Five DWP and HMRC changes expected from later this week

Five HM Revenue and Customs (HMRC) and Department for Work and Pensions (DWP) changes believed to be announced in this week's Autumn Budget have been highlighted by a financial expert. A bold Universal Credit shakeup is just one thing set to be unveiled on Wednesday, October 30, by Chancellor Rachel Reeves - and more than a million claimants could receive a £420 boost.

Ahead of the Budget, Andrew Tully from Nucleus Financial told Birmingham Live: "Labour appears to have ruled out any reintroduction of the lifetime allowance, at least in the short term, but they could consider changing the current very attractive rules on passing on pension wealth tax-efficiently to families. One way to do this would be to include pension wealth within the estate for IHT purposes."

Consequently, Helen Morrissey from Hargreaves Lansdown remarked: "Labour's promised review of the pension landscape is sorely needed to ensure people continue to get good outcomes from retirement. The Government is running out of road when it comes to deploying strategies like raising the state pension age. People need certainty in terms of what they are going to get from the state pension and when, so the state pension needs to be sustainable in the long term."

Charities, including Save the Children, have hailed the Universal Credit overhaul as a positive move, criticising the current level of benefit deductions as "unfair and unsustainable". Ruth Talbot, policy and advocacy adviser at Save the Children UK, remarked: "It is bold thinking from ministers and we know it will have a significant impact for families and put more money in their pockets for food, toys, clothes and books."

Uplift to benefits and State Pension

The state pension is set to see a 4.1 per cent increase under the triple lock guarantee, which means pensioners on the new state pension could see an annual increase of about £470 due to the Triple Lock. The new state pension, applicable to those who reached state pension age post-April 2016, is expected to climb from £221.20 to £230.30 per week next year, while the old basic state pension is projected to rise from the current £169.50 to £176.45 per week.

However, other benefits such as Universal Credit, PIP, Carers Allowance, and Child Benefit may only receive a modest uplift owing to lower inflation rates.

Universal Credit boost

There are reports indicating that Labour Chancellor Rachel Reeves intends to reduce the cap on maximum deductions from a claimant's benefit payments. Currently, the Department for Work and Pensions (DWP) and other agencies can recover debts from Universal Credit payments up to 25% of the standard allowance.

This cap is anticipated to be reduced to 15%, with the proposed changes expected to come into effect from April 2025. Debts that can be deducted include benefit advances, overpayments, rent and council tax arrears, as well as unpaid water and utility bills. Deductions from Universal Credit payments can address up to three debts simultaneously, with a minimum of 5% being taken for each debt owed.

Work capability assessment changes

More than 11,000 people have called on the Labour government and the Department for Work and Pensions (DWP) to drop “dangerous” disability benefit reforms that could plunge nearly half a million disabled people into poverty.

Rishi Sunak’s Conservative government planned sweeping changes to the work capability assessment (WCA) – the eligibility test for receiving certain benefits – reducing payments and increasing sanctions. Anti-poverty charity Z2K called for the Labour government – which the charity say has been “worryingly silent” on its plans for the WCA – to drop these Tory-era plans.

“We’re very concerned that the new government has yet to rule out bringing forward these dangerous and poorly thought-out plans,” said Anela Anwar, Z2K chief executive. “We’re calling on the government to do the right thing and scrap these half-baked, deeply harmful plans.’

Pension tax changes

Labour has so far failed to rule out potential changes to the 25 per cent tax-free lump sum, and is reportedly considering cutting the tax-free amount to £100,000, down from £268,275. This follows recommendations from think tanks to reduce the limit, which could raise around £2bn.

Mike Ambery, of the pension firm Standard Life, said: “Operationally, it would be complicated. That’s because pension funds are normally written under trust and also you can’t really retrospectively make changes to benefits that people have already built up. It could be subject to a legal challenge.”

HMRC crackdown

Labour intends to raise £5.2bn a year by 2028-29 by closing non-dom tax loopholes and reducing tax avoidance, according to its election manifesto published earlier this month. The money is to be used to improve the NHS and invest in HMRC.

According to HMRC figures published last week, in 2022-23 the so-called ‘tax gap’, which measures the amount of taxes that should be collected but for various reasons is not, amounted to £39.8bn, or 4.8 per cent of the total amount that the nation should theoretically be paying to the tax office. This was a record high in cash terms but a record low in percentage terms.