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Changes to the amount workers can earn under Universal Credit (the Work Allowance) before their benefit is withdrawn (taper rate*) appears to reduce the number  eligible for support by almost  half.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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Tax Credit cuts – Just the beginning – There’s worse to come

" Your Universal Credit may be sanctioned if your earnings drop voluntarily without good reason, or because of misconduct."[1]

If more Conservative MPs knew that the current Tax Credit cuts are only the start and that much worse is to come for low paid workers – would they still support them?

“The last new claims to legacy benefits and tax credits will be accepted during 2017” DWP Minister Mark Harper

Already passed in legislation, changes to in-work benefits under Universal Credit dwarf the current Tax Credit cuts. With a 65% taper rate and conditionality (with sanctions) for all claimants earning less than £12,0000/yr Universal Credit eliminates in-work benefits for huge numbers or of workers.

“If your benefit unit receives earnings below the conditionality earnings threshold [……..] your earnings need to increase so that you can reach your conditionality earnings threshold, for example by:

    • Increasing your working hours
    • Increasing your rate of pay
    • Finding an additional job
    • Moving to a different job with higher earnings”[1]

Further changes were announced in the Summer Budget ; the earnings threshold is cut again from £3,850 to £2,304 and is  abolished for single claimants. This legislation is on the way….

Always read the Tory small print

It gets worse…more cuts  in the budget small print
  • More cuts to the earnings threshold under Universal Credit for claimants with children – £2,304
  • The  Work Allowance  abolished for claimants without children so payments stop at approx £500/m
  • 65% taper rate under (for Tax Credits it’s 48%)
  • All workers earning<£12,000/yr will be subject to conditionality, punishable with  sanctions & mandated to Jobcentre Plus.

Policy paper, Summer Budget 2015

“From April 2016, the government will reduce the level of earnings at which a household’s tax credits and Universal Credit award starts to be withdrawn for every extra pound earned. In tax credits, this point (known as the income threshold) will be reduced from £6,420 to £3,850. The equivalents in Universal Credit (work allowances) will be reduced to £4,764 for those without housing costs, £2,304 for those with housing costs, and removed altogether for non-disabled claimants without children.” 3.4 par.10 

Around 500,000  workers  without children  receive Tax Credits.  30% of new Universal Credit claimants are in work and most have no child dependants.

Jobseekers, who must take any work or risk sanctions  face  homelessness if their pay doesn’t meet their housing costs as Universal Credit will not bridge the gap.

This runs  contrary to the much promoted feature of Universal Credit in that it enables claimants to move into work, even when it is  low paid, zero hours, etc.

More cuts to the Work Allowance 

Already cut from £6,420 to £3,850,  the Tax Credits earnings threshold is cut again under Universal Credit to £2,304.  This means that Universal Credit payments (basic+child award) for a single parent with one child will stop completely when earnings reach  £13,000  (approx) – for 2 children this would be £17,000 (approx).

Also not mentioned by Mr Osborne;  the taper rate, (which increases from 41% to 48% for Tax Credits) is set at 65% under Universal Credit.

A recent report featured in the Independent found that  amongst parents earning less than £15,000 /yr, 41% said they were going without food and 73% could not buy food.

As Tax Credits are to be abolished under Universal Credit, the lower rate will eventually apply to all in-work claimants.

 

The Cuts

“If the Tories get in on their own, my message to working people is be afraid – very afraid.” Danny Alexander

The Cuts Cameron didn’t tell us about…

The Work Allowance for in-work benefits has been slashed under Universal Credit. This, and other changes  are already passed in the Welfare Reform Act.

NB. Changes in the 2015 Summer  Budget  eliminate all claimants without dependant children from Universal Credit.  Working Tax Credit was awarded to 512,000 claimants without children in 2012/13 (see table 2. below)

A large part of the welfare cuts have been under our noses all the time, but because the changes are already passed in the WChanges to Work Allowance Universal Credit vs Tax Creditselfare Reform Act, the Government has not been obliged to mention them.  These cuts affect all low paid workers who would currently be eligible for Tax Credits.

Work Allowance cut by > a third

The level of earnings allowed for in-work benefits before payments are withdrawn has been cut by over one third and the rate of withdrawal (the taper rate) increased from 41p/£ to 65p/£ under Universal Credit.

The cuts to  the  Work Allowance , combined with changes to the rules for self employed claimants*  represents a huge reduction to claimant’s eligibility and the  awards they will receive.

The Work Allowance

Under Universal Credit, the amount claimants can earn before payments stop has been cut by over a third compared with that allowed under Tax Credits.

For example, the amount a single parent with one child can earn

Table 1. Drop in allowed earnings before payments stop under Universal Credit compared with current Tax Credit allowances (all figures approx.) [ see refs. 1, & 2 below]
Table 1. Drop in allowed earnings before payments stop under Universal Credit compared with current Tax Credit allowances (all figures approx.) [ see refs. 1, & 2 below]
before their basic award + child element cease,  drops from £25,000 under Tax Credits, to £14,000 under Universal Credit – for a single claimant with no children it drops from £12,000 to £7,200.

Due to variables such as number of children and housing award, the exact numbers affected are hard to quantify, but many will lose all, or a large part of their awards under Universal Credit.

Table 2. claimants by income awarded Tax Credits 2012/13 (see ref. 3)
Table 2. claimants by income awarded Tax Credits 2012/13 [see ref. 3 below]
Table 2. shows a large proportion of  Tax Credit claimants earn more than the Universal Credit Work Allowance.     For instance, 208,000 Working Tax Credit  claimants (without dependants) earned between £10,000  &  £19,000 in 2012/13. They would not receive their basic award under Universal Credit, as would many earning between £6,421 & £9,999.

The Cuts?

As these changes have been statute since 2013, it is surprising that George Osborne  failed to mention them, particularly before the election, suggesting these are  ‘The’ Cuts

*The new rule for the self employed, the Minimum Income Floor, eliminates the basic award for those with no dependants and reduces payments for parents ( basic award + 1 child) by up to 70% (if awarded the housing element)   seehttps://makingworkerspay.wordpress.com/2015/05/06/trap-for/

1. Tax Credits Entitlement Tables, Gov.UK:
https://www.gov.uk/government/collections/tax-credits-entitlement-tables

2. Universal Credit Work Allowance rates:
http://about.universalcredit.service.gov.uk/kms/Pages/Work_allowance_for_Universal_Credit.htm

3. HM revenue and customs child and working tax credit statistics 2012 -13:
https://www.gov.uk/government/statistics/child-and-working-tax-credits-statistics-finalised-annual-awards-2012-to-2013

 

 

Trap for the Self Employed

Tax credits cut 100%  for self employed without children, up to 70% for a single parent and 58% for a couple with children under Universal Credit

Update: the cuts below were  in place before the election, but  more cuts were announced in the Summer Budget. The Universal Credit Work Allowance is abolished for single claimants and drops from up to £263 /mnth (single parent +1 child+ housing element) to £192, so the figures below are an underestimate.

Hidden in plain sight – trick or mistake?

the mechanism to cut scales11100% from some self employed claimants Universal Credit claimant’s basic awards is already in the Welfare Reform Act.  An 87% reduction to the Universal Credit Work Allowance for claimants with no dependant children combined with a limit on entitlement if they earn too little, cuts their basic award by 100%. For self employed parents, the basic award could be cut by up to 70%.

Cut for earning too little - cut for earning too much

The Universal Credit (UC) Work Allowance is set so low and mandatory earning requirements so high, that self employed Universal Credit claimants (currently eligible for Working Tax Credit) will get nothing if they have no dependant children.

Under Universal Credit, all self employed claimants will be treated as if they have earned a minimum income; the Minimum Income Floor (MIF) which is set at the equivalent of 35 hrs/wk at the national minimum wage, (currently around £910/month).

Table 1. Combined effect of Work Allowance & MIF on basic Universal Credit awards
Table 1. Combined effect of Work Allowance & MIF on basic Universal Credit awards

The Work Allowance, is the level of earnings allowed before benefits begin to be withdrawn. Under Working Tax Credit, the Work Allowance is £9850 (£820/month)  for claimants with no dependant children, but under under Universal Credit, it is £1332 /yr (£111/month).   So these claimants will not receive payments (U Credit basic award) and their only option to continue claiming, is to abandon self employment and look for employed work.

Self employed women

Self employed women will be worst affected as their average earnings are £9,800/yr,(below the £11,000 MIF), compared with £17,000 for men. [1]

Amongst all working families (with one child) awarded tax credits in 2012/13, 1,200,000 were single parents and only 600,000 were couples.[2] Some self employed single parents could lose 70% of the basic allowance if awarded the housing element of Universal Credit. (Table 1.)

Up to 1. 5 Million self employed could be affected

Over a third (36.6%) of self employed workers earn less than £11,000 /yr. so would be subject to the MIF.  There are 4.5 m. self employed workers in the UK, so up to 1.5 m. could be affected by these changes.

Note: The self employed are also subject to conditionality and  sanctions,  under Universal Credit rules including the requirement to report their earnings on a monthly basis to the DWP and passing a test to prove they are ‘gainfully self employed’.

 


 References

1. Social security provision andthe self-employed, A study by the Social Security Advisory Committee, Occasional Paper No. 13, September 2014: See table 2: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/358334/Social_security_provision_and_the_self-employed__FINAL_24_SEPT__.pdf

2. Statistics – National statistics, 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


DISCLAIMER: All content provided on this blog ‘Makingworkerspay’ is for information purposes only. The owner  makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner  will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information.

 

Welfare Cuts Concealed in Universal Credit Legislation

 

Self employed workers without child dependants will get no payment under Universal Credit.
Huge cuts to Tax Credits

These have been concealed in Universal Credit legislation and passed in the Welfare Reform Act 2012/13 These changes are due to be implemented from April 2015 and HMRC have begun the process with new rules issued last month.

Worst hit are the self employed

They will get nothing under Universal Credit (UC) if they have no dependant children and those with children face cuts to the money they do receive.  These are workers who would be eligible for Working Tax Credit, but changes under UC to the Work Allowance and the application of a ‘minimum income floor’ (MIF) to the self employed will make many ineligible.

The combination of the Minimum Income Floor(1) and the Universal Credit Work Allowance(2) mean that claimants will lose some UC if they have dependants and all if they don't.
50% reduction in income entitlement levels under Universal Credit
Work Allowance cut from £9,850 for Working Tax Credit to £1332 under Universal Credit for claimants without child dependants

 xwtcversusuc1Under Universal Credit, the level of earnings allowed before benefits are reduced is half that of Working Tax Credit for claimants without dependants (fig.1).

The Minimum Income Floor

Under UC, self employed claimants are subject to a Minimum Income Floor (MIF), which,

Combined effect of Work Allowance & MIF on basic U. Credit awards
Table 1. Combined effect of Work Allowance & MIF on basic Universal Credit awards

if they fail to earn it, will be treated as ‘notional earnings’ and their UC payments are calculated as if it had been earned.  The UC Work Allowance is then applied to these  ‘earnings’.  The Work Allowance is set at a low level for workers without dependants, so  if they actually earn the MIF, they will not receive payments and for those with one dependant child, payments  are reduced.

Universal Credit payments

Workers with no dependants  have a Universal Credit award of £314/month  (£494.95 for a couple). These payments are clawed back by 65p for every extra pound earned above a ‘Work Allowance'(2) which varies according to circumstances. This means the Universal Credit payments reduce to zero above a certain level of income.

Self-employed workers with no dependants get nothing

There is a catch for self-employed workers. Unless they earn more than the “Minimum Income Floor”(1) their income for UC purposes is assumed to be the MIF figure. This is currently £910 per month.

The further catch is that for self-employed workers without dependants, the Work Allowance is £111 per month. This is so low that, when their income is assessed to be at the level of MIF (£910 per month), the claw-back is £519.35p and exceeds their UC  allowance. This means they receive no Universal Credit payments.

Self-employed workers with dependants get less.

For self-employed workers with dependant children, basic award payments could be reduced by up to 71% for a single parent (lower rate Work Allowance)  and up to 58% for a couple (lower rate Work Allowance). See table 1.

All low paid workers will be subject to conditionality and  sanctions,  

However, employees, unlike self employed claimants, are not subject to the MIF, so will receive a tapering amount of UC as their earnings increase below the MIF level. But, for self employed claimants who fail the ‘gainful self employment tests’ (including the MIF), may be forced to abandon their businesses in order to survive and sign up to Jobseekers.

Note 1: The ‘minimum income floor’ (MIF) is  the equivalent of 35 hrs/wk at the minimum wage, just below £11,000 (£910 per wk) which Self employed  claimants should earn as UC ‘will not bridge that gap’   Of 4.5 m. self employed workers in the UK,  36.6% earn less than the £11,000/yr.

Note 2: The UC Work Allowance is the amount of money  a claimant can earn before their UC  is reduced and there are different rates for different claimant categories and these are set in the Welfare Reform Act 2013. UC is cut by 65p in every £ earned by claimants above the Work Allowance.


References

1. The Universal Credit Regulations 2013 No. 376 Part 6 Chapter 2 Gainful self-employment Regulation 62 http://www.legislation.gov.uk/uksi/2013/376/regulation/62/made

2. The Universal Credit Regulations  2013 no. 376 Part 3 Regulation 22 Deduction of income and work allowance: http://www.legislation.gov.uk/uksi/2013/376/regulation/22/made


DISCLAIMER: All content provided on this blog ‘Makingworkerspay’ is for information purposes only. The owner  makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner  will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information.

HMRC announce new rules for self employed earning too little

The process of weeding out those failing to be 'gainfully self employed' has begun in advance of Universal Credit (UC)

The HMRC has announced new rules  from 6th April for the self employed claiming Working Tax Credit (WTC) with earnings below a “threshold based on working hours and the National Minimum Wage.” This is likely to be 35 hours per week / £11,000 PA,  ‘the minimum income floor’  (MIF) under Universal Credit (UC).

Claimants earning below the above ‘threshold’ must submit receipts, expenses and records of sales & purchases.  They may also have to submit evidence of a business plan, planned work, cash flow & profit projections.

“HMRC will use the information provided to reach a decision about the claimants’ current WTC award.”

At this stage, HMRC state that the child element is unaffected, although it may not be the case when tax credits are abolished under UC.

When the full conditionality of UC is in place, self employed claimants will be mandated to the Jobcentre and have to submit monthly accounts to the to the DWP. Their UC will be cut for any month they fail to reach the MIF.  If a claimant consistently fails to reach the MIF they will no longer be ‘gainfully self employed’ and must look for employed work.


DISCLAIMER: All content provided on this blog ‘Makingworkerspay’ is for information purposes only. The owner  makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner  will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information.