April 2013 ‘Big Bang’ for benefits and taxes

A series of major changes to the tax and benefits systems came into effect from April 2013, accompanied by disputes over their purpose and likely impact. The Chancellor George Osborne described them as being about backing 'hard working people who want to get on in life'.

Key April 2013 changes

  • For three years from 2013-14 most working-age benefits and tax credits will no longer rise in line with inflation, instead going up by just 1 per cent a year.
  • The annual personal income tax allowance (for those aged under 65) rises to £9,440 – a real-terms increase of around 13 per cent. The top rate of income tax, for those earning over £150,000 a year, is cut from 50p to 45p.
  • Council tax benefit is replaced by support schemes operated by local councils in England, along with a reduction in funding of 10 per cent.
  • Working-age claimants of housing benefit and/or jobseeker's allowance deemed to have one spare bedroom in social housing will lose 14 per cent of their housing benefit, and those with two or more spare bedrooms will lose 25 per cent – the so-called 'bedroom tax'.
  • The personal independence payment (PIP) replaces the disability living allowance, with tighter eligibility criteria.
  • An overall benefit cap is introduced, initially in three London boroughs. No claimant will be able to receive in total more than the average annual household income after tax and national insurance – estimated at £26,000. The cap will be operating nationwide by the end of September 2013.
  • The DWP-administered Social Fund – which provides community care grants, crisis loans for living expenses and budgeting loans – is being abolished from 1 April 2013, and the budget for the Fund is being devolved to local areas.
  • Universal credit, designed to replaced a wide range of working-age benefits and tax credits, starts to be implemented in one jobcentre area in Greater Manchester.

In a speech to mark the changes, the Chancellor of the Exchequer said the changes were: 'all about making sure that we use every penny we can to back hard working people who want to get on in life... For too long, we’ve had a system where people who did the right thing – who get up in the morning and work hard – felt penalised for it, while people who did the wrong thing got rewarded for it. That’s wrong. So this month we’re going to put things right.' He went on to claim that 9 out of 10 working households would be better off as a result – though neither he nor the Treasury provided any further information to support this figure.

The Daily Mail backed up the Chancellor, accusing the 'chattering classes' of peddling the 'poisonous myth that the poor cannot survive without the soul-deadening embrace of welfarism'.

On the other hand, four major Churches described Osborne's defence of the benefit cuts as 'deeply disappointing'. The Labour Party called on the Chancellor to admit that millions on middle and low incomes were paying the price for his economic failure, at the same time as he handed out a 'huge tax cut to millionaires'. The TUC said Osborne's remarks showed he was 'out of touch' with low- and middle-income households, who were suffering benefit cuts at a time when bills were rising and real wages were falling. The Child Poverty Action Group released an analysis of the benefit changes showing that low-income families would be hit by cuts to the tune of £2.3 billion compared with 2012-13.

Polling data on the changes revealed mixed messages. A ComRes poll for ITV News found that 42 per cent of people felt that 'changes to the welfare system' by the coalition were unfair, as against 40 per cent who disagreed. On the other hand, 41 per cent of people supported the changes, compared with 36 per cent who opposed them. 51 per cent believed the changes were necessary to help ‘make work pay', and 53 per cent that they were necessary to cut the deficit.

LinksOsborne speech | Conservative Party press release | Childrens Society press release | ComRes poll | CPAG press release | Gingerbread press release | Labour Party press release | Methodist Church press release | Policy Exchange press release | TUC press release | Daily Mail report | Guardian report | Full Fact blog post | Independent report | Inside Housing report | Public Finance report

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