huge cuts planned for ‘just about managing’

The number of people currently eligible for Tax Credits will almost halve under Universal Credit.
 Cuts by Stealth

The Institute for Fiscal Studies warned  last month that  huge cuts are still to come in Universal Credit, particularly for low paid workers.  Unfortunately they don’t spell out  the mechanism for these cuts.   They have been in the Welfare Reform Act since 2012  and were increased  in  the 2015 Summer Budget.

The impact of these cuts has not yet  been fully felt due to the gradual roll-out of Universal Credit.  see also (from 2015):
https://makingworkerspay.wordpress.com/2015/05/04/welfare-cuts-concealed/
Changes to the amount workers can earn under Universal Credit (the Work Allowance) before their benefit is withdrawn (taper rate*) appears to reduce the number  eligible for support by almost  half.

Examples

Tax Credit vs Universal Credit. Earnings level before payments stop **
  • A Tax Credit claimant with no children can earn up to £13,000/yr before their money stops completely – this drops to £6,000 under Universal Credit. (special rules for the self employed mean a single claimant with no children will get no support)
  • A Tax Credit claimant with one child (not claiming childcare) can earn up to £25,000 before all payments stop  – under Universal Credit it’s £14,000 (approx)
  • A  Tax Credit claimant with 2 children can earn up to £30,000  before their payments stop but under Universal Credit it’s £18,000 (approx)
  • Claimants with 3 or more children are currently entitled to Tax Credits and can earn up to £35,000 before payments stop but third and subsequent children are not supported by Universal Credit.
Eligible claimants nearly halved

Fig.2 Tax Credit awards across annual income levels [see source below (1)]
Fig.2 shows  the number of Tax Credit awards across income levels in 2012/13.  This shows  that 11% of the total claimants were earning between £6,420  and £14,000 and 23% over £20,000.  Therefore , at least 34%  of this group would not be eligible under Universal Credit.

Unfortunately these figures don’t  identify specifically the number of awards for those earning between £14,000 – £18,000.  However 28% of awards were to people earning between £10,000 and £20,000 so a significant number would also not be eligible for Universal Credit.

*Tax Credits taper rate:  41% (41p/£ earned), Universal Credit taper rate: 63% (63p/£ earned)

** Not all claimant types eg. couples or those with a disability are covered  above.  For full list of Universal Credit rates inculding Work Allowances see: http://www.entitledto.co.uk/help/Universal-Credit-Rates

  1. Child and Working Tax Credits statistics: finalised annual awards: 2012 to 2013:                                                                                           https://www.gov.uk/government/statistics/child-and-working-tax-credits-statistics-finalised-annual-awards-2012-to-2013

 

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