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Welfare plans: Your benefits may be lower than expected Welfare plans: Your benefits may be lower than expected
(about 9 hours later)
By Kevin Peachey Personal finance reporter, BBC NewsBy Kevin Peachey Personal finance reporter, BBC News
MPs are debating key changes to welfare entitlements that are set to affect millions of people in the UK.MPs are debating key changes to welfare entitlements that are set to affect millions of people in the UK.
In his Autumn Statement, Chancellor George Osborne announced plans to place a three-year cap of 1% on increases in most working-age benefits and tax credits from April 2013.In his Autumn Statement, Chancellor George Osborne announced plans to place a three-year cap of 1% on increases in most working-age benefits and tax credits from April 2013.
That means benefits such as jobseeker's allowance and maternity pay will go up by less than the expected rise in the cost of living - in other words, a real terms cut.That means benefits such as jobseeker's allowance and maternity pay will go up by less than the expected rise in the cost of living - in other words, a real terms cut.
So, what does this mean for you?So, what does this mean for you?
Who will be affected?Who will be affected?
Many people who are of working age and receive benefits of one kind or another will be affected. They will find that the income from these benefits will not rise as much as they might have expected.Many people who are of working age and receive benefits of one kind or another will be affected. They will find that the income from these benefits will not rise as much as they might have expected.
The chancellor wants a 1% cap on the rise in working-age benefits for three years from this April.The chancellor wants a 1% cap on the rise in working-age benefits for three years from this April.
That will save the government a lot of money on their welfare bill - some £505m in the first year, rising to an estimated £2.3bn in 2015-16.That will save the government a lot of money on their welfare bill - some £505m in the first year, rising to an estimated £2.3bn in 2015-16.
What does that mean for me exactly?What does that mean for me exactly?
If you are claiming jobseeker's allowance, you are single and you are aged 25 or over, then you currently get up to £71 a week. So a 1% uprating (to use the official term) will mean an extra 71p maximum a week on this benefit.If you are claiming jobseeker's allowance, you are single and you are aged 25 or over, then you currently get up to £71 a week. So a 1% uprating (to use the official term) will mean an extra 71p maximum a week on this benefit.
Similarly, maternity, paternity and adoption pay will only go up by 1%. The same is true of child tax credits and working tax credits, which are paid to low-income working families. Similarly, maternity, paternity and adoption pay will only go up by 1%. The same is true of child tax credits and working tax credits, which are paid to many low-income families.
How does that compare with the cost of living?How does that compare with the cost of living?
The latest figure for the rising cost of living - indicated by the Consumer Prices Index (CPI) measure of inflation - is 2.7%.The latest figure for the rising cost of living - indicated by the Consumer Prices Index (CPI) measure of inflation - is 2.7%.
If the chancellor had stuck to the formula of linking benefits to the CPI level in the previous September, then these benefits would have risen by 2.2% in April 2013.If the chancellor had stuck to the formula of linking benefits to the CPI level in the previous September, then these benefits would have risen by 2.2% in April 2013.
If the forecasts can be believed, then CPI is expected to be 2.6% in September 2013 and 2.2% in September 2014. Clearly, this suggests the cost of living will rise faster in all three years of the cap than the 1% rise in benefits, and would be a cumulative 4% cut in real terms.If the forecasts can be believed, then CPI is expected to be 2.6% in September 2013 and 2.2% in September 2014. Clearly, this suggests the cost of living will rise faster in all three years of the cap than the 1% rise in benefits, and would be a cumulative 4% cut in real terms.
But the government argues that savings need to be made to help balance the UK's books.But the government argues that savings need to be made to help balance the UK's books.
How many families will be hit in total?How many families will be hit in total?
A lot. Significantly more than the recent change to child benefit entitlement, for example. A lot. Significantly more than the recent withdrawal of child benefit from higher earners, for example.
Of 2.8 million households of working age without jobs, 2.5 million will see their entitlements reduced in real terms, according to the Institute For Fiscal Studies (IFS).Of 2.8 million households of working age without jobs, 2.5 million will see their entitlements reduced in real terms, according to the Institute For Fiscal Studies (IFS).
They will get an average of about £215 per year less in 2015-16 than they might have expected if the chancellor had stuck to the old formula.They will get an average of about £215 per year less in 2015-16 than they might have expected if the chancellor had stuck to the old formula.
Of 14.1 million working-age households with someone in work, some seven million will see their entitlements cut compared to what they might have expected. This will be by an average of about £165 per year, the IFS suggests. Of 14.1 million working-age households with someone in work, some seven million will see their entitlements cut compared to what they might have expected. This will be by an average of about £165 per year, the IFS suggests. That includes three million who lose out only from the child benefit cap.
Those with the lowest incomes will be affected the most, with the second-lowest 10th of the UK population hit hardest in cash terms, with an average drop of £150 per year compared to what they might have expected.Those with the lowest incomes will be affected the most, with the second-lowest 10th of the UK population hit hardest in cash terms, with an average drop of £150 per year compared to what they might have expected.
However, other austerity measures announced by the government have hit the highest earners. However, other austerity measures announced by the government have hit the highest earners, as has earnings failing to keep pace with inflation.
Is anyone protected from the planned changes?Is anyone protected from the planned changes?
Yes, this is a plan to cap working-age benefits. So, pensioners will not be affected.Yes, this is a plan to cap working-age benefits. So, pensioners will not be affected.
The basic state pension, for example, will increase by 2.5% in April - owing to a government guarantee - to £110.15 a week.The basic state pension, for example, will increase by 2.5% in April - owing to a government guarantee - to £110.15 a week.
Benefits for carers and disability benefits such as attendance allowance, the disability elements of tax credits, disability living allowance and the support component of employment and support allowance will continue to be uprated in line with inflation, so by 2.2% in April.Benefits for carers and disability benefits such as attendance allowance, the disability elements of tax credits, disability living allowance and the support component of employment and support allowance will continue to be uprated in line with inflation, so by 2.2% in April.
What is the timetable for the welfare changes?What is the timetable for the welfare changes?
The changes for April 2013 have already been set in stone.The changes for April 2013 have already been set in stone.
However, the government needs the approval of Parliament for the plans to set the 1% cap for 2014-15, and 2015-16.However, the government needs the approval of Parliament for the plans to set the 1% cap for 2014-15, and 2015-16.
The Welfare Uprating Bill was introduced to the Commons at the end of December, and will receive its second reading on Tuesday.The Welfare Uprating Bill was introduced to the Commons at the end of December, and will receive its second reading on Tuesday.
Is there any advice for those facing the cuts?Is there any advice for those facing the cuts?
There are a host of free services available to help people with their finances and tips on how to budget.There are a host of free services available to help people with their finances and tips on how to budget.
For example, the government-backed Money Advice Service has suggestions on how to manage your money.For example, the government-backed Money Advice Service has suggestions on how to manage your money.
Many charities and debt advice services offer similar services for free online, on the telephone or in person.Many charities and debt advice services offer similar services for free online, on the telephone or in person.