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In April next year, a cap will be introduced on the total amount of benefit that working-age claimants can be entitled to. Households in South Wales on out of work benefits will no longer receive more in benefit than the average weekly wage after tax and national insurance. Initially the cap will be administered by local authorities via housing benefit. From October 2013 it will be applied for all new claims to Universal Credit including those migrated from existing benefits.
Landlords have warned that the reforms will increase homelessness, lead to displacement of tenants, cause rental arrears, and reduce the lenders’ confidence in the rental sector.
The changes include a total household benefit cap of £500 a week and the controversial introduction of under-occupancy penalties for social tenants deemed to have spare bedrooms. Another change will see housing benefit rolled into the universal credit, which will be paid directly to tenants as opposed to landlords.
Providers expect the so-called ‘bedroom tax’ to have a dramatic impact on anticipated levels of arrears and are already diverting resources to mitigate their losses.
‘Bedroom Tax’ Explained
- A single mother renting a property in Newport with a child under the age of 3 will only be entitled to a one bedroom house or flat.
- A family renting with two children aged 3 – 16 will only be entitled to benefits that would cover a 2 bedroom property. Those two children will be made to share a room.
Basically, for any extra bedrooms outside of the allowance, there will be a 10% charge that the tenant will have to pay back to the council.
What is the government doing?
The government plans to introduce a cap on the maximum amount one household can claim in benefits from autumn next year. At £26,000 a year, the cap is equivalent to £500 a week after tax which is the average family wage.
This is all part of the government’s £81 billion plan of tax increases and spending cuts. Work and Pensions Secretary, Iain Duncan Smith, has been quoted saying it will save taxpayers up to £600m.
The argument is that it is unfair that people who don’t work should receive more benefits than the £35,000 a year (before tax) earned by an average family.
The Final Breakdown
Universal credit: housing benefit will be combined with other benefits into one monthly payment.
Total benefits cap: £500 per week for couples and single parent households and £250 per week for single households
Under-occupation penalty: working age tenants will be hit with a tax of up to 14 per cent of their housing credit if they have a spare room
Direct payments: there are concerns rent arrears will increase and lenders will hike borrowing costs as a result of benefit being paid to tenants rather than to landlords. Pilots begin in June
Single room rate: as of January, people under 35 can only claim benefits for a room in a dwelling, rather than a one-bedroom property
Local housing allowance: from April 2013 LHA will be linked to the consumer price index instead of the higher retail price index, and it will be capped