Radical benefits overhaul

Work and Pensions Secretary Iain Duncan Smith has announced most out-of-work benefits will be scrapped and replaced by a Universal Credit. The overhaul is designed to be ‘fair’ and to force the long-term jobless on unemployment benefit to gain employment.

The planned changes are:

• To replace working tax credit, child tax credit, housing benefit, income support, jobseekers’ allowance and income related allowances

• Low paid workers will be able to keep more of what they earn

• Benefits will be cut for three months if job offers are refused

• People will be able to move in and out of work without losing benefits

• These rules will take effect for new claimants from 2013

• The changes will take up to 10 years to come fully into effect

• £2.1bn initial cost

• It is designed to save money in the long run through reducing fraud and error

How it works:

Those claiming benefits will receive a basic personal amount with additional sums for disability, caring costs, housing costs and children, with single people and couples getting different rates and, as now, the under 25s receiving less. Claimants will only have to apply once and not via various forms as it currently happens. Entitlement will be calculated monthly and not annually as it currently stands.

Once people start working Universal Credit will be removed 65p per pound, higher than it currently stands. Claims will have to be made through the internet

Refusal to accept a job offer will result in Jobseekers Allowance being docked for three months. There will also be a crackdown on benefit fraud and for the most serious cases leading to benefits being stopped for three years.

Benefits that will not be affected are:

• Disability living allowance

• Child benefit

• Contributory Jobseekers Allowance (paid for the first six months of unemployment out of National Insurance contributions)

• Statutory sick pay

• Maternity pay and maternity allowance

• Industrial injuries disablement allowance

The new rules are likely to come into effect for new claimants from 2013, with a target of moving all recipients onto it within a few years.