The Capital Cut-Off in Universal Credit
by Gareth Morgan on February 22, 2011
The intention is that the treatment of capital will be similar to that under Income Support and other means tested benefits currently. Capital below a certain level will be fully disregarded and there will be a notional income from capital above that amount.
Where a claimant has capital above a certain level, they will not be entitled to Universal Credit.
This seems a reasonable way to carry forward existing rules, although the notional interest rate is absurdly high.
The cut-off point in most benefits today is £16,000. Above that amount and there is no entitlement to benefits (there are exceptions for the elderly).
In Tax Credits today there is no such concept as a cut-off or notional interest. Real income from capital is used in the same way as for tax.
When those getting tax credits, with more than £16,000 in capital, claim Universal Credit they’ll find that they’re not entitled to it. That’s estimated by the Social Market Foundation to be 400, 000 families with a further 200,000 hit by the notional interest rules.
ps. The new Housing Credit for the elderly is going to have a capital cut-off too.
Comments
Gareth,
Very helpful information.
Amongst other things, I’m a Board Member of a large Housing Associaition. We’re concerned over the planned changes to Housing Benefit for obvious reasons. because of my background I’ve agreed to provide a seminar on the WR’s and UC. Have you produced an analysis specific to the “housing costs” element of Universal Credit and how this is likely to impact on various household types? If you have I would welcome a copy.
Incidentally, good to see Ferret Systems still providing excellent support. Our paths crossed many years ago when, at the time, I was helping to develop BENE for the CIH in conjunction with Martin Ward. Seems like centuries ago! Nowadays, I keep myself occupied http://www.hbadvice.co.uk.
Regards,
Bill
Hi Bill,
I remember you as well when you came to our big conference in 1995, I think you were at Strathclyde.
We have done quite a lot on housing, and affordability, and our Future Benefits Model (FFBM) is able to produce quite a lot of analysis in the area.
Let me have your email and I’ll send you some stuff (if you subscribe using the subscribe2 box on the right hand side, I can pick up your address without it being too public).
Gareth,
Your memory is better than mine – 1995!
I also work closely with Peter Meehan ex Head of Benefits at Glasgow City and long standing Advisor to the HB Standing Committee.
Good to re-establish contact after all this time.
Bill
Hi Gareth
I also work in social housing and am looking into the affects the raft of proposed changes will mean to our customers. I’d be really interested in looking at the FFBM you mention above, if possible.
Thanks
Mark
I would like to express my veiws on the “Means Testing” involved in this new system.When Tax Credits started it was also means tested but this condition was dropped in 2003 due to many problems. One of the biggest issues was the huge disincentive for people to save for their and their children’s future.If governments really want to promote financial responsabilty,why penalise the sensible,prudent savers? What is wrong with the current system of counting the interest as taxable income? I have a wife and child to support and run a home on a Gross Income of £11500pa and the only help I get is Tax Credits,so how can I cope if these are taken away just because I have managed to save some money for my future? It makes me wish I had not listened to succesive Government’s Advive !!! Tony.
Tony,
Tax Credits (TC) did not drop means-testing, they are, and always have been, means-tested.
The treatment of savings and capital in Universal Credit (UC) is expected to be the same as current income-related benefits like JSA and Income Support. That’s a notional income (very high) based on the value of the capital. Tax Credits, at the moment, use real income such as interest and dividends rather than the notional ‘tariff’ income.
The problem with the move to UC from TC is that there will be a capital cut-off if your total is more than (probably) £16,000. That’s going to affect a lot of people, it’s estimated by the Social Market Foundation to be 400,000 families with a further 200,000 hit by the notional interest rules.