 35;
  • Council tax benefit - spending on council tax benefit will be reduced by 10% from 2013/2014, and localised to local authorities and devolved to Wales and Scotland, with councils given flexibility to tailor the scheme to meet local priorities and to manage spending within lower limits, whilst protecting the most vulnerable;
  • DLA for those in residential care - from 2012/2013, payment of the mobility component of disability living allowance to claimants in residential care, other than those who are fully self-funding, will end; Support for mortgage interest - the temporary measures introduced to reduce the waiting period for new working age claimants to 13 weeks and increase the limit on eligible mortgage capital to £200,000, that had been due to expire in January 2010, will be extended by a further year;
  • Savings credit - the maximum savings credit award in pension credit will be frozen for 4 years from 2011/2012; State pension age - the equalisation of state pension age at 65 will be brought forward to November 2018, and both the male and female pension age will increase to 66 by April 2020;
  • Cold weather payments - the increase in the cold weather payment to £25 will be made permanent;  National insurance cards - the DWP will stop issuing national insurance cards to customers and send letters instead;
  • and Benefit and tax credit fraud - the government will take a radical new approach to tackling fraud and error, working across departments, to ensure that significant reductions in 'illegitimate welfare payments' are realised across both the DWP and HMRC.
In addition the Spending Review announces that -

  • the DWP's core budget will be reduced by 26 per cent in real terms by 2014/2015 with savings being achieved by, for example, centralising support services and rationalising strategy and policy functions; reducing the costs of benefits processing by shifting from paper to digital based services, and sharing information more efficiently within and between departments; and replacing wasteful and ineffective welfare-to-work programmes with the new Work Programme.
  • HMRC's administrative budget will be reduced by 33 per cent, with savings made by, for example, restructuring the Revenue's Enquiry Centre network, so that face to face service is provided to those that need it most, and improving on-line support to reduce the need for manual processing.For more information see the Spending Review pages of the HM Treasury website.

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