Welfare Reform Act 2012

The Welfare Reform Act 2012 came into effect on 1 April 2013, underpinned by the principle that the benefit system needed to be simplified, that it should be less costly to administer and, finally, to increase incentives to move back into work.

It represented a significant overhaul of the welfare system, the key changes of which are detailed below. There are four key elements to the welfare reform programme: Universal Credit, the Work Programme, Work Capability Assessment and Disability Reassessment, and Benefit Cap.

1. Universal credit

Universal Credit replaces the combination of out of work benefits and working tax credits. It is a single monthly payment for people in or out of work, which merges together benefits and tax credits including:

  • income-based jobseeker’s allowance (JSA)
  • income-related employment and support allowance (ESA)
  • income support
  • child tax credit
  • working tax credit
  • housing benefit.

2. The work programme

The work programme is the government’s central initiative for supporting people into employment. Whilst Jobcentre Plus remains the main point of contact for general employment support, individuals are referred to a work programme prime contractor once they have been claiming out of work benefits for a certain period of time.

3. Work capability assessment and disability reassessment

The work capability assessment and disability reassessment reassess claims of disability and incapacity-related benefit. Claimants are being put into 3 groups dependent upon the outcome of their assessment:

  1. 'Fit for work': claimants have the opportunity to apply for JSA and to actively seek employment.
  2. 'Support group': claimants are transferred to ESA if they are confirmed to be unable to work.
  3. 'Work-related activity group': claimants receive the basic rate of ESA and employment support.

4. Benefit cap

The Benefit Cap applies to the total amount that the people in a household get from the following benefits: 

Bereavement allowance, carer's allowance, child benefit, child tax credit, employment and support allowance (unless the claimant is paid the support component as part of their award), guardian’s allowance, housing benefit, incapacity benefit, income support, jobseeker’s allowance, maternity allowance, severe disablement allowance, universal credit, and the widowed parent’s allowance.

The cap does not apply to the following benefits:

Disability living allowance, personal independence payment, industrial injuries benefit (and those receiving war disablement pension and the equivalent payments from the Armed Forces Compensation Payments Scheme), attendance allowance and the support component of employment support allowance.

Changes to benefits

There are five key types of benefits to be aware of:

1. Out-of-work benefits

All of the benefits listed below were replaced by universal credit:

  • Jobseekers allowance (JSA).
  • Incapacity benefit (IB).
  • Employment and support allowance (ESA).
  • Severe disablement allowance (SDA).
  • Income support (IS).
2. Housing benefits

The local housing allowance (LHA) looks to support low-earning or unemployed residents in the payment of their social housing or private rented housing sector rents and is incorporated into Universal Credit.

The bedroom tax means that housing benefit could be reduced if a claimant lives in council or social housing and has a spare bedroom. The reduction is: 14% of the "eligible rent" for one spare bedroom or 25% of the "eligible rent" for 2 or more spare bedrooms.

3. Disability benefits

The disability living allowance (DLA) looked to support the care arrangements for disabled people and enhance their mobility but has now been replaced by the personal independence payments (PIPs). Personal independence payment (PIP) helps with some of the extra costs caused by long-term ill-health or a disability and replaces the disability living allowance. The amount a claimant receives is not according to the condition but rather how the condition impacts their life.

4. Tax credits

Working Tax Credit (WTC) and Child Tax Credit (CTC) have been incorporated into Universal Credit.

Benefit uprating is the Government’s pledge to freeze most working-age benefits for 4 years from April 2016. The full list of the proposed benefits for 2016-2017 were announced in the House of Lords on Thursday 26 November 2015.

5. Council tax benefit

Council tax benefit has now been replaced with council tax support. It provides help for people on low incomes with their council tax bill. The scheme applies differently across the UK as the responsibility for assessment of claims and payments now sits with local authorities.