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11 February 2011

The coalition’s welfare squeeze

Families could lose £2,700 a year as a result of cuts to benefits and tax credits.

By George Eaton

Iain Duncan Smith memorably “guaranteed” to the Commons that there would be no losers from the introduction of the universal credit. But today’s TUC study on welfare suggests otherwise. There will technically be “no losers” when the universal credit is introduced in April 2013, in the sense that no one will see their income fall as a direct result. But it is only possible for the government to make this claim because it is pre-emptively slashing benefits elsewhere.

To be fair, the government’s own white paper states as much:

This simplification means that, in the long term, some households will be entitled to less under Universal Credit than they would have been had the current benefits and tax credits system continued.

The coalition has pledged to provide “transitional payments” to anyone whose level of benefits or tax credits drops as a result of the reform. But it has yet to define clearly how long these payments will be made for or how it will avoid creating perverse work incentives.

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The TUC report warns that a family with two children, with both parents in minimum-wage jobs, could lose £2,756 a year by April 2013. The full calculation is below.

The coalition’s welfare squeeze

Total annual financial losses from welfare cuts for households with two parents in employment, working 35 hours a week, each on the minimum wage.

Reduction in childcare costs met by tax credits (from April 2011) – £1,560

Child benefit freeze (three years from April 2011) – £201

Freeze in the value of the basic element of Working Tax Credit (three years from 2011) – £135

Switching from RPI to CPI uprating of the couple element of Working Tax Credit (from April 2011) – £40

Freeze in the value of the 30-hour element of Working Tax Credit (three years from April 2011) – £60

Abolition of the baby element of Child Tax Credit (from April 2011) – £545

Abolition of the toddler element of Child Tax Credit (from April 2012) – £220

Abolition of the Child Trust Fund (from January 2011) – £250

Above-inflation increase in the child element of Child Tax Credit (in April 2011 and April 2012) – £255

Total loss: £2,756

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