Tax Credits changes- a low blow?
Now that all that ridiculous furore about certain bankers’ measly £1million bonus has all died down, politicians can get back to more serious financial matters. Like explaining to an estimated 212,000 ( or 82,000 if you are currently in Government) households why their tax credit income is going to fall by a quarter or more in two months’ time.
The changes, coming in from 6 April this year, are not new, but the extent of the application of the changes means that it is not just the middle classes with child benefit facing a drop in income. The region with the most affected households likely to be London (46,205), followed by the North West (26,845), West Midlands (22,675) and Yorkshire and the Humber (20,225).
From April, couples with at least one child need to jointly work 24 hours a week, with one working at least 16 hours a week, to continue to receive the ‘working’ element of the tax credits. Previously the minimum working requirement was 16 hours. The full working element is worth up to £3,870 per year.
The example shown on the Direct.gov website of a married couple with one child, where one parent works 16 hours a week earning £13,000 shows a drop in tax credits of £19 a week , down from £81 to £62 a week. This equates to a drop of 23.5% in tax credits. And assumes the worker is capable of earning nearly £17 an hour.
Treasury Minister Chloe Smith’s excuse, as given to BBC News, was that that the policy was part of "what we have to do as a country to get out of the enormous deficit mess left by Labour,” adding that it was not unfair because it "levels two parent households with what lone parents have to do.”
Shadow Chief Secretary to the Treasury Rachel Reeves said “This is a deeply unfair change from a government that is increasingly out of touch with parents feeling the squeeze and struggling to juggle work and family life.”
Now. At this point, if you work long hours and still have little disposable income, you may be struggling to find sympathy for those affected, even for the 470,000 children who have no say in the matter. However, whatever your personal feelings, if we look at the changes purely on a practical level, it isn’t hard to see why Labour are rubbing their hands at the mess the Government has created for themselves.
Firstly, while it may be easy to demand people conjure up an extra 8 hours work per week, if you are unskilled and facing/experiencing long-term unemployment, actually getting extra work is likely to prove more difficult. Even those with a job are often facing cuts to their hours, rather than being offered overtime.
Secondly, this change only applies to parents with at least one child. While those with children of school age could probably find the time (if not perhaps the work) to work 8 or 16 hours a week, what about those with pre-schoolers? Even assuming the free nursery places are available, at 15 hours per week, term time only, it is difficult even in a booming recession to find an 8 hour per week plus job that fits these criteria.
Thirdly, what exactly is the Government trying to achieve with these changes? Presumably they want people on benefits to work harder for their free money, but if an employer only has 48 hours work per week, increasing the minimum requirement to 24 hours would effectively put one person out of a job- surely the ideal would be three people working 16 hours a week rather than two at 24 hours each, if we want to encourage as many people as possible into work?
And assuming people find it too difficult to achieve the increased minimum, what are they going to do instead? Live apart? The new requirement only applies to couples, so by booting a parent out, a single parent could regain that money. Stop working altogether? Employment Support Allowance and Income Support could leave them better off.
While the motives behind the changes may be laudable, ish, the reality for thousands of families is going to be much more difficult. The Government defend the changes by pointing out that the child element of child tax credit will increase in April by inflation of 5.2% and that fuel duty and council tax (bearing in mind how those people on benefits drive gaz guzzler cars and pay council tax on their council house) have been frozen.
That’s OK then.