The working poor and their children will suffer when the 'merry-go-round' stops
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
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9 Responses to “Welfare cuts: who will lose out?”
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.
JAMES MCGIBBON
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.
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.
KarenARichardson
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