The £16,000 reason you don’t qualify for state help

Modest savings are a barrier to Government aid in this time of crisis, even for blameless families in urgent need. Harry Brennan reports

Money set aside for first homes, a wedding or just a rainy day will bar families from claiming state support if they lose their job as a result of the coronavirus crisis.

A “cliff edge” in the welfare system means people will be forced to spend decades of savings before any help is given.

The Government is facing calls to remove the restrictions on access to Universal Credit, following a surge in claims. It has already increased the benefit in line with statutory sick pay to a maximum of £94.25 a week – a boost of more than £1,000 for the year. However, the “means-tested” requirements mean individuals are excluded from receiving the payout if they or their partner has £16,000 or more in savings.

Those with savings of £6,000 or more will only qualify for a reduced payout, with the Government docking almost £5 each month for every £250 their savings exceed the threshold.

This includes money saved into Government-backed schemes designed to help first-time buyers, including the Help to Buy scheme and Lifetime Isa. It means people who have been diligently saving for their first home, wedding or to start a family will be left without support and may have to abandon their plans to ensure they have enough money to survive.

Calls are growing louder to scrap the means test and give financial aid to anyone who has lost their income, irrespective of how much they have squirrelled away.

There is close to £300bn saved up in cash Isas alone. But these nest eggs are now under threat as the economic impact of Covid-19 becomes clearer. Some people have already lost their jobs, while others are relying on the state to temporarily cover their incomes via its emergency support schemes for employees and the self-employed. However, many have fallen through the cracks of these financial protections (see page 2) and as many as two million self-employed people do not qualify for help, the Institute for Fiscal Studies said.

As a result, the Department for Work and Pensions has been inundated. It received almost a million claims for Universal Credit in the past fortnight alone – nearly 10 times the average.

But benefit rules mean a couple with two children with £16,000 in savings would miss out on about £1,400 of financial support each month, according to the Resolution Foundation, a think tank. If they were to continue to struggle they would be forced to spend more than half their savings within six months to compensate for the lack of support, based on average household costs.

Lifetime Isa savers would be hit with an immediate exit charge if they were to draw on their cash, because of rules that penalise any withdrawals not used to buy a first home or made before the age of 60.

Alison Ball, 31, from Derbyshire, runs a social enterprise business teaching bushcraft. She has been saving for the past 10 years and was planning to buy her first home with her partner, get married and start a family. But her plans are now on hold after social distancing made it impossible for her to keep her business open. Despite not being able to pay herself a salary, she does not qualify for the state aid.

“We have been putting money aside so we are in a good position to start a family responsibly,” she said. “Until starting up on our own I have always worked for charities earning a low wage and with no income coming in we haven’t been able to pay ourselves. Our savings are tied up in a Help to Buy Isa, but we will have to say goodbye to buying a home for now,” she said.

The Resolution Foundation said the savings restrictions unfairly punished families who had lost their income through no fault of their own and should be lifted.

A Government spokesman said other support was available.