Tax credit changes will discourage work and have other disastrous effects

There are warnings today that 424,000 adults and 470,000 children are at risk of falling into poverty as a result of the government’s tax credit changes.

 

Several organisations, including children’s charities, trade union Usdaw, and Citizens Advice, have urged David Cameron to postpone the changes to child benefit.

They say the changes, which remove working tax credit from up to 212,000 couples working between 16 and 24 hours will leave many of those affected worse off in work than on benefits, putting 424,000 adults and 470,000 children at risk of falling into poverty.

In addition the the open letter (pdf) to the prime minsiter, Usdaw and the Child Poverty Action Group (CPAG) outlined in detail some of the “unintended consequences” of the reforms:

78% say they cannot find the extra hours of work they need

Most people working 16-24 hours on a low wage work in the service sector, which has been hard hit by recession. In retail, where a high proportion of the affected families work, additional hours are being cut as much as possible and no extra hours are available in most stores.

Very high levels of unemployment mean there are no additional or alternative jobs. Usdaw surveyed members who know they are affected by the changes, 78% of whom said they would not be able to find the additional hours of work they needed. Rising ‘underemployment’ – people who cannot get all the hours of work they want – is a growing problem.

Child poverty will surge

The families affected by this change are likely to already be close to the poverty threshold. The loss of Working Tax Credit of £3,870 (even with some counteracting increase in housing benefit as a consequence) will mean many, if not most, of these couples and their children will be plunged below the poverty line, or far deeper below the poverty line than they were already.

This would cause a surge in the extent of child poverty and the depth of child poverty.

Families will be better off out of work

The current margin between those out of work on benefits, and those in work between 16 and 24 hours, will be erased by this change. A parliamentary answer to Ann Coffey MP has confirmed that the change will make households worse off in work than on benefits.

See ‘Social security benefits’, column 395w, Hansard.

Families with disabled children and full-time carers are not exempt

Families with disabled children or other caring responsibilities are obviously less able to do more hours of work. However they have not been exempted from working additional hours, even where one partner is a full-time carer. The loss of £3,870 WTC will be a devastating additional blow to these hard-hit families.

Universal Credit will abolish the criteria for working hours in 2014

One of the key points about Universal Credit is that it will reward people for however many hours work they can do. The criteria for set hours of work will be abolished and families will receive support that is tapered at a set rate depending on their earnings rather than their hours of work.

This change will therefore create untold misery for hundreds of thousands of working families and their children for a small and temporary gain to the Treasury.

The strong economic situation needed to support this change has not been reached

The government first announced this change in November 2010 in the Spending Review. At the time the Office for Budgetary Responsibility (OBR) was predicting that the economy would be back in strong growth now of 2.1% in 2011 and 2.6% in 2012. But the economy grew at just 0.9% in 2011 and we have just had a contraction for the most recent quarter.

The OBR have also significantly revised upward the job losses they expect in the public sector, many of which will be implemented in the form of reduced hours. The argument by government that the change would incentivise increases in working hours no longer makes in sense in the current economic context.

As CPAG’s chief executive Alison Garnham says:

“It would be reckless to carry on regardless with a policy that puts 470,000 children at risk of being plunged into poverty. The policy change was designed for an economy that has returned to growth with plenty of options for claimants to increase their hours of work. Unfortunately our economic recovery is not there yet.

“As the system will change in 18 months anyway, the sensible thing for government is to postpone this change.”

See also:

The benefits Britons want to save are the ones the Tories want to cutDeclan Gaffney, February 28th 2012

Busting the means testing mythAndrew Harrop, January 26th 2012

Why child benefit must be removed from the benefit capDr Sam Royston, January 23rd 2012

A-list Tory ‘asks’ how we can stop the poor from having too many kidsAlex Hern, November 18th 2011

Cameron’s reforms take us to the edge of the cliffNatan Doron, June 25th 2011

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