DWP freeze on three major benefits affecting most vulnerable

Three key benefits will not see a rise next year, impacting the finances of thousands of Britain's lowest income households, including many families with children. The budget revealed that most benefits, including Universal Credit, will only increase by 1.7 percent in April, which is below the current inflation rate.

However, there will be no increase at all for three major benefits. These include the benefits cap, which sets a limit on the total amount each individual or household can claim; the capital limits figure, which restricts benefits to those with significant savings; and the local housing allowance (LHA).

LHA determines how much the government and local councils will contribute towards a claimant's rent and housing costs. A decision to freeze this figure means many people will effectively be priced out of living in many areas.

The benefit cap, first introduced by the government in 2013, includes Universal Credit, child benefit, housing benefit and jobseekers allowance. If your income exceeds this limit, your housing benefit or Universal Credit may be reduced.

In Greater London, the cap is £25,323 a year for couples (with or without children) or single people with a child of qualifying age. For single adult households without children, it’s £16,967. Outside of London, the limits are £22,020 and £14,753, respectively.

The benefit cap will not affect you or your partner if you are claiming working tax credit, even if you have a nil award, are over Pension Credit age, or receive Universal Credit due to a disability or health condition that prevents you from working, or because you care for someone with a disability. You can use the Turn2Us benefits calculator to check whether you are affected by the benefit cap by visiting here.

Capital limits and surplus earnings also play a role in determining your benefits. Capital limits restrict the amount of savings you can have before you stop receiving certain benefits, including Universal Credit and Housing Benefit. The lower limit remains at £6,000, meaning any savings below this will be disregarded for benefits calculations. The upper limit is typically £16,000 and will not change, meaning if you have any savings over this, 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.

Over a million private renters on Universal Credit are set to have their payment assistance frozen next year due to the Local Housing Allowance (LHA) rates remaining at their current level from April 2025. This decision is expected to affect around 1.6 million households, leading to an annual shortfall of up to £3,129 in areas with the highest rents.

The LHA determines the maximum amount that individuals renting from a private landlord can claim in housing benefit or Universal Credit. These rates vary based on property size and location and should theoretically match the lowest affordable housing rents in your area.

However, rising rents and stagnant rates mean households will have to cover more of their rent costs as benefit payments have not kept pace. Rates were raised in April this year to cover the cheapest 30% of local market rents, based on September 2023 values, providing hundreds of thousands of households with an annual boost of up to £4,200.

Prior to this, they had been frozen since 2020. The continuation of the LHA freeze into 2025/26 will leave renters with an average weekly shortfall of £14, or £730 annually, according to the Resolution Foundation. This figure could be significantly higher in areas with higher rents, such as inner London, where shortfalls could reach up to £60 a week, or £3,129 a year.