Comprehensive Spending Review: the impact on working families

Comprehensive spending review: the impact on working families

Introduction

 

The Comprehensive Spending Review (CSR), announced on 20^th October 2010, sets spending levels for government up to 2014-15. Amongst other measures, £7 billion is to be saved by cuts to welfare spending, in addition to welfare reforms announced in the emergency budget of June 2010. The overall reduction in government grants to local authorities will be 26 per cent, and from 2011/12 councils will have much more freedom in how they spend their money. Many of these changes and their consequences will directly affect working families, especially those on low incomes.

 

Families will be affected by the projected loss of public sector jobs (likely to impact on women, and therefore mothers, particularly severely), reductions in public services and potentially less support to help them challenge discrimination in the workplace. Benefit cuts will impact on this group too, as working parents claim Child Benefit, tax credits, and often Housing Benefit and Council Tax Benefit.

1          Cuts to Child Benefit

The Spending Review confirmed that Child Benefit will be withdrawn from families where there is a higher rate tax payer, from January 2013. Families will still be able to claim, but the Child Benefit will be taken back in tax. At the moment, it is important for non-working parents with children under 12 to claim Child Benefit, as it helps them to qualify for retirement pension.

 

We are concerned about the implications of the Child Benefit change. It may be a disincentive for families to live together, especially in cases where the loss of Child Benefit is higher than the amount gained by moving into the higher rate tax band. We are disappointed that the amount of Child Benefit is to be frozen for three years.  We are also concerned about the impact on the main carer (usually the mother) as in most Child Benefit claims the money goes to children via the main carer.   Under these plans, many non-working partners will be left with no direct control about what, if any, money is spent on their children. There may also be problems with administering the system when family units change. Child Benefit is a stable and simple benefit which can often be a parent’s sole income following the break up of a relationship. Under these plans, the ex-partner of a higher rate tax payer could be left with no money to support their children immediately following a break up.

 

2.         Cuts to tax credits

The cuts to welfare include changes to tax credits, on top of those already announced in the emergency budget. Of particular concern to Working Families are:

 

 

As Working Families and Daycare Trust have already pointed out, the cut to the childcare element is a loss of up to £30 a week in help with childcare. Even when the increases to Child Tax Credit are factored in (promising above-indexation increases in 2011 and 2012), this is still a loss of around £20 a week for a family with two or more children.

 

Although families already in work will notice the change less (because of the increases in Child Tax Credit), the loss will increase over time when the freeze in other elements of Working Tax Credit is included. The overall impact of the changes to tax credits is to decrease work incentives for those in work or moving into work. Families on Working Tax Credit will get less help on top of their earnings than they would have done without these changes.

 

We know that many families use tax credits to help pay their childcare costs (even where their income is too high for them to actually receive any Working Tax Credit). We also know that the cost of childcare represents probably the biggest barrier to work for parents, especially parents with disabled children (who do not get extra help with childcare costs).

 

The Treasury’s own policy costing document for the CSR states that one of the impacts of this change will be to increase ‘the incentive for families to take on childcare themselves, or rely on extended family members’. This is not a work incentive. Many families will not be in a position to use family members; others will feel, even more than they already do, that it is not worth their while to work, for example, when a mother finishes maternity leave and checks out the cost of childcare. 

 

From April 2012, accessing Working Tax Credit at all will only be possible for a couple with children if they jointly work at least 24 hours, with one working at least 16 (currently, the requirement is simply that one partner works at least 16 hours). We know from our helpline callers that people often struggle even to find the extra hours to bring them up to the current 16 hour a week requirement.

 

Finding another eight hours a week will not be easy for many families: they may request more hours but they are dependent on their employers’ ability and willingness to provide additional work. The change also makes no allowance for the reasons that some families work part-time, and/or have only one partner in work. This may be to do with having a disabled child, or simply the shortage of jobs which are compatible with childcare or with school hours.  In a two-earner family where one partner works more than 24 hours and the other less, the loss of the main earner’s job will be a double blow as both income and Working Tax Credit will be lost unless the second earner can increase their hours. The loss of Working Tax Credit for a family who are not able to find the additional eight hours a week is up to £73 a week. For some families this may tip the balance towards being better off out of work.
 

3.         Cap on welfare benefits

The spending review confirmed that there will be a weekly cap from 2013 on the amount of benefits families can claim. This will be £500 for a family (£350 for a single person). It will not include Disability Living Allowance or Working Tax Credit.  However, it is unclear whether it includes other benefits a family might be getting when a new child arrives, such as Statutory Maternity Pay or Maternity Allowance. The effect of the cap on larger families who need help to pay their rent or mortgage interest could be problematic, as the reduction is likely to come from the help they get for their housing costs. 

 

Details of how the cap will operate are not clear.   It seems that those families who meet the conditions for Working Tax Credit will not be affected, but the group who cannot increase their hours to the minimum 24 hours a week (see above) may be at risk.

 

4.         Housing Benefit

Working Families is concerned by other proposed changes to Housing Benefit which may mean that families move out of the centre of many cities, even if they are in work. A longer commute to work will increase the amount of childcare a family needs and reduce the amount of time parents spend with their children.

 

The emergency budget announced changes to Housing Benefit for those on Jobseekers Allowance. It has been proposed that a household where a parent is on Jobseekers Allowance for a year who claims Housing Benefit will see this benefit cut to 90 per cent, whether or not they have complied with all the requirements to seek work. This appears to be unnecessarily punitive at a time when jobs are scarce.

Housing Benefit will also be reduced for single childless people aged under 35 to the single room rate. We are concerned that this may mean pregnant women are unable to access Housing Benefit for more than a room in a shared house until after their child is born.

 

 

5          Other changes: reduced advice and information

The loss of public sector jobs (predicted to be nearly 500,000) will impact greatly on families as many public sector employees are part-time working parents, predominantly women.   Cuts to local authority services will also impact on families. There will be no ringfencing of particular budgets (other than schools), so existing services for families are not guaranteed. We wait to hear more detail about how the Sure Start service will be targeted in the future to match its ‘original purpose’. We are concerned that the proposed increase in Health Visitor numbers may be funded from the Sure Start budget.

 

Local authority cuts and legal aid cuts will also impact on advice services locally.   Parents will have reduced access to legal advice and support in their local communities and this is likely to increase the pressure on services provided by charities, including the Working Families free legal advice service. We are concerned that many parents will be among those affected by public sector job cuts. Many may need advice about discrimination issues but their chances of resolving such issues with their employers will be reduced by a lack of available advice and representation.

 

Reductions in departmental administration costs may lead to more problems with the administration of benefits and tax credits. For example, Her Majesty’s Revenue and Customs (HMRC) which administers tax credits is to see its administration budget cut by 33 per cent. Working Families already speak to hundreds of families each year who are affected by tax credit overpayments which they are unable to understand. The recently announced Fraud and Error Strategy does not help these families as it fails to acknowledge the complexity of the tax credit system and how much of the error arises through no fault of the claimant.

 

Working Families welcomes the announcement of the Universal Credit which will replace most benefits and tax credits, especially if it is indeed simpler to understand and has only one taper rate as earnings rise. However, in the meantime, greater complexity and conditionality is being created, and support for working parents reduced.  We are disappointed by a failure to understand the difficulties of families’ changing circumstances and how hard most parents try to combine paid work and family life.
                                                                       

WORKING FAMILIES November 2010