The Chancellor announced today two significant reforms to the welfare system:
Total household benefit payments will be capped on the basis of average take-home pay for working households (estimated to be around £500 per week in 2013);
Child Benefit will be withdrawn from households that include a higher rate taxpayer.
From 2013, household benefit payments will be capped on the basis of median earnings after tax for working households, which we estimate to be around £500 per week by 2013. All Disability Living Allowance claimants, War Widows, and working families claiming the working tax credit will be exempt from the cap. The cap will apply to the combined income from:
The main income replacement benefits (Jobseeker’s Allowance, Income Support, Employment Support Allowance);
Other means-tested benefits (including Housing Benefit and Council Tax Benefit);
Child Benefit and Child Tax Credit;
Other benefits (including Carer’s Allowance and Industrial Injuries Disablement Benefit.
The Government will withdraw Child Benefit payments from all households containing at least one higher rate taxpayer by 2013. This will save around £1bn a year from the welfare bill. HMRC will implement this policy through the existing PAYE and Self-Assessment structures. The vast majority of families will still receive the child benefit at the current rate.
Notes for Editors
One-off benefits and non-cash benefits, such as social fund loans and free school meals, will not be affected
The cap will be delivered by Local Authorities. Local Authorities will assess the total benefit income of all new and existing Housing Benefit (HB) claimants, and reduce HB to ensure that they do not receive more than the cap.
Median income earnings after tax for working households is currently £479 per week (Family Resources Survey). It is estimated to rise to £506 per week by 2013.
The Government will introduce legislation in the Welfare Reform Bill and will set out detailed plans for delivery, including costing, at the Spending Review.
Child Benefit is paid to 7.8 million families, in respect of 13.6 million children and young people. Take up of Child Benefit is 97%.
1.2 million households are in receipt of Child Benefit and contain at least one higher rate taxpayer - the higher rate threshold begins at £43,875
Claimants receive £20.30 per week for their eldest child, and £13.40 per week for each other child
The Government currently spends £12bn on Child Benefit per year. Withdrawing Child Benefit for higher rate taxpayers will save approximately £1bn per year - the OBR will publish a more detailed estimate at the time of the Spending Review
The Government will legislate for this measure in the next Finance Bill and will set out detailed plans for delivery at the Spending Review.
Last year the Government spent £192 billion on welfare payments. Spending on welfare increased by 45% in real terms in the decade to 2009-10.