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Families ‘will lose £1,600 a year’ after welfare change

BY Rachel | 30 December, 2015 | no comments

The Conservatives were fighting to defend their welfare reforms yesterday after claims that 2.6 million working families would be about £1,600 a year worse off.

Two leading think tanks criticised universal credit, which George Osborne put at the centre of his efforts to cut £12 billion from the welfare budget. The chancellor scrapped cuts to tax credits after a political backlash.

The Resolution Foundation, chaired by the former Tory minister David Willetts, attacked universal credit, which will eventually combine six benefits in one. The foundation said that a single earner on the minimum wage who works 20 hours a week will be £2,800 worse off in 2020 on universal credit than they would have been on tax credits. A low-paid couple with two children in rented accommodation would be £1,100 worse off.

The Institute of Fiscal Studies said 2.6 million working families will be about £1,600 a year worse off than they would have been under tax credits, while 1.9 million would be £1,400 a year better off. Renters and two-earner couples with low wages are more likely to be worse off than under tax credits.

Both think tanks stressed that the comparison was between existing tax credit claimants, who now get a more generous settlement, and new universal credit claimants. Individuals currently on tax credits who are transferred to universal credit in the next few years will not see their cash payments drop because they will be offered transitional protections.

Iain Duncan Smith, the work and pensions secretary, defended the new benefit. “Universal credit is at the heart of our welfare revolution and is already transforming lives across the country. Under the new system people are moving into work faster and earning more than under the current system.”

A source close to Mr Duncan Smith said: “This report [by the Resolution Foundation] is misleading — it is a static analysis that does not take into account behavioural change or changes such as the new childcare offer.”

A Treasury spokesman said it was “not legitimate” to compare the payments received by a new claimant under the universal credit system with the amount the same person would receive under the current system.

Paul Johnson, director of the IFS, later explained the difference. “People will be protected in cash terms even as they roll off tax credits on to universal credit. But the long-term generosity of the welfare system will be cut just as much as ever intended as new claimants will receive significantly lower benefits than they would have done before the July changes [to universal credit made in the budget],” he said.

Mr Johnson warned that the Treasury had made a deliberate decision to make universal credit less generous. “It was actually initially designed on average to be more generous to working families than the current system. What we’re going to have is less generous, as you can see from those numbers. It was always designed to be less generous on non-working families.” This came as:

The IFS warned that there was nothing to stop councils putting up spending elsewhere and pretending it is for social care after Mr Osborne allowed a 2 per cent hike in council tax.

It also said that Scotland avoided £600 million of cuts in 2015-16 because of flaws in the Barnett formula. Northern Ireland avoided £200 million.

Mr Johnson said spending cuts would still “bear the brunt” of efforts to balance the books in this parliament. There were “still some very significant cuts ahead”, with unprotected spending in Whitehall departments falling by 18 per cent by 2019-20. “This is not the end of austerity,” said Mr Johnson. “This spending review is still one of the tightest in post-war history.”