Coalition reforms face testing month

THE GOVERNMENT’S reform programme faces its toughest challenge yet this month as wide-ranging changes to the welfare, healthcare and taxation system leave David Cameron facing a make-or-break April.

From this week onwards millions of families will receive less from the state as the coalition seeks to reward those in work.

At the other end of the spectrum there are new charges on high-end property and a reduction in the top rate of income tax.

Many of the policies implemented this month will form the basis of the Conservatives’ pitch to middle-income families in marginal constituencies during the 2015 general election.

BENEFITS CAP INTRODUCED

The forthcoming benefits cap means no family will be able to receive more than £26,000 in benefits each year, equivalent to the average British household income after tax and national insurance. The change will be trialled from 15 April in the London boroughs of Bromley, Croydon, Enfield and Haringey before being implemented nationwide by September. The government says around 58,000 families will be affected, most of them in the capital.

SPARE ROOM SUBSIDY ENDED

Since yesterday social housing residents who have a spare bedroom have lost 14 per cent of their housing benefit and those with two or more spare bedrooms have lost a quarter of the payment. The government hopes this will encourage individuals to downsize and release large properties to those who need them most but Labour have branded the policy a “bedroom tax”. An estimated 660,000 claimants will be penalised by the new system, including 80,000 in London.

UNIVERSAL CREDIT INTRODUCED

The first trials of the government’s flagship universal credit welfare reform scheme will begin in Ashton-under-Lyne, Greater Manchester, on 29 April. The scheme will combine several working-age benefits into one flexible payment that is designed to ease jobseekers’ transition into the workforce. Entitlement will be monitored using HM Revenue & Customs’ new live database of PAYE payments to employees. A nationwide roll-out is planned for October.

DISABILITY LIVING ALLOWANCE SCRAPPED

From 8 April the existing disability living allowance will begin to be replaced by the personal independence payment, a new benefit that is “not based on your condition but on how your condition affects you”. At the moment 3.2m Britons receive the disability payment at a cost of £12.6bn, with the number of claimants up by a third over the last decade. The new system, which will require interviews and medical checks, is expected to reduce the number of claimants by at least 450,000 and save £2bn a year when the reassessment is complete.

BENEFITS RISE BELOW INFLATION

On 8 April most work-related benefits and tax credits – which have traditionally risen in line with the consumer prices index (CPI) – will increase by just one per cent. Benefits had been expected to rise by 2.2 per cent and one in three households will lose out due to the below-inflation uprating, which is due to be repeated for the next three tax years. The policy is expected to save the Treasury £2bn a year by 2015-16. Disability payments will be unaffected by the decision.

COUNCIL TAX SUBSIDIES CUT

The budget for council tax subsidies – currently used by 4.9m people – was yesterday cut by 10 per cent, with control of the system devolved to local authorities. The government hopes it will force councils to devise subsidy schemes that reward those in work, encouraging local government to take “a greater stake in the economic future of their area”. Most claimants will lose around £137 a year and the change will save the Treasury at least £410m in England alone.

STAMP DUTY HIKE FOR £2M+ HOMES

Since yesterday British homes worth more than £2m that are owned by companies and offshore entities will be subject to hefty annual charges and capital gains tax. The decision, designed to reduce tax evasion, will force such companies to pay a charge of up to £140,000 a year. In addition, from 6 April capital gains tax will apply at 28 per cent on the same properties. The new charges have already resulted in a substantial drop in the use of companies to buy high-end homes.

INCOME TAX CHANGES

From 6 April the top rate of income tax will be reduced from 50 per cent to 45 per cent. George Osborne has defended the decision, saying the high top rate raised little revenue. The chancellor will be more keen to talk about the parallel increase to the personal allowance – from £8,105 to £9,440 – which will see most workers take home £24 extra a month in 2013-14. But at the same time the threshold for paying the higher 40p rate of income tax will fall from £34,371 to £32,011.

NHS COMMISSIONING REFORM

Yesterday control of local NHS budgets was handed to doctors on the basis that they are best placed to decide how resources should be allocated. Old primary care trusts have been abolished in favour of a system known as GP-commissioning, with local doctors now responsible for around 60 per cent of government health spending. A key part of the reform will see private companies compete to provide healthcare services to NHS patients through competitive tendering processes.