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Benefit freeze to hit 13m families, claims IFS

2015-07-09 18:11:58

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Thirteen million UK families will lose an average of £260 a year due to the freeze in working-age benefits, says the Institute for Fiscal Studies (IFS).

Tax credit changes could hit three million families, which are likely to lose an average of £1,000, it said.

Even taking into account higher wages, people receiving tax credits would be "significantly worse off," said Paul Johnson, director of the IFS.

The chancellor said most workers would be better off under Budget changes.

The biggest impact on families will come from the freeze in working-age benefits and the changes to tax credits, said Mr Johnson.

"It will reduce the incentive for the first earner in a family to enter work," he said.

The number of families affected under the IFS analysis includes those who claim Child Benefit - which will be frozen from April 2016. The majority of families claim the benefit.


Benefits Freeze

Most working-age benefits frozen from April 2016. Includes Job Seeker's Allowance, Employment and Support Allowance, Child Benefit and some Housing Benefit.

Replaces 1% annual up-rating since April 2013.

Budget calculator July 2015

The new Living Wage and you

Benefit changes: Who will be affected?


George Osborne said anyone working full-time on the National Minimum Wage - taking into account taxation changes - would be better off.

Under the new National Living Wage, all workers over the age of 25 will earn a minimum of £9 an hour by 2020.

Speaking to the BBC, he said the changes amounted to a new contract with the country, which offered fewer benefits, but higher salaries.

"This is a fair deal - because you've got to have a welfare system that's fair to the people who pay for it, as well as the people who need it," Mr Osborne told the BBC.

However the IFS said that higher wages would not compensate for cuts to tax credits.

"There is simply not enough money going in to the new minimum wage to anywhere near compensate - in cash terms - people on tax credits," said Mr Johnson.

The IFS analysis suggests that those in work - but receiving low salaries - will be the worst-affected.

Those in the second poorest category are likely to lose more than £1200 a year.

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Tax credit changes

From April 2016, anyone earning more than £3,850 a year will have their Working Tax Credit reduced more steeply. Previously they could earn up to £6,420.

From April 2017, new claimants for Child Tax Credit will not be able to claim for the third, or subsequent children.

'£3,450 worse off'

Earlier the Resolution Foundation - a think tank that campaigns for low and middle-income families - also warned that the changes to tax credits could "weaken the incentive both to enter work, and earn more."

Taking into account the new National Living Wage, the Resolution Foundation said many families will still lose out.

According to its calculations, by 2020:

  • A low-earning single parent with one child, working 20 hours a week at £9.35 an hour, will be £1,000 a year worse off.
  • A low-earning dual-earner couple with two children will be £850 a year worse off
  • A middle-earning dual-earner couple with two children, each earning £15 a hour, will be £350 better off, as a result of increases in the personal tax allowance.

However, it said some families moving on to Universal Credit, or applying for tax credits after April 2017 could face much bigger losses.

For example, a low-earning couple with with three children making a new claim would be £3,450 worse off, following the tax and welfare changes set out in the budget.

"We shouldn't think that a higher minimum wage will compensate all low income working families for their losses - many working households will be left significantly worse off," said Gavin Kelly, chief executive of the Resolution Foundation.

Source: bbc.co.uk

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