Last month Chancellor George Osborne revealed details of the first Conservative Budget in almost 20 years, declaring that his intention was to make Britain a “high wage, low welfare” economy.
The Tory Government’s ambitious plan to cut welfare payments by £12 billion over the next four years will have a huge impact on many U.K. families. What does it mean for you and your children?
In-work benefits, such as Jobseekers’ Allowance, will be frozen for four years. However good news for all parents is that the following are excluded from the freeze: Maternity Allowance, Statutory Sick Pay, Statutory Maternity Pay, Statutory Paternity Pay, Statutory Shared Parental Pay and Statutory Adoption Pay. So these will continue to be uprated in relation to prices or earning, as applicable.
The amount workers can earn before paying income tax will rise to £11,000 next year, before reaching £12,500 by 2020. The threshold for the 40p tax rate will rise to £43,000 in 2016, removing 130,000 people from the higher rate. The top rate of tax for those earning £150,000 a year or more will remain at 45p.
Tax credits will be limited to a family’s first two children.
The amount a household can receive in benefits will be limited to a maximum of £20,000 a year and £23,000 in London and the South East. Under-21s will no longer receive housing benefit.
A crackdown on middle-class families living in council houses with cheap rent means those on higher incomes (over £40,000 in London; £30,000 elsewhere) living in social housing will have to pay rent at the market rate.
Employment and Support Allowance for those too sick to work will be cut by £30 a week.
National Living Wage
The new National Living Wage will force employers to pay £7.20 per hour to the over-25s, effective from April 2016 and rising to £9 by 2020. However public sector pay will only increase by one percent for four years from 2016-17.
Maintenance grants for students, which are currently paid to students with family incomes below £42,000, will be scrapped and converted into loans from 2016-17.
New cars will be taxed at a standard charge of £140 per year and new cars will not need MOTs for the first four years, rather than three.
The severe welfare cuts could leave some families far worse off, warned independent think-tank the Resolution Foundation.
For example, a single parent on a low income with one child who works 20 hours a week at £9.35 per hour will be £1,000 a year worse off, due to reductions in benefit entitlement. In order to offset the fall in disposable income the parent would have to receive a one-off 35 percent increase in earnings, 15 years of steady 2 percent pay rises or increase working hours by seven hours per week.
A two-person low-income family with one child, both earning £9.35 per hour, will be £850 a year worse off. To recover this loss in income they would have to receive a one-off pay rise of 10 percent or five years of steady 2 percent pay rises. Alternatively the second earner would have to work an extra five hours per week.
A middle-earning couple with two children, where the main earner works 37.5 hours per week at £12 per hour and the second earner works 16 hours per week at £9.35 per hour, will be £50 better off per year. A middle-earning couple without children, where both earn £15 per hour, will be £350 better off a year due to their personal tax allowance increases.
While the Resolution Foundation welcomed the moves to boost low pay it expressed concern that the government has sought to make £12 billion of cuts from a limited range of working-age benefits. “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 at the Resolution Foundation.
“It will take many struggling families years before they earn their way back to their current position,” he added. “And lost under the budget headlines are a range of measures that will make work less attractive by increasing the effective tax-rate facing low-income families.”
The TUC also welcomed the Living Wage announcement but said Mr. Osborne was “giving with one hand and taking with the other” and “massive cuts in support for working people will hit families with children hardest.”
Take the MoneySavingExpert.com benefits checkup to find out what your benefit entitlement is. Turn2us is a national charity helping people in financial hardship gain access to welfare benefits, charitable grants and support services.