DWP 'cliff edge' update on changes for Universal Credit and Housing Benefit claimants

The DWP has released an update on upcoming changes that will impact housing benefit and Universal Credit claimants who are confronted with a so-called 'cliff edge'. Ministers are putting the finishing touches to alterations in legislation that could have sweeping consequences for the financial situation of claimants. The root cause sounds complicated but is significant. Currently, claimants encounter what is known as a 'cliff edge' if they live in supported housing or temporary accommodation. This results in them facing the loss of benefits when they begin earning money. The threshold when this kicks in is now set to be revised, with adjustments expected before the year is out. The rule revolves around what is termed 'earned income disregards'. The Department for Work and Pensions is seeking to increase the amount people can earn that is disregarded when calculating housing benefit. The issue was brought into the public eye following a parliamentary question raised in recent days. Lola McEvoy, a Labour MP for Darlington, asked the DWP what the 'planned timetable is for the implementation of the earned income disregards; and what assessment he has made of the potential merits of these changes." It was announced at Rachel Reeves ' Budget last year that changes would be made. But details remain to be confirmed on when it will happen. The Budget papers said at the time: "The government is introducing new earned income disregards in Housing Benefit for claimants in supported housing and temporary accommodation. This will reduce the financial cliff edge when moving into, or progressing in, work, ensuring that work pays." Now a minister, responding to the Labour MP's question, has given more information. Stephen Timms - Minister of State (Department for Work and Pensions), said: "As announced at Autumn Budget, the department will be introducing new earned income disregards for those in receipt of Housing Benefit and live in Supported Housing and Temporary Accommodation. These disregards will help smooth the transition between the Universal Credit and Housing Benefit for individuals in Supported Housing and Temporary Accommodation as they move into work or increase their earnings, ensuring work always pays. "The new disregards will be in place from autumn 2026. This will require legislative changes and be accompanied by IT changes made to local authority IT systems. In preparation for this, we have already begun engagement with stakeholders to ensure that the implementation meets the needs of those affected. This is accompanied by clear communications to support local authorities, housing providers and third sector organisations to ensure that eligible customers are aware of and able to utilise this change." Industry experts say the current system is discouraging many people from seeking employment. In a briefing note to the DWP, homelessness charity St Mungo's stated: "Supported housing exists to help people to live as independently as possible, helping improve their quality of life, their well-being, their health, and their employment prospects. "Yet people in supported housing face a specific barrier and disincentive to work due to the way the welfare system is configured. Whereas people in receipt of benefits in the Private Rented Sector become steadily better off the more they work, people in supported housing see their benefits taken away more quickly and can actually become worse off when they work more hours. "This is because of an anomaly in the benefit system where people in supported housing are still receiving Housing Benefit for their rent but are on Universal Credit for their living costs. The way these two benefits interact, and the high Housing Benefit taper rate (set at 65%), means that people hit a 'cliff edge' after which they become worse off as they increase their hours. This puts residents at risk of accruing arrears as the rent becomes unaffordable." The charity said "because of this cliff edge and the fear of people not being able to afford their rent, we often see residents' securing jobs that they need to turn down because they are 'too many hours'." It warned that people with existing full-time jobs often ask to have hours reduced or give up work completely if part-time hours are not possible. The noted: "Residents can also understandably be anxious about entering employment whilst in supported housing, due to the complexity and risk associated with the current benefit rules. When St Mungo's clients were asked in its 2023 survey - 'What barriers put you off from going into work, if any?' 27% of its residents stated 'I'm concerned that working whilst living in homelessness accommodation will cause problems with my benefits'."