Household welfare squeeze as three benefits are frozen from the spring | Personal Finance | Finance
Inflation jumps to 2.3% in sharpest increase for two years
Three major benefits will not see an increase next year which will hit the finances of thousands of Britain’s lowest income households, including many families with children.
The budget included an announcement that most benefits, including Universal Credit, will rise by just 1.7 percent in April, which is below the current rate of inflation. However, three key benefits will see no increase at all.
These include the benefits cap, which limits the total amount that each individual or household can claim; the capital limits figure, which restricts benefits to those who have significant savings; and local housing allowance (LHA).
LHA sets the figure for how much the government and local councils will contribute to the rent and housing costs of a claimant.
A decision to limit this figure means that many people will effectively be priced out of living in many areas.
Benefit cap
First brought in by the government in 2013, the benefit cap sets a limit on the total amount of benefits households can get.
Universal Credit counts towards the cap, along with other benefits like child benefit, housing benefit and jobseekers allowance. If your income is above this limit, your housing benefit or Universal Credit might be reduced.
In Greater London, for couples (with or without children) or single people with a child of qualifying age, the cap is £25,323 a year.
For single adult households without children, it’s £16,967.
Outside of London, the limits are £22,020 and £14,753, respectively.
You won’t be affected by the benefit cap if you or your partner:
Get Universal Credit because of a disability or health condition that stops you from working. Or because you care for someone with a disability.
Are claiming working tax credit, even if you have a nil award
Are over Pension Credit age.
You can use the Turn2Us benefits calculator to check whether you are affected affected by the benefit cap by visiting here.
Capital limits and surplus earnings
Capital limits restrict the amount of savings you can have before you stop getting certain benefits. This includes things like Universal Credit and Housing Benefit.
The lower limit remains at £6,000, meaning that any savings you have below that will be disregarded for benefits calculations.
The upper limit is usually £16,000 and will not be changing, meaning that if you have any savings over that, you won’t receive any benefits at all.
If you have between £6,000 and £16,000, you’ll typically get a reduced amount, according to each benefit’s taper rules.
Surplus earnings limits are also frozen until March 2026
If you earn more than £2,500 over the amount you can earn before your Universal Credit claim is stopped, you are said to have surplus earnings.
These surplus earnings are then carried forward to the following month, where they count towards your earnings.
If your regular income and surplus earnings are then still over the amount where your payment stops, your Universal Credit payment will be affected.
Three key benefits will see no increase at all (Image: Getty)
Local housing allowance
Over one million private renters on Universal Credit will see the help they get with payments frozen next year. This is because Local housing allowance (LHA) rates will remain at their current level from April 2025.
The decision will impact around 1.6million households, resulting in a shortfall of as much as £3,129 a year in areas with the highest rents.
The LHA sets the maximum amount people renting from a private landlord can claim in housing benefit or Universal Credit.
Rates vary based on property size as well as by location, and in theory should equal your area’s lowest affordable housing rents.
Rising rents and frozen rates leave households having to cover more of their rent costs, as benefit payments have not kept up.
Rates were increased in April this year to cover the cheapest 30% of local market rents, based on values for September 2023, giving hundreds of thousands of households a boost of up to £4,200 a year.
Before that, they had been frozen since 2020. Maintaining the freeze to the LHA in 2025/26 will leave renters with an average shortfall of £14 per week, or £730 a year, according to the Resolution Foundation. This will be far higher in areas with higher rents, such as inner London, with shortfalls of up to £60 a week, or £3,129 a year.
