Osborne cuts mean working families worse off by total of £600m
Resolution Foundation says chancellor’s autumn statement points to reduced in-work allowances by 2017.
Millions of working families in Britain will be £600m worse off by 2017 due to hidden changes outlined in the autumn statement and confirmed by the Office for Budget Responsibility.
The reduced state allowances are mentioned in two sentences in George Osborne’s recent statement. The Resolution Foundation thinktank has set out the full implications.
The changes are occurring because universal credit work allowances will now be kept at their current levels for three years, from April 2014.
The Office for Budget Responsibility forecasts that inflation (CPI) will be 8.7% over this period, so the value of universal credit work allowances are set to fall significantly in real terms.
Universal credit claimants can keep a certain amount of earnings before their entitlement begins to be withdrawn. The same system applies to personal allowances.
The Office for Budget Responsibility states that changes to universal credit, announced in the autumn statement documentation, will save the Treasury £600m, with most of the savings coming from reduced in-work allowances.
Previous measures have already lessened universal credit. At last year’s autumn statement it was announced that most working-age benefits and tax credits were to be up-rated by 1% a year (rather than CPI), for three years from 2013.
Taken together, the 1% uprating and the reduction in work allowances mean that by 2017 the following changes will be operating:
•A single parent household will be up to £420 a year worse off (of which £230 is accounted for by cuts announced in the autumn statement 2013)
• A couple with children will be up to £230 a year worse off (of which £130 comes from the measures announced)
•A couple with no children will be up to £60 a year worse off (of which £30 comes from the measures announced)
The exact value of the cash loss will vary significantly according to household circumstances but homeowners in receipt of universal credit – which is a means-tested benefit, reliant on income level and held capital, such as some types of property, and replaces housing benefit – will be hit harder than those who rent.
The freezing of the work allowances in universal credit disproportionately affects households in employment and in the bottom half of the income distribution. This group is less likely to benefit from further increases in the personal tax allowance than people further up the income distribution.
Gavin Kelly, chief executive at the Resolution Foundation, said: “The decision to reduce the work allowance in universal credit by not up-rating it with inflation will be a real blow to the working poor.
“It’s the sort of stealthy measure that often attracts little attention but still has a real impact. Reducing work incentives and family incomes in this way is bad policy – it’s also directly at odds with the government’s stated and laudable objective of making work pay.”
The Institute of Fiscal Studies has estimated that the specific reform set out in the autumn statement, once universal credit is fully in place, will save £315m a year from 2017-18.
The institute claims the change weakens work incentives for single people and for those with a non-working partner.