Posted: 09 July 2015

Billions of reasons families with children bear the burden of the summer budget

While some policies in yesterday’s summer budget were welcome, such as increases in the minimum wage, gains from these will be heavily outweighed by reductions in other support for low income families, including working families.

Government plans will see £46bn cut from the welfare budget over the next five years.  This money will be taken from families who are struggling or on the lowest incomes.  

The budget marked particularly large cuts to support for larger families – including introducing a 2 child cap on additional payments through child tax credits.  Based on the current profile of tax credit claimants around 2 million children in working families are predicted to be punished by the decision to limit tax credits for larger families.  This is double the number of children affected who are in families out of work. 

£46,000,000,000 cut over the next five years

Tax credits provide a vital stepping-stone for families to move out of poverty and into work.  In spite of the Government’s announcement to increase the national minimum wage, low income families with children typically lose much of any additional earnings through resulting deductions from benefits and tax credits. Major further cuts that have been announced to in-work benefits (such as a four year freeze on working age benefits) will come on top of this, leaving many working families much worse off overall.

Increased wages but no increase in income

One of the biggest cuts announced yesterday by the Chancellor was a reduction in the amount of money a family can earn before their benefit entitlement starts to reduce – known as income thresholds within the tax credit system and work allowances in Universal Credit.

This measure will save £15.9bn over the course of this parliament – and will directly result in families losing more of their pay from their benefit entitlement.  

Figure 1. Savings from announced budget measures (£bn)

graph showing savings from announced budget measures

There is another way …

We’re calling on the Government to put in place a ‘triple lock’ to protect children living in poverty – guaranteeing that the uprating of child benefit and child tax credit in line with inflation, earnings or by 2.5% - whichever is the highest. This change would lead to an estimated 280,000 fewer children living in relative income poverty and 310,000 fewer in absolute poverty than under the Government’s policy prior to the summer budget.

Alongside a ‘triple lock’ to protect children the introduction of Universal Credit provides an opportunity to lift children out of poverty. To do this the work allowance within Universal Credit – the amount that a family can earn before additional earnings start to affect their benefit entitlement - needs to rise in line with whichever is the higher of: earnings, inflation or with increases in personal tax allowance -cuts to work allowances are a move in exactly the wrong direction.

By David Ayre - Policy team

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