Introduction

State Benefits and Tax Credits 2015 is the revised edition of the Labour Research Department’s annual guide to the benefits system. It concentrates on the benefits and rates of benefit available for people in work effective from 6 April 2015, and includes changes to the rules for claiming benefits and tax credits from this date.

Trade unions can play an important role in helping members and their families claim the in-work benefits to which they are entitled. Research published by the TUC in February 2014 showed that tax credits and benefits play a crucial role in lifting low-paid workers out of poverty, particularly the more than five million workers across the UK who earn less than the Living Wage rate of £7.85 an hour (£9.15 an hour in London).

It is crucial for union reps to be aware of the latest reforms in order to give accurate initial advice on benefit entitlements. This guide is designed for that purpose. It is not intended to be a definitive guide to state benefits, which is a complex, specialised area requiring specialist advice. Organisations and publications giving this specialist advice are listed on pages 87-88, and web references for downloading application forms and other relevant information relating to different benefits are listed throughout.

State Benefits and Tax Credits 2015 enables reps to access the current benefit rates and basic rules for qualification in order to indicate to members whether or not they are eligible to apply for them. Thousands of low-paid workers are unaware of their entitlements and subsequently these are not taken up.

The latest Department for Work and Pensions (DWP) figures for unclaimed benefits cover the period 2009-10 (see box below). These show that between £7,520 million and £12,310 million was left unclaimed in key income-related benefits over that period, representing a take-up of around 77% to 84%.

As well as entitlements for those who are on a low income, this booklet covers benefits and tax credits for parents and children, help for those sick, injured at work or disabled, the basic state pension and pension credits, help with housing costs and help for someone whose husband, wife or civil partner dies.

This year’s edition covers further changes taking effect as a result of the Welfare Reform Act 2012. The coalition government’s reforms are the most fundamental changes to the social security system for 60 years. They are complex and wide-ranging and are set out in detail in Chapter 1.

The reforms have also been accompanied by huge cuts which are causing severe hardship for many thousands of unemployed people and their families (as well as many working families who have seen their benefits and tax credits cut).

A TUC-commissioned analysis of those affected by the cuts in social security support – undertaken by Howard Reed of Landman Economics and published in August 2014 – looked at all the benefit changes announced during this Parliament.

It found that annual cuts to key benefits will reach £30.5 billion by 2016-17. It also found that most of the cuts will fall on working families, with working parents and their children facing the biggest cuts of all. Working families will suffer a loss of support worth £17.9 billion a year by 2016-17, more than twice the level experienced by out-of-work families (£6.2 billion a year).

Working families with children stand to lose the most – £11.7 billion a year. With out-of-work families with children losing a further £2.3 billion a year, the total cost of welfare cuts to families with children will be £14.1 billion a year by 2016-17. The analysis shows that three-quarters of all welfare cuts to people of working age will fall on working families, with almost half hitting working families with children.

The biggest single area of welfare cuts announced is the £13.8 billion worth of annual cuts to tax credits – over 90% of which will hit working families. Those in work will also bear over 90% of the cuts in child benefit, losing £3.4 billion a year by 2016-17.

The TUC analysis also shows that prime minister David Cameron’s pre-election pledge to protect pensioner benefits has been broken, with pensioner families suffering a loss of benefit support worth £6.4 billion a year by 2016-17. The second biggest single welfare cut (at over £4 billion a year) is the reduction in the value of Pension Credit, which will be borne almost entirely by pensioner families.

Many of the reductions in social security support are down to chancellor George Osborne’s “stealth cut” to benefits, announced in June 2010, where the measure used to increase benefits every year was changed from the Retail Price Index (RPI) to the lower Consumer Price Index (CPI) measure. The move, combined with an unprecedented drop in earnings growth, is likely to reduce the value of the state pension for pensioner families by £1 billion a year by 2016-17, according to the TUC analysis, in spite of the government’s “triple lock guarantee”. From April 2011, the government introduced a triple guarantee that the Basic State Pension will rise by the highest of earnings; prices (using the CPI); or 2.5%).

Finally, the analysis shows that when the biggest benefit reform of all – Universal Credit (UC) – is fully rolled out, it will lead to a further £5 billion of annual cuts, almost half of which will fall on pensioner families. The TUC warns that UC will be particularly harsh on unemployed men and women in their mid-60s. New UC claimants of this age will no longer get Pension Credit and instead will receive less generous support, as well as being subject to the government’s sanctions regime (see Chapter 1).

In January 2015, a major new report from the London School of Economics (LSE) and the Universities of Manchester and York, The coalition’s social policy record: Policy, spending and outcomes 2010-2015, showed that poorer groups have been worse affected by changes to direct taxes, benefits and tax credits. This is despite the coalition’s promise that the rich would carry the burden of austerity.

“Although one coalition stated aim was that the better-off would carry the greatest burden from deficit reduction, changes to direct taxes, benefits and tax credits were mainly regressive, as cuts to tax credits and cash benefits took more away from those in the bottom half than they gained through higher tax allowances,” it states.

It also reveals that tax-benefit reforms hit families with children under five harder than any other household type. And the reforms have done little to reduce national debt:

“Its (the coalition’s) tax and benefit decisions meant that cuts to benefits and tax credits that hit low income families hardest were offset by tax reductions for better-off households and made no impact on the deficit,” says the report.

Further reforms being brought in this year include:

• the national roll-out of UC to all Jobcentres in England, Scotland and Wales (which began in February 2015);

• the introduction of a total welfare cap. This limits the total amount the government can spend on certain social security benefits to £119.7 billion in 2015-16;

• the replacement of £172 million funding for non-ringfenced local welfare assistance schemes (LWAS) with funding of just £74 million to upper-tier authorities “to help them respond to local welfare needs and to improve social care provision”; and

• the roll-out (from January 2015) of a new government service, Fit for Work, which involves a referral for a voluntary assessment for employees who are off work through illness or injury. Once an employee has reached, or is expected to reach, four weeks’ sickness absence they can be referred by their GP for a Fit for Work assessment by an occupational health professional who, if the worker agrees, will look at the issues preventing them returning to work. The referral will usually lead to a Return to Work Plan.

On a positive note, the Children and Families Act 2014 brings adoption leave and pay entitlements in line with the amount of leave and pay available to birth parents from 5 April 2015. Also, from this date, intended parents involved in a surrogacy arrangement who intend to apply for a “parental order” and those parents who wish to “foster to adopt” also qualify for adoption leave and pay. And for babies due on or after 5 April 2015, parents, including those who qualify for adoption leave, are entitled to take shared parental leave for a year from the birth.

This booklet also outlines changes as a result of the introduction of a new State Pension in April 2016. From October 2015, a State Pension “top up” will be available to those reaching state pension age before 6 April 2016.

From April 2016 there will be a new single-tier State Pension which will replace the basic State Pension. The rate has initially been set at £148.40 a week, although the actual amount will be finalised in the autumn of 2015. The National Pensioners Convention reports that it is expected to be set at around £155 a week. Although this sounds like a big increase, the single-tier pension will replace not only the basic State Pension, but also the second state pension SP2, Additional Pension (which used to be called the SERPS earnings-related pension), “outdated” pensions such as the Category D pension and the Age Addition. These will all be abolished.

Are you/your members entitled?

Rights to some benefits and credits may be based on payment of National Insurance Contributions (NICs) or level of income. In some cases, the rules relate to length of time in employment and level of earnings, or length of residence in the UK.

For example, since 1 January 2014, to get income-based Jobseeker’s Allowance (JSA) you must prove that you’ve been living in the UK for the three months before claiming if you are:

• an EU national and you haven’t worked since arriving in the UK; or

• a UK national who has recently returned from abroad and you haven’t worked since coming back to the UK.

The coalition government brought in this rule change to coincide with the expiry of transitional controls on Bulgarian and Romanian workers.

However, some benefits depend on NICs. These are paid on earnings above the lower earnings limit (LEL), which from 6 April 2015, is £112.00 a week. In fact, you only start paying NICs if you earn over £155.00 a week (up from £153 last year), For earnings between £112.00 and £155.00 you are credited with contributions.

For most benefits, the relevant NICs are Class 1 contributions — those paid by employees. Class 2 contributions are those paid by self-employed people.

Entitlement to Contribution-based Jobseeker’s Allowance, which you can receive for up to 182 days (approximately six months), is based on how much Class 1 NICs you have paid in the last two tax years. The tax year starts on 6 April and finishes on 5 April (12 months).

Income-based JSA is based on your income and savings. You may get this if you have not paid enough NICs, or you have only paid Class 2 contributions for self-employment and you’re on a low income.

The level of your retirement pension will depend on your NICs over your working life (see Chapter 5). Entitlement to Statutory Sick Pay and maternity benefits depends on your being in employment and earning more than the lower earnings limit (see Chapters 3 and 4).

There are also other means-tested benefits, including Income Support, Pension Credit and Housing Benefit. These are not tied to NICs, but you can only get them if your income is less than what is called your “applicable amount” (see pages 85-86). Means-testing for Child Benefit was introduced in January 2013 (see page 64).

Benefit increases 2015

The Welfare Benefits Up-rating Act 2013 capped the annual increases in most working-age benefits at 1% in cash terms for the three years 2013-14, 2014–15 and 2015–16.

Because the uprating changes apply to almost all benefits and tax credits, the cap affects both in-work and out-of-work households. Prior to this change, working-age benefits and tax credits were up-rated each April in line with the CPI for the preceding September. The IFS calculated in January 2013 that, based on forecasts of inflation at the time, the cap would mean a cumulative 4% real cut in the benefits affected.

Claiming benefits

You should be able to claim most working age benefits from your local Jobcentre, Benefits Agency or Jobcentre Plus office (which combines the two). To find out where your nearest office is, look under Jobcentres in your local telephone directory or enter your postcode on the website at: http://los.direct.gov.uk.

You can get an estimate of what benefits and tax credits you could get, and find out about claiming specific benefits, from the Benefits Adviser website at: www.gov.uk/benefits-adviser.