Poverty and Income Inequality in Scotland 2012/13

Annex 4: Welfare Reform in 2012/13

Uprating

In April 2012 many benefits, including the State Pension, and tax credits were uprated by CPI. Child Benefit, along with several components of tax credits, were frozen in cash terms.

Council tax

Council Tax Benefit (CTB) was abolished from April 2013. Responsibility for assisting those who need help in meeting their Council Tax liabilities in Scotland now sits with the Scottish Government and Scottish Local Authorities via the Council Tax Reduction scheme (CTR). The CTR scheme replicates entitlement to CTB and allows previous entitlement criteria to be maintained. On a like-with-like basis, vulnerable people have the same net liability for Council Tax as if CTB were still in place, provided that their circumstances remain the same.

Employment and Support Allowance (ESA)

From May 2012 contributory ESA was limited to 365 days if the claimant is in the Work Related Activity Group or assessment phase. The 365 day time-limit does not include any time spent in the Support Group or the time spent in the assessment phase if they moved from the assessment phase into the Support Group at the start of their claim. ESA in youth was abolished; which means that young people can no longer qualify for contribution-based ESA without paying National Insurance contributions. The 104-week work or training linking rule was abolished; this means that someone who takes up work or training within 1 month of leaving ESA, and then returns to ESA within 104 weeks, will no longer automatically receive their original amount of ESA. The changes also mean that individuals who were previously unable to reclaim contribution based ESA, as a result of working and paying National Insurance Contributions, may now be eligible to re-claim for contribution based ESA.

Housing Benefit (HB)

From April 2012 Local Housing Allowance (LHA) rates were frozen. This was in preparation for LHAs being fixed in April 2013 by adjusting them to rise with CPI or with the bottom 30 per cent of private sector rents, whichever is the lowest. Prior to this change, LHA rates were subject to monthly reviews by Rent Officers based on movements in private sector rent levels.

Income Support (IS)

From May 2012 to qualify for IS as a lone parent, the youngest child must be under five years old, instead of under 7 years as previously. Parents of children aged five or over will need to move from income support to JSA if they are able to work.

Child Benefit

From January 2013 individuals earning above £60,000 per year will lose entitlement to child benefit, as will their partner if they are entitled to child benefit. Individuals earning between £50,000 and £60,000 per year will lose a proportion of the child benefit they receive, as will their partner if they are entitled to child benefit. For couples who are both earning over £50,000 per year, only the highest earner will lose part of their entitlement to child benefit.

Tax Credits

From April 2012, the additional amount paid to claimants aged 50 and over who are returning to the job market after a period on certain benefits - the "50-plus element" of Working Tax Credits (WTC) - was abolished, including for those who are already receiving it.

Couples with children now have to work 24 hours a week between them (previously 16 hours a week) in order to qualify for WTC. One member of the couple will have to work at least 16 hours a week. This change reduces the disparity between couples and lone parents, by ensuring that at least one member of a couple is required to work the same minimum number of hours per week as a lone parent must.

Couples with children will be able to continue working 16 hours a week between them and still qualify for WTC if:

• the partner who is working at least 16 hours per week is eligible for the disabled worker element of WTC, or is aged 60 or over; or

• one partner works at least 16 hours a week and the other partner is "incapacitated", an in-patient in hospital, or in prison.

The income threshold at which CTC begins to be withdrawn (the "first income threshold") remained at the same level as the previous year. The family element of CTC was withdrawn at the same rate as other child tax credits (the "first income threshold"); whereas in previous years the family element of CTC only began to be withdrawn at a higher income threshold (the "second income threshold").

Personal Allowance

In 2012/13 the income tax personal allowance increased by £630 for those aged under 65, with an increase of £560 for those aged 65-74 and an increase of £570 for those aged 75 or older. The threshold for the 20 per cent basic rate of income tax fell by £630.

National Insurance Contributions

The primary threshold for national insurance contributions increased by £7 (roughly 5 per cent) between 2011/12 and 2012/13; with an £8 (roughly 6 per cent) increase for the secondary threshold.