Families could lose over £2,700 a year despite ‘no losers' welfare pledge

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date: 10 February 2011

embargo: 00.01hrs Friday 11 February 2011

Low and middle income families will suffer annual benefit cuts of over £2,700 a year by 2013 despite the government's pledge that there are to be 'no losers' in the setting up of the new universal credit system, the TUC is warning today (Friday).

The government has said that no worker will be financially worse off when universal credit replaces the current system of tax credits and benefits in April 2013 (see notes to editors).

But in order to fulfil the 'no losers' pledge the government will have to reduce the welfare bill, and so is making swingeing cuts to tax credits and benefits that will leave families thousands of pounds worse off in the run up to April 2013, says the TUC.

Between April 2011 and April 2013, the government is introducing a series of welfare cuts which include reducing the amount of childcare costs that can be met by tax credits, freezing elements of working tax credit and child benefit, ending government payments to the child trust fund, and ending child benefit for higher rate taxpayers.

In addition, switching the measure for uprating benefits from RPI to CPI will reduce the value of key benefits over time, saving the Treasury £5.8 billion by April 2015, says the TUC. Housing benefit cuts will also lead to significant reductions in family incomes, including those of many working households.

A TUC analysis shows that changes to the tax credit and benefits system alone could leave working families £2,700 a year worse off by April 2013.

The TUC fully supports the 'no losers' pledge for universal credit but believes that rushing through cuts in the run up to April 2013 means that when everything is taken into account the pledge will be meaningless for many households, who will actually find themselves worse off than under the current system.

The TUC is also concerned about the lack of clarity over the government's pledge to provide 'transitional payments' to anyone whose level of benefits or tax credits drops during the switch to universal credit.

The government has yet to define exactly how long payments will last for and there is a risk they could create perverse work incentives, the TUC warns. If workers lose their extra income for making small changes to their working arrangements such as taking a pay rise or increasing their hours, they could actually be financially worse off if they earn more money, the TUC says.

As well as calling on the government to re-consider its welfare cuts, the TUC is urging the Minister to clarify how transitional payments will work in the forthcoming Welfare Reform Bill so that workers are not penalised financially for making small adjustments to their working lives.

TUC General Secretary Brendan Barber said: 'The government's 'no losers' welfare pledge will ring hollow if families suffer thousands of pounds worth of cuts in the years running up to the switch to universal credit.

'Workers are already suffering an income squeeze and government austerity will make low and middle income families even worse off. Welfare cuts of over £2,700 a year on top of service cuts like the end of free ante natal classes and the closure of Sure Start centres are the worst possible conditions in which to introduce universal credit.

'The TUC wants to see the removal of barriers that penalise workers for earning for more money while they're trying to get off benefits. But rushed reforms which are based on swinging welfare cuts risk creating a whole new set of obstacles to work, leaving many families worse or little better off than they are now.

'The government cannot allow short-term cost cutting to undermine long-term welfare reform.'

NOTES TO EDITORS:

Total annual financial losses from welfare cuts for households with two parents in employment, working 35 hours a week, each on the minimum wage

Reduction in childcare costs met by tax credits (from April 2011)

£1,560

Child benefit freeze (three years from April 2011)

£201

Freeze in the value of the basic element of working tax credit (three years from 2011)

£135

Switching from RPI to CPI uprating of the couple element of working tax credit (from April 2011)

£40

Freeze in the value of the 30 hour element of working tax credit (three years from April 2011)

£60

Abolition of the baby element of child tax credit (from April 2011)

£545

Abolition of the toddler element of child tax credit (from April 2012)

£220

Abolition of the Child trust fund (from January 2011)

£250

Above inflation increase in the child element of child tax credit (in April 2011 and April 2012)

-£255

Total loss

£2,756

- The TUC has calculated how welfare cuts will affect a household with two adults and two children, where both parents work full-time and earn the minimum wage. The TUC has compared the support that would be available for parents in these circumstances under the current system by 2013/14 and after the government's welfare changes and calculated the difference. The full calculations can be found at www.tuc.org.uk/extras/welfarelossesby2013.xls

- There are a number of cuts that are not included in the analysis, making it an underestimate of the maximum losses that this family could experience. For example, the TUC has assumed that the family are not entitled to any support with housing benefit or council tax benefit (both of which are available to working families) and has not included the abolition of the health in pregnancy grant, the additional tax credit losses of families where adults or children are disabled, a number of additional tax credit cuts or additional cuts to disability benefits.

- The Secretary of State for Work and Pensions Iain Duncan-Smith confirmed that there would no losers from the switch to universal credit in the House of Commons on 11 November 2010 www.publications.parliament.uk/pa/cm201011/cmhansrd/cm101111/debtext/101111-0001.htm#10111155001327

- All TUC press releases can be found at www.tuc.org.uk

- Register for the TUC's press extranet: a service exclusive to journalists wanting to access pre-embargo releases and reports from the TUC. Visit www.tuc.org.uk/pressextranet

Contacts:

Media enquiries:
Liz Chinchen T: 020 7467 1248 M: 07778 158175 E: media@tuc.org.uk
Rob Holdsworth T: 020 7467 1372 M: 07717 531150 E: rholdsworth@tuc.org.uk
Elly Gibson T: 020 7467 1337 M: 07900 910624 E: egibson@tuc.org.uk

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