Understanding state benefits and protection - part one

  • To learn about Universal Credit and recent changes to the state benefits system.
  • Understand the benefits of income protection for different circumstances.
  • Comprehend why there is still a case for income protection and how it works alongside state benefits.
Understanding state benefits and protection - part one

The recent controversy surrounding the Personal Independence Payment (PIP) – the Disability Living Allowance replacement for those over 16 and under pension age - represented the latest problem to be caused by the shake-up of the complex system of government working age benefits. It’s a minefield, but one that advisers must help their clients navigate.

In March, the government tightened the rules again on PIP for those with psychological problems when travelling alone and for those needing help to take medication or monitor a health condition. A number of charities have estimated that 160,000 vulnerable people could now lose entitlement. 

In recent years, the government has introduced Universal Credit to streamline six means-tested working age benefits into one single payment. These are Income-Based Job Seekers’ Allowance (JSA), Housing Benefit, Working Tax Credit, Child Tax Credit, Income-Related Employment and Support Allowance (ESA), and Income Support.

It’s worth also noting that as Support for Mortgage Interest provision is a component of JSA and ESA, it too is being replaced by the housing element of Universal Credit. Confusingly, the contributory versions of JSA and ESA continue separately although they are now increasingly difficult to claim because of flaws in the Universal Credit claim system.

The lowdown on Universal Credit

The new single benefit that is Universal Credit is complex and means-testing more extensive than the benefits that it replaces, with a reduction in the scope of means-testing disregards allowed, such as MPPI benefits servicing mortgage interest. In addition, an overall Benefit Cap applies to many benefits, the levels of which were recently reduced.

It’s worth noting that the Benefit Cap does not apply to all working age welfare benefits but a specified list. These currently are:

  • Bereavement Allowance & Widowed Parents’ Allowance. The Bereavement Support Payment, which replaced these for deaths after 6 April 2017, is not subject to the cap.
  • Child Benefit
  • Child Tax Credit
  • ESA unless the support component is in payment.
  • Housing Benefit
  • Incapacity Benefit (being replaced by ESA).
  • Jobseeker's Allowance
  • Maternity Benefit
  • Severe Disability Allowance
  • Widow's Pension
  • Universal Credit.

The cap works differently for those getting Universal Credit and those who aren’t. If Universal Credit isn’t being received the cap works by reducing any Housing Benefit in payment. If Housing Benefit is not being claimed, the cap does not apply.

If Housing Benefit is in payment then it is reduced until either the full cap has been applied or Housing Benefit reaches 50p a week.

In Universal Credit cases, childcare costs included in the benefit are excluded but otherwise the whole of Universal Credit can be reduced, not just the housing costs. 

If the net household income is more than £520 a month the cap does not apply. This brings it in line with the Working Tax Credit exclusion so that those working ‘full-time’ are not hit.

The cap does not apply if anyone in the benefits household qualifies for:

  • Carer’s Allowance.
  • Working Tax Credit.
  • Guardian's Allowance.
  • Attendance Allowance.
  • Disability Living Allowance.
  • Personal Independence Payment.
  • Universal Credit payments towards carer’s costs or for ‘limited capability for work and work-related activity’.
  • War Widow’s or War Widower’s Pension.
  • Employment and Support Allowance, if you get the support component.
  • Industrial Injuries Benefits (and equivalent payments as part of a war disablement pension or the Armed Forces Compensation Scheme).

Until 6 November 2016, the total that could be paid in working age benefits for those living outside London was capped at £350 a week for a single person with no dependants, or £500 a week for a couple with dependant children or single parent.

Since then, this has been reduced to £257.69 a week for a single person or £384.62 a week for a couple or single parent. People living in London have a higher weekly cap of £296.35 for a single person, or £442.31 for a couple or single parent.


  1. Following government changes to the rules surrounding the Personal Independence Payment, how many vulnerable people are estimated to be at risk?

  2. Under Universal Credit, an overall benefit cap applies. According to Mr Carr, if the net household income is more than £520 a month the cap does not apply.

  3. In the 2015 Budget, many elements of working age benefits were frozen until 2020 but the freeze does not apply to benefits related to what?

  4. Mr Dennison describes income protection as what?

  5. Of the one million people who suffer prolonged absence each year from work due to ill health, how many have income protection in place?

  6. Mr Morgan describes the welfare benefits system as what?

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