If you did go down the redundancy route as suggested by thug, the Company is only legally bound to give you any money if you've been employed by them for over two years. Further more, the statutory pay rate is one weeks pay for every year of service so unless you've been there for years and years OR unless the company has a fab redundancy package, you'll probably get less money than sticking with the 16 hours.
Assuming the business reason for making this change is sound (otherwise you could look at taking them to tribunal), are there no other roles internally you could look at and ask for a transfer to?
On the subject of benefits, with job seekers allowance, as far as I'm aware you can only apply for that if you work less than 16 hours I believe. Might be worthwhile popping in and asking your local JC though, anyway.