Welfare cuts: who will lose out?

The working poor and their children will suffer when the 'merry-go-round' stops

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David Cameron is preparing to unveil details of planned welfare cuts, having criticised the current ‘merry-go-round’ system which sees low earners taxed heavily, and then handed money back as benefits. The prime minister said it is time to build a ‘lower tax, lower welfare’ UK.

The government has thus far been frustratingly evasive about exactly where the cuts will fall, but from what we know so far it seems that the working poor will be the worst affected by the changes.

The Resolution Foundation, a think tank that works to improve the living standards of low to middle-income earners, has analysed proposals to cut the value of the ‘child element’ of the Child Tax Credit (CTC) back to its 2003/4 level. It suggests that:

  • Over two-thirds of affected families would be in-work
  • Families with two children would lose up £1,690 a year
  • Almost two-thirds of the cut would be borne by the poorest 30 per cent of households
  • Almost none of the cut would fall upon the richest 40 per cent of households

According to the Resolution Foundation’s briefing, a single parent with two children, working 16 hours a week and earning £7.50 an hour (less than the UK Living Wage) could expect their household income to fall by around £1,690.

Tax credits were introduced by Gordon Brown in his first term as chancellor, with the aim of helping families in low-paid work to make ends meet.

They are often credited with contributing to a major improvement in child poverty; between 1998/99 and 2012/13 the number of children living in families below the poverty line fell from 35 per cent of the child population to 19 per cent.

Critics says that they allow employers to pay poverty wages, in the knowledge that wages will essentially be topped up by the state. But even those critics are doubtful about the wisdom of cutting them.

Mark Littlewood, the director general of the Institute for Economic Affairs, said yesterday:

“Whilst important for getting cash to relatively poor families, tax credits discourage people from earning more money by creating high effective marginal tax rates, leading to bunching around part-time work hours.

“They could be reformed in a way which encourages full-time work. But simply salami-slicing the value of tax credits will hit certain households hard without creating this positive dynamic.”

The Institute for Fiscal Studies (IFS) says that the number of children living in poverty has increased again over the last three years, from 2.3 million to 2.5 million.

In a report written even before cuts to child tax credits were suggested, the IFS predicted that child poverty would rise by 4 per cent over the next five years. Add in plans to undo the work of tax credits, and the future currently looks pretty bleak for the children of low earners.

Ruby Stockham is a staff writer at Left Foot Forward. Follow her on Twitter

9 Responses to “Welfare cuts: who will lose out?”

  1. stevep

    If Cameron really wants to cut the welfare budget he could achieve maximum results by stopping subsidies to wealthy individuals, landowners, corporations and agriculture. Ensuring businesses paid a living wage to their employees would alone cut the benefit bill by billions.
    But of course, it`s that old Victorian music hall saying: “It`s the rich what gets the pleasure and the poor what gets the blame”.

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  3. Torybushhug

    A positive step on the road to getting back to a dignified welfare safety net and returning self responsibility to the citizen. A much healthier example to children.
    This is much more a moral cause than a money saving endeavour.
    In a few years time the left will catch – up and recognise that the endemic welfare landscape was toxic on so many levels.
    I lived on a council estate when my Dad left the army. What I saw was perfectly capable mates of mine choosing a life on benefits. They would not view this as immoral behaviour, more just ‘what everyone does’. The knock on effect on their children is incalculable. Sure on a basal level we might conclude Brown gave such children more money, but the downside outcomes are many and varied. I would summarise as ‘dimmed horizons’.

    Probably the most dispiriting thing I observed was people learning to think and behave like helpless agents. Why plan ahead, delay gratification and strive when no matter what choices you make, nannies teat will always provide?

  4. dnspncr

    There are definitely problems within the welfare system, there’s plenty that needs fixing. If you truly are from a council estate you need to understand that the overall aim of this government is not to fix the system though, they aim to dismantle it. I am working class and would be considered right-wing on many issues, just because I believe that the neoliberal agenda is toxic to the working classes doesn’t make me a lefty and this is what you to “catch-up and recognise”. Instead of posting negative comments on leftwing blogs you seriously need to look a the wider picture; much of what we have fought long and hard for is being eroded, comrade.

  5. Torybushhug

    Neo-liberalism. Ever since the WHICH / Watchdog mantra told us to demand ever better value and service, we’ve all been engaged in ensuring workers work for as little as possible.
    Each time we choose a value provider such as a tyre fitter or courier service, we cause best value eco systems to be preferred over lets say more egalitarian employers that might want to pay decent wages.

    Everyone with a pension (including public sector) is benefitting from profiteering. The higher the profits, the higher the share returns, the more your pension / ISA return. We truly are in this together. Read the latest Church Of England or Fife Council annual pension report – the whole focus is on hunting out and maximising profits. Vague platitudes do not make up for the day to day activity of profit hunting by ALL pension schemes.

    I too am tempted to opt for the populist simplistic narrative that gets me off the hook as a value hunting consumer and instead pin the blame for neo-liberalism on nasty easy to pillory villains such as bankers and assorted fat cats (note how very rich people like Fry and Mirren are never framed as fat cats). Very tempting, but highly dishonest.

    Be the change you want. Actively seek out higher paying firms with every consumption choice you have. Stop moaning and holding up inane banners, that’s the easy charlatans way of excusing themselves.

  6. dnspncr

    You’ve completely missed, or purposely ignored, my point; Those who do not have the means to support themselves during long periods of unemployment or ill health are supported by a system that is now under threat. Your copy & paste comment isn’t really relevent to this particular discussion.


    I agree with you. My own personal experience from the DWP was being lied to then letters not being received. I eventually tried to use the freedom of information act to obtain personal historical information eg: the report from the DWPs own medical officer who said I was unfit for work. After fighting my case for over a year my benefit was reinstated as it was about to end. I believe the staff at the DWP are instructed to be politely unhelpful. I believe that a lot of sick and disabled people who were deemed unfit for work by the DWP are having their benefit withdrawn and told they have no appeal as initially happened to me.

  8. blarg1987

    Just for clarification, were they on an estate where there is or was high unemployment of plentiful jobs that would allow them to better themselves or provide a reduced quality of life?

    It is worth noting that the largest section of the welfare budget is pensions, followed by housing benefit.

    Unemployment and tax credits are way down the line.

    you will always get a small minority who free load, both those at the bottom, such as companies claiming poverty to get taxpayers cash.

    While better education is needed, better opportunities are also required, if business is more interested in importing labour then training up local people we do have a problem.

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