Benefit and Tax Credits rate freeze 2016


Following the Welfare Benefits Up-Rating Act 2013, which limited annual increases in benefits to 1% between 2013 and 2016, the Chancellor used his Summer Budget to announce plans to freeze benefit and tax credit rates for four years, starting this April. The Institute for Fiscal Studies (IFS) think tank estimated that 7.8 million working families will lose an average of £280 a year as a result of the benefits freeze, with 13 million families affected in total. Combined with the three years of uprating at just 1%, the IFS estimates a real term cut of 8% in benefits between 2012 and 2019.


With almost all rates and thresholds frozen, the only real change coming into effect in April 2016 is a reduction in the income rise disregard to tax credits from £5,000 to £2,500, a measure which could cost approximately 800,000 households up to £300 a year. 


In addition, the child element of tax credits will be limited to two children for new claims and births after April 2017; and the family element in tax credits will also be cut for new claims from April 2017. These changes are being introduced via the Welfare Reform and Work Act 2016 (see Chapter 1).


The benefits affected by the freeze are: 


• Jobseeker’s Allowance;


• Employment and Support Allowance;


• Income Support;


• Elements of Housing Benefit;


• Maternity Allowance;


• Sick Pay, Maternity Pay, Paternity Pay, Adoption Pay; 


• Statutory Sick Pay; and


• Couple and lone parent elements of Working Tax Credit and the child element of the Child Tax Credit.