More than a month since the Budget and I think I may be finally getting my head around it. The main point to the budget was, according to the Conservatives, “to make work pay”, yet the biggest losers of the budget were hard-working, low income families as the focus was on cutting working benefits.
All over the country, working parents have been posting on social media their worries about how to make ends meet in the future and yet, I worry that there is even worse to come.
There was no surprise that tax credits were targeted. As I said in my post before the Budget, there were speculations that this would be the focus for the welfare cuts. Yet, initially it looked as though things not going to change for those claiming tax credits as George Osborne announced that tax credits would be frozen for four years. However, he then stated that the income threshold for tax credits would be reduced from £6,420 to £3,850 from April 2016, the taper rate would rise from 41p to 48p and both tax credits and universal credit would be restricted to 2 children for new claimants from April 2017.
On the surface, it didn’t look too bad, but a closer look reveals that the cuts are deeper than many believe.
The income threshold is the point at which the tax credits are reduced – not stopped. So, if you earn over the threshold, the maximum amount that you can receive is reduced according to the taper rate. So, currently, if you earn £10,000, you would reduce the maximum working tax credit award you are eligible for by doing the following calculation – £10,000-£6,420 = £3580 (the excess income) x 41% (taper rate) = £1467.80. So the tax credits that you are entitled to would be reduced by £1467.80.
However, the Budget changes mean that, from April 2016, working tax credit claimants earning £10,000 would have their claim calculated in the following way – £10,000-£3,850 = £6150 (the excess income) x 48% (taper rate) = £2952.
To compare the two scenarios, this is a reduction of £1484.20 a year in working tax credits, equating to nearly £30 a week. While this should encourage people to work harder, it is clear to see that the more you work, the more that you lose from your tax credit claims and so it doesn’t encourage people to work more, especially if they also have to pay for childcare.
In addition, this is just taking working tax credits into account. There is also child tax credits that has a higher threshold before it starts to be tapered. In the Budget, there was no statement that the threshold for child tax credits would be reduced as well, yet it now appears that this will also be reduced – Minister confirms further cut in Child Tax Credit. How this will impact on families claiming just child tax credit or both working tax credit and child tax credit is still unclear, but it looks as though it will result in reduced tax credits for many more families than originally thought, particularly those who only claim Child Tax Credit who may have thought they were unaffected by the Working Tax Credit cuts.
In addition, from April 2017, Child Tax Credits will be restricted to two children for those who have children born after this date and new claimants. Clearly, families with one or two children won’t be affected, but families of three or more will be. Many parents feel that this will not apply to them as they have their children already and the Budget stated that it will impact on those born after April 2017, yet the words ‘new claimant’ make me suspect that those who already have three or more children will find their tax credits cut. This is due to the move from Tax Credits to Universal Credits, which is scheduled to be implemented in 2017. When a Tax Credit claimant is moved to UC, their old claim is stopped and they effectively become a ‘new claimant’ of UC. Therefore, they could lose child elements for UC after the first two children.
Currently, the child element rate of Child Tax Credit is £2780. (This is the maximum award before the taper is taken off income above the threshold as explained above.) I will still have four children under 18 when I am moved to UC, so could lose a further £5560 a year if the Conservatives decide that I fall into the ‘new claimant’ category (along with thousands of others who will be forced to move to UC in 2017).
So, from 2017, my tax credits will possibly reduce by over £7000. I know that I will gain by the increase of the personal tax allowance being increased to £11,000, which means an extra £200 take home pay but I think anyone can see that this is a small token amount compared to what I will lose.
To add to this, my eldest daughter is planning to go to University in 2016, but she has also become a loser in the Budget as maintenance grants for low income families will be replaced by loans. So, she will owe the Government tens of thousands by the time she is 21 years of age.
I totally understand that the Government has to make cuts – we are in deficit and spending to much. However, I feel that rather than targeting parents who are working by effectively reducing the amount they take home of their pay, there are other places that the Government could cut back on, such as Corporate Welfare (which is estimated to be worth £85 billion a year – 7 times the amount that the Government are cutting from low income families).
It is also noticeable that those who aren’t working, weren’t losers in the Budget. It was focused on low income working parents. The Conservatives claim that they want “to make work pay” is not being felt in this working household or millions of others.