More than 325,000 people living in temporary accommodation or supported housing are set to face a change in how their benefits are reduced when they increase their earnings.
The Department for Work and Pensions (DWP) says the new rules are designed to remove a sharp reduction in support that could occur when people in certain forms of housing moved into work or increased their working hours. The change will bring the treatment of these claimants closer to the rules used under Universal Credit.
For people affected, the practical issue is straightforward: taking on additional work should no longer create the same sudden reduction in benefit income.
The government says the reform could particularly help younger people beginning their careers, with around 50,000 young people expected to benefit.
Change
The new rules affect people whose housing support is provided through Housing Benefit rather than entirely through Universal Credit.
Under the previous system, increasing earnings could result in a relatively sharp reduction in the overall support received by some people living in temporary or supported accommodation. This created a situation in which working additional hours did not always produce the expected increase in disposable income.
The revised approach is intended to make the reduction in support more consistent with the Universal Credit system.
Under Universal Credit, earnings generally reduce the amount of benefit received at a rate of 55p for every £1 earned, subject to the applicable rules and any work allowance.
The change is therefore intended to make the transition into work more predictable for affected claimants.
Rather than facing a sudden loss of support, people should be able to retain more of the additional income they earn as their working hours increase.
Claimants
The policy is expected to affect more than 325,000 people living in temporary accommodation or supported housing.
These households can include people who need housing support because they are homeless, at risk of homelessness or living in accommodation with additional support.
The scale of the issue is significant. Official figures show that the number of households in temporary accommodation in England reached a record 135,580 at the end of March, with more than 177,530 children living in those households.
This means changes affecting housing-related benefits can have consequences well beyond individual claimants. They can influence household income, employment decisions and the financial pressure faced by local authorities providing temporary accommodation.
For someone already dealing with unstable housing, even a relatively small change in disposable income can affect the ability to pay for food, transport, utilities and other essential costs.
Earnings
The central feature of the reform is the treatment of additional earnings.
Under the previous arrangement, some people receiving Housing Benefit alongside their other support could see their benefit entitlement fall more sharply when their earnings increased.
That created what the government described as a “cliff edge”. In practical terms, a claimant could take on more work but find that the additional earnings were partly offset by a reduction in support.
The revised system aims to reduce that problem.
The Universal Credit approach gradually reduces benefit as earnings increase rather than creating the same type of abrupt change. The standard taper rate is 55p for each £1 of earnings, after any applicable work allowance.
For example, if £100 of earnings were subject to the 55% taper, benefit entitlement would be reduced by £55. The claimant would still retain the remaining £45 before considering taxes, National Insurance or other deductions.
The calculation of an individual’s actual income can be more complicated, but the principle is important: earning more should leave the claimant with more income overall.
Incentives
The government argues that the reform will strengthen incentives to work.
The reasoning is relatively simple. If someone knows that taking additional hours will result in a substantial loss of benefits, they may decide that the financial reward for working more is too small.
A more gradual withdrawal of support can make the decision easier.
The government estimates that approximately 50,000 young people entering the workforce will benefit from the changes. For younger claimants, the difference could be particularly relevant as they move from unemployment or limited working hours into more regular employment.
However, employment decisions are rarely determined by benefit rules alone. Wages, childcare costs, transport, housing costs and job availability can all influence whether taking additional hours is financially practical.
The new system addresses one part of that calculation by reducing the possibility of a sharp benefit reduction for certain affected households.
Housing
The changes come against a difficult backdrop for housing affordability.
England has experienced a sustained increase in the number of households living in temporary accommodation. The latest figures cited by the government show the total reaching a record level.
At the same time, councils are facing significant costs associated with providing emergency and temporary housing.
Local authorities in England reportedly spent £2.9 billion on temporary accommodation in the year to April, according to the figures cited in the report.
That represents an increase of 88% over five years and works out at more than £8 million a day.
The figures demonstrate that the issue is not limited to benefit claimants. Temporary accommodation also creates substantial financial pressure for councils, many of which are already dealing with constrained budgets and rising demand for housing services.
Reducing barriers to employment could potentially help some households move toward greater financial independence, although it does not by itself solve the shortage of affordable housing.
Rent
Housing costs remain a major concern for people relying on benefits.
Recent research by Citizens Advice found that fewer than 2% of advertised private rental properties were affordable for people relying on housing benefits.
That creates a difficult situation for households receiving support. Even when a claimant increases their earnings, finding affordable accommodation can remain challenging.
Campaigners have therefore called for further action on housing support, including changes to housing benefit levels.
The debate illustrates why the new DWP rules should be viewed as one part of a much larger welfare and housing issue. Making work financially worthwhile can help households increase their income, but the benefit may be limited if rent and other essential expenses continue to rise.
Young
Young people are among the groups the government expects to benefit from the changes.
Starting a career can involve gradual increases in working hours rather than an immediate move into full-time employment. A person may begin with a part-time position, take additional shifts and eventually move into a larger role.
If benefit reductions make each additional hour less financially attractive, that progression can become more difficult.
The new rules are intended to make the financial consequences of working additional hours more consistent.
Prime Minister Andy Burnham said the existing arrangements could leave people worse off when they attempted to earn more, particularly young people starting their careers.
The government’s argument is that welfare policy should support people moving into employment rather than creating financial barriers to that transition.
Councils
The policy also needs to be considered alongside the financial pressures facing councils.
Local authorities have responsibility for providing temporary accommodation to eligible households, and the cost of doing so has increased substantially.
The reported £2.9 billion annual spending demonstrates the scale of the challenge.
Every additional household requiring temporary accommodation can create costs for councils, while limited availability of affordable housing can make it difficult to move people into more permanent homes.
Helping more claimants increase their earnings could support some households in moving toward greater financial stability. But councils and housing organisations are likely to continue facing significant demand while the supply of affordable accommodation remains limited.
Impact
The immediate impact of the rule change will vary between households.
A claimant’s circumstances, earnings, type of accommodation, benefit entitlement and working hours can all affect the amount of support they receive.
For someone whose benefits were previously reduced sharply when earnings increased, the new approach could make additional work more financially worthwhile.
But the reform does not mean that every claimant will receive more money simply because the rules have changed. Rather, it changes how benefit entitlement responds to earnings for the people covered by the policy.
Claimants should therefore check their individual circumstances and understand how their benefits are calculated before making decisions about employment or working hours.
Outlook
The DWP’s rule change represents an attempt to address a specific problem in the benefits system: the sharp reduction in support that some people in temporary or supported housing could face when they increased their earnings.
More than 325,000 people are expected to be affected, while around 50,000 young people starting their careers are among those the government expects to benefit.
The reform comes at a time when temporary accommodation is under considerable pressure. Record numbers of households are being housed in temporary accommodation, councils are spending billions of pounds on emergency housing and affordable private rentals remain difficult to find for people relying on benefits.
For affected claimants, the key change is the move toward a more gradual reduction in support as earnings rise. The aim is to ensure that taking on additional work leaves people financially better off rather than creating a sudden loss of benefits.
Whether that change will significantly reduce housing insecurity will depend on factors beyond the benefit system, including wages, rents, housing supply and the availability of permanent accommodation. But for the households covered by the new rules, the adjustment could remove one financial barrier to increasing their hours and moving further into employment.
