Lloyd George, determined to ‘lift the shadow of the workhouse from the homes of the poor’, sought to provide a guaranteed income to the old and infirm.

All wage-earners contributed to a health scheme, in return for benefits.

Sounds simple. But what about those who had never worked? Who or what is a worker? Cue 100 years of legislation, adding layers of complication, so in 2023 we have a welfare benefits system that is almost impenetrable.

This article is intended to signpost the reader through the benefits system.

For the year ending April 2022 the government spend on welfare benefits was £225.7 billion. In the United Kingdom over half of families are entitled to benefits. Parties need to consider their entitlement to benefits and the impact any agreement or order will have.

Overview

In general, benefits fall into three main groups: (1) means tested; (2) non-means tested; and (3) contribution-based.

Means-tested benefits

These benefits depend on the income the applicant (or partner) receives and generally the benefit is reduced £1 for £1.

Usually, income received in respect of child support, whether through the Child Maintenance Service (CMS), an informal agreement or a court order is not ‘income’. Spousal maintenance is however treated as income for the purposes of Universal Credit. In respect of agreements to pay a mortgage or rent directly to a party, these may be treated as income if the payer has an interest in the property. However, if the payer pays the landlord or mortgagee direct, they are ignored (save for any claim for Housing Benefit (HB), perhaps where payments do not cover the full rent).

Means-tested benefits are also subject to a capital limit. It is likely a lump sum award within family proceedings could count as capital, leading to a reduction in income or even a loss of benefits all together. Regular payments for Personal Injury claims are ignored whether via a court order, annuity or a Trust. Monies from the sale of the former matrimonial home, which are going to be utilised to buy a further property to live in within 6 months (extendible), will not be counted as capital.

Non-means-tested benefits

These benefits intended to help with the extra costs of a disability, such as transport, medical supplies, etc. They are not means tested nor do they require National Insurance contributions. They do not count as income.

Contribution-based benefits

These benefits replace earnings. Their availability depends upon previous National Insurance payments. If enough contributions have been made a person will be entitled to receive contribution-based Employment and Support Allowance (ESA) for 1 year regardless of their household income. In this sense the benefit is not therefore means tested. After a year they transfer to income-based ESA which is means tested unless they are also deemed to be incapable of work-related activity, where they will remain on contribution-based ESA for the life of the award.

Those on contribution-based ESA/Jobseeker’s Allowance (JSA) are unable to access passported benefits (free prescriptions/dental care) but those on contribution-based benefits will not be affected by any order the court makes for the payment of a lump sum in financial remedy proceedings and so it is important to identify the benefit received.

(1) Means-tested benefits

Universal Credit (UC)

When introduced in 2010, this was not a new benefit, it brings under one umbrella the following means-tested benefits:

• HB;
• Income-based ESA (ESA-IB);
• Income-based JSA (JSA-IB);
• Child Tax Credit (CTC);
• Working Tax Credit (WTC); and
• Income Support.

UC seeks to simplify the claim process. The claimant receives one payment, usually monthly. It is for the claimant to budget and be responsible for the payment of expenses such as housing costs. Direct payments to landlords are still available where there are arrears. Payments are made to the one individual, even where the claim is as a couple; paid to two accounts with agreement. This causes difficulties for separating couples as well as having scope for financial abuse.

Those unable to work through ill health or loss of employment will be entitled to JSA or ESA (sick pay). This will be either contribution-based (CB) or income-based (IB) and means tested. After a year or if they have not paid enough qualifying contributions, it will be means tested and will require an application for UC. A party should be able to tell you whether they are in receipt of UC or not. If the answer is ‘yes’, they are in receipt of a means-tested benefit, and any financial settlement, particularly the payment of maintenance or a lump sum, will impact on their entitlement. If they are in receipt of JSA or ESA but not on UC then this is contribution-based, not means tested and a payment will not have an impact on their benefits until they transfer to UC.

Any claim for UC brings to an end any entitlement to previous means-tested benefits whether the claim is successful or not. This is particularly important in respect of Tax Credits which are far more generous than UC.

The payment is made up of a basic ‘standard allowance’ and extra payments that might apply depending on circumstances, for example having children.

In addition, receipt of UC is a ‘passport’ benefit for help with prescription charges, dental care and free school meals.

Income Support (IS)

The claimant must be 16 or over and:

• either pregnant, a carer or a single parent looking after a child aged under 5;
• working less than 16 hours a week (there may possibly be eligibility if doing unpaid voluntary work or on unpaid maternity/paternity leave);
• under Pension Credit (PC) qualifying age (this varies depending on date of birth and is subject to review);
• on a low or no income;
• have less than £16,000 in savings (£6,000 or less has no effect; between £6,000 and £16,000 the amount received is tapered).

If none of the above apply, a claim may still be possible by way of a ‘top off’ or a ‘hardship’ payment in some cases if the claimant is:

• unable to work as disabled or a carer;
• off work and getting Statutory Sick Pay (SSP); or
• aged 16–20 and in full-time education or training (excluding university).

Jobseeker’s Allowance (Income-based) (JSB-IB)

The claimant must be over 16 and under State Pension age. Where a claimant has a partner, both need to be eligible. The claimant must be:

• not working full time (i.e. less than 16 hours a week);
• available to work full time;
• actively looking for full-time work;
• not in full-time education;
• have less than £16,000 in savings (£6,000 or less has no effect; between £6,000 and £16,000 the amount received is tapered);
• not claiming Income Support.

Employment and Support Allowance (Income-based) (ESA-IB)

The claimant needs to meet the ‘Work Capability Assessment’ rules (i.e. limited work capacity due to a medical condition). It is possible to undertake paid ‘Permitted work’ providing earnings do not exceed £153 per week (January 2023) or 16 hours per week.

Household income is taken into account including pension, and savings/capital are treated the same as JSA-IB.

Tax Credits (TCs)

This benefit is for individuals/families who work in excess of 16 hours, and in receipt of a low income. Child maintenance is excluded when determining income. For those currently in receipt of WTC (not UC) there is no capital limit. Whilst an element for ‘WTC’ is included in UC the capital limit applies to all elements of UC regardless of income or child care costs, thus effectively removing those families with savings from being eligible for TCs. This means there will be some families who have savings and are not therefore eligible for TCs but others with the same savings who are in receipt of TCs as they still have not migrated to UC.

Receipt of TCs is a ‘passport’ to other benefits such as childcare vouchers, prescription costs, maternity costs, school costs, court fees and heating/energy grants.

Eligibility may be determined by an online calculator and once assessed runs until the end of the financial year, after which the application needs to be renewed. Eligibility is based upon income not capital, although any income from capital in excess of £300 per annum is taken into account. A capital award within family proceedings will therefore not affect entitlement unless the recipient is in receipt of UC. Any change of income greater than £2,500 per annum (either way) or a migration to UC needs to be notified.

State Pension

This benefit is presently for those who reached State Pension age before 6 April 2016.

The full new State Pension is dependent on contributions and is in addition to any other income. It is not affected by capital.

Pension Credit (PC)

This is a means-tested benefit for people on a low income of qualifying age.

PC has two parts – Guarantee Credit and Savings Credit. Both may be payable:

• Guarantee Credit tops up weekly (low) income. It is not dependent on contributions.
• Savings Credit rewards people who have prepared for their retirement by having some savings or income.

Guarantee Credit is a passport benefit to maximum HB and Council Tax Reduction, the exact amount depends on the area.

To qualify, the claimant must live in the United Kingdom and the claimant or partner must have reached State Pension age. Claimants do not pay tax on any PC received.

Entitlement to PC is income-based. Capital and investments over £10,000 can reduce entitlement by attracting a tariff income. This reduces benefit by £1 per week for every £500 capital over the £10,000 lower limit. There is no upper limit.

Housing Benefit (HB)

This benefit is to help pay rent if on a low income. HB can pay all or part of the rent. It is available whether the claimant is unemployed or working. The eligibility and amount can be calculated through the benefits calculator.

Discretionary assistance is available from the council for those whose full rent is not met via HB by way of an award of a ‘discretionary housing payment’.

There is a capital limit for eligibility of £16,000. Capital below £6,000 is excluded and between £6,001 and £16,000 there is a sliding scale. For every £250 over £6,000, £1 per week is deducted from benefit.

‘Bedroom Tax’ – Under-Occupancy Charge

The rules and exemptions are complicated, and if applicable the claimant may be able to seek ‘top-up’ benefit from the council by way of a ‘discretionary housing payment’. The Under-Occupancy Charge does not apply if the claimant or partner are of PC age and claiming HB. It only applies to social housing. It does not apply for the first 13 weeks of any claim where no HB claim has been paid within the last 52 weeks.

The reductions to be applied are 14% (one unused bedroom) or 25% (two or more).

The Benefit Cap

This limits the total amount of HB or UC paid to claimants of working age. It does not apply if PC is payable.

(2) Non-means-tested benefits

Disability Living Allowance (DLA)

A legacy benefit for adults aged between 16 and 64. It is non-means tested and has been replaced by Personal Independence Payment (PIP) for all those over 16 years of age though many adults are yet to be migrated across.

DLA remains for all those under 16. There are no plans to migrate children to PIP.

DLA has two eligibility criteria: if the claimant needs help to look after themselves (the ‘care component’) or has walking difficulties (the ‘mobility component’)

It is available whether living alone or with someone else; it is about the need for care rather than actually receiving it.

Personal Independence Payment (PIP)

This is a non-means tested payment to assist with the extra costs of disability or long-term health conditions for people aged 16–64. A minimum of 8 points is required to be eligible and the number of points dictates whether it is paid at the standard or enhanced rate. The ‘need’ must have been for at least 3 months prior to the application with an expectation of at least another 9 months’ need (or are terminally ill with less than 6 months to live). It is envisaged that claimants under the age of 65 will migrate across from DLA to PIP in the fullness of time. The pre-claim qualifying period does not apply to those migrating.

PIP is made up of two components:

• the Mobility component if help is needed getting about;
• The Daily Living component if help is needed with carrying out everyday activities, such as washing and dressing.

Each component can be paid at either a standard or an enhanced rate and it is possible to receive either one or both components and at either the standard or the enhanced rate.

Attendance Allowance (AA)

Available for claimants who are over State Pension age and have a disability or illness that affects their ability to care for themselves and are not in receipt of DLA or PIP. The need for care or supervision must have been established for 6 months prior to the application. It is not payable if in hospital or in a local authority care home. It is however available if in a hospice and terminally ill.

It is non-means tested without limit. It does not affect State Pension or earnings if still in work, and it is tax free. It is not subject to the Benefit Cap either.

Receipt of AA, DLA and PIP also are ‘passport’ benefits by way of eligibility for Council Tax Reduction, Disabled Person’s Railcard, ‘Blue Badge’ and increased PC and HB without being subject to the Benefit Cap. Also, if someone is caring for the recipient, they may also qualify for Carer’s Allowance.

Sickness/maternity/paternity/adoption benefits (usually work-related)

Sickness benefits

To qualify for Statutory Sick Pay (SSP) you must:

• be classed as an employee (including agency workers) and have done some work for your employer;
• have been ill for at least 4 days in a row (including non-working days);
• earn at least £120 (before tax) per week;
• tell your employer you are sick before their deadline – or if none within 7 days;
• provide a ‘fit note’ after 7 days.

Maternity and adoption benefits

These are statutory rights for employees to maternity leave, pay and additional benefits. An ‘employee’ is someone who has worked and earned an average of £120 gross per week with the particular employer, continuously for at least 26 weeks continuing into the ‘qualifying week’ – the 15th week before the expected week of childbirth.

• Statutory Maternity Pay. This is paid for up to 39 weeks at:
• 90% of average weekly earnings (before tax) for the first 6 weeks;
• £156.66 (January 2023) or 90% of average weekly earnings (whichever is lower) for the next 33 weeks.

It is paid in the same way as the wages were, i.e. monthly or weekly. Tax and National Insurance continues to be deducted. At least 28 days’ notice must be given and, if required, proof of pregnancy.

• Statutory Adoption Pay. At least 28 days’ notice must be given and it is paid for up to 39 weeks. The weekly amount is:
• 90% of your average weekly earnings for the first 6 weeks;
• £156.66 (January 2023) or 90% of your average weekly earnings (whichever is lower) for the next 33 weeks.

The claimant must be an employee (not ‘worker’), have worked for a minimum continuous period of 26 weeks and earn a minimum of £120 gross per week.

(3) Contribution-based benefits

Contribution-based benefits are usually time limited and unaffected by a partner’s income.

Jobseeker’s Allowance (Contribution-based) (JSA-CB)

This is available if the claimant is unemployed and has paid sufficient Class 1 National Insurance contributions. Payments are limited to 6 months.

Eligible National Insurance contributions are if the claimant, in 1 of the last 2 complete tax years, has paid Class 1 (or special Class 2) contributions to the value of 26 times the lower earnings limit, and in both of the last 2 complete tax years, has paid or been credited Class 1 (or special Class 2) contributions to the value of 50 times the lower earnings limit.

The 2 tax years that are relevant are the ones completed before the benefit year in which the job-seeking period began. The tax year runs from 6 April to 5 April. The benefit year runs from the first Sunday in January.

Employment and Support Allowance (Contribution-based) (ESA-CB)

Any time spent within the ESA support group is excluded. If a claimant is within the ESA support group it is possible to receive CB benefits indefinitely. The claimant will not then be entitled to the passported benefits but is not subject to any capital limits.

In order to determine eligibility for benefits, claimants should either use the online calculator at gov.uk or visit a job centre.

If eligible for UC or ESA-CB/JSA-CB a decision should be made quickly. UC should be paid in 5 weeks. Non-means-tested benefits can take much longer, over a year if an appeal is necessary.