THIRTEEN million families will lose an average of £260 each year because of Osborne’s cuts to working-age benefits, the Institute for Fiscal Studies (IFS) has said.
In a briefing on Wednesday’s Tory Budget, IFS director Paul Johnson said it was ‘regressive’ and had taken ‘much more’ from the poor than the rich. He said: ‘The biggest single cut to welfare spending is set to come from extending the freeze in working age benefits, tax credits and local housing allowance out to 2020.
‘That will affect 13 million families who will lose an average of £260 a year as a result of this one measure. After about 2017 this will mean that most benefit rates will have fallen back behind their 2008 levels both relative to price inflation and relative to earnings growth. The next biggest cut comes from the reduction to work allowances in Universal Credit.
‘This represents a substantial shift in the design of the UC system. The work allowance is the amount that a claimant can earn before benefit starts to be withdrawn. ‘Significant allowances were an integral part of the design of UC, intended to give claimants an incentive to move into work. This reform will cost about three million families an average of £1,000 a year each.’
Even taking into account higher wages, people receiving tax credits would be ‘significantly worse off’, said IFS director Paul Johnson. From April 2016, anyone earning more than £3,850 a year will not be eligible for Working Tax Credit. Previously they could earn up to £6,420.
From April 2017, new claimants for Child Tax Credit will not be able to claim for the third, or subsequent children. The IFS rubbished Osborne’s claim that the Budget changes are ‘fair’, saying the Tories’ so-called ‘living wage’ would not compensate for cuts to tax credits. Johnson said: ‘There is simply not enough money going in to the new minimum wage to anywhere near compensate, in cash terms, people on tax credits.’
Earlier the Resolution Foundation, a think tank that campaigns for low and middle-income families, warned that despite the new National Living Wage, many families will still ‘be significantly worse off’.
According to the think tank’s calculations, by 2020:
• A low-earning single parent with one child, working 20 hours a week at £9.35 an hour, will be £1,000 a year worse off.
• A low-earning dual-earner couple with two children will be £850 a year worse off
• A middle-earning dual-earner couple with two children, each earning £15 a hour, will be £350 better off, as a result of increases in the personal tax allowance.
It also warned that some families moving on to Universal Credit, or applying for tax credits after April 2017 could face much bigger losses.
For example, a low-paid couple with three children making a new claim would be £3,450 a year worse off, following the tax and welfare changes set out in the budget. Resolution Foundation chief executive Gavin Kelly said: ‘We shouldn’t think that a higher minimum wage will compensate all low income working families for their losses – many working households will be left significantly worse off.’