George Osborne has abandoned plans to cut working tax credits, saying they will be phased out anyway due to the introduction of Universal Credit, but is it a full reversal? Not exactly…
The Chancellor told MPs in the Commons: “I’ve had representations that these changes to tax credits should be phased in.
“I’ve listened to the concerns. I hear and understand them. And because I’ve been able to announce today an improvement in the public finances, the simplest thing to do is not to phase these changes in, but to avoid them altogether.”
The apparent U-turn has been warmly welcomed by charities, campaigners, unions and the government’s political opponents.
Unison General Secretary Dave Prentis said: “Nearly three million working families countrywide have breathed a collective sigh of relief. Since the cuts were announced in the summer, parents have faced increasing anxiety over losing the tax credits they rely upon so heavily.
“We’re pleased that the Chancellor has made good use of the thinking time last month’s Lords vote gave the government.
“But the real credit for today’s decision goes to the many brave parents who talked publicly about their already stretched finances, and the distress and hardship the cuts would cause. Their stories convinced the government this unfair tax credits grab was wrong.
“The government must now do more to encourage employers to pay staff more – at least the real living wage of £8.25 an hour. This would make a difference to the many low-income families still struggling to make ends meet.
“In 2018 new claims for tax credits will stop, and the families receiving them will start to be switched on to Universal Credit. The Chancellor must not use this change as a way to revive his original plans and leave working families worse off in 2020 than today.”
Rachael Orr, Oxfam Head of UK Poverty, said: “We’re delighted that the Chancellor has listened to concerns and removed the immediate threat of tax credit cuts from families working hard to keep themselves above the breadline.
“The Government should use the breathing space this announcement gives them to amend their plans for universal credit so that poor families are protected.”
However, changes to child tax credit have not been reversed and will hit millions of larger families – limiting payments to no more than two children per household. And new claimants will not get the ‘family element’ of child tax credit, worth up to £545 a year.
The halving of the ‘income rise disregard’ will also go ahead, from £5,000 to just £2,500, although it will not affect the majority of tax credit claimants.
Cuts to Universal Credit will see some claimants lose more than £1,000 a year, with lone parents, disabled people and couples with children who rent, rather than mortgage their homes, will be hit particularly hard.
The amount a lone can earn before Universal Credit starts to be reduced will be slashed from £8,800 a year to £4,800. Disabled people could see their income drop by around £2,000 a year, while couples with children will lose about £1,000 a year.
Osborne’s decision not to cut working tax credit will mean that a couple who both work full-time on £20,000 a year will be £160 a year better off. However, once they are moved to Universal Credit their income will plummet by £1,030 a year.
Owen Smith MP, Labour’s Shadow Work and Pensions Secretary, said: “I welcome the fact that the Chancellor has bowed to Labour pressure and reversed the immediate unfair cut to Tax Credits.
“However, this is not the full and fair reversal we demanded, as he is still taking £1 billion from working families next year and over £3 billion by the end of the Parliament, as Tax Credits are replaced by Universal Credit.
“As a result, a single parent of two children working full time on the Minimum Wage on Universal Credit will lose £2,400 next year due to the Chancellor’s cuts.
“In short, this is a smoke and mirrors Spending Review from George Osborne, leaving working people worse off and failing to address the big challenges facing the country.”
Chief Executive of Child Poverty Action Group Alison Garnham said: “The Chancellor’s half-solved the problem he created in the Summer Budget of how we help the low paid.
“His decision to drop the latest tax credit cuts is very welcome and will be a huge relief to hard-up working families but, as the Treasury’s own costings reveal, the significant cuts to universal credit mean that in reality this is only a stay of execution.
“It was always wrong to cut support for working families in tax credits and it’s still wrong to cut help for these same families in Universal Credit, which replaces tax credits.
“The Welfare Reform and Work Bill going through parliament also cuts tax credits for families in a number of ways but it seems will go forward unchanged.
“Spending reviews are about setting out the Government’s priorities. After the Prime Minister’s party conference pledge to mount an assault on poverty we are disappointed that apart from the U-turn on tax credits there is very little evidence that the government is putting its money where its mouth is when it comes to fighting poverty.”
Meanwhile, the PCS warned that further cuts to departmental budgets announced today could lead to tens of thousands of job losses.
PCS general secretary Mark Serwotka said: “The Tories’ wrecking-ball plan for our welfare state will set the country back decades and leave families who are already struggling even worse off.
“The scale of departmental cuts means services to the public will not just suffer, they will be torn to shreds.
“In the last five years, George Osborne has failed on his own terms and can now only claim to be trying to fix an economy he himself has broken.
“It is clearer than ever that stripping billions of pounds from our economy in the name of austerity is a political choice, not an economic necessity, and it is not working.”
The Chancellor also announced plans for a new ‘Work and Health Programme’, to replace the Work Programme and Work Choice. With very little details available, all we know for certain so far is that the new scheme will “provide specialist support for the long-term unemployed and claimants with health conditions and disabilities”.
Universal Credit will continue to be rolled out across the country, “extending job search conditionality to a further 1.3 million claimants per year by 2020-21”. However, with only 141,000 people currently on the caseload it could take a lot longer to introduce than planned.
Commenting on today’s Spending Review, Work and Pensions Secretary Iain Duncan Smith said: “Our welfare reforms are fundamentally about delivering greater opportunity through life change: supporting everyone who is able to work to do so, while at the same time maintaining the valuable safety net for those that need it.
“This government has made remarkable progress but there’s more to do.
“This Spending Review will see the start of genuine integration between the health and work sectors, with a renewed focus on supporting people with health conditions and disabilities return to and remain in work.
“We will increase spending in this area, expanding Access to Work and Fit for Work, and investing in the Health and Work Innovation Fund and the new Work and Health Programme.
“Universal Credit remains the key plank of our welfare reforms – ensuring work always pays. Roll-out continues, and the new benefit will be in every Jobcentre Plus by spring next year.
“Alongside this, as part of our drive to create a modern, dynamic, Jobcentre service the department will be introducing new ways of accessing and engaging with the employment support we offer.
“This will be better for those using our services, and will also improve the way these services are delivered – making them much more efficient.”
This article was last updated at 21:52 on Wednesday 25 November 2015.