Citizens Advice Budget briefing
The Chancellor says the Government supports people who work hard and want to get on. He claims raising the tax threshold will help make work pay by putting more money in the pockets of the lowest paid. But a typical family on the minimum wage will gain only £17 a year from a measure that gives with one hand and snatches away with the other.
Less than £17 a year gets to the pockets of the poorest working families from tax threshold changes.
Poorer working families who get housing and council tax benefits will be just £16.80 a year better off from the tax threshold rise - because as their income goes up, their benefits will go down.
For every person who is eligible to pay tax - but also gets housing benefit and council tax support - the Department for Work and Pensions (DWP) and local council will claw back over £95 of their £112 annual gain. What the Government gives with one hand it takes with another.
Who gets what with the raise to the personal tax threshold:
- The tax threshold is to be raised by a further £560 in April 2014. Someone earning above the current tax threshold will gain an extra £112 a year or £2.15 a week as a result of this measure.
- Tax payers entitled to housing and council tax benefit will only gain an extra £16.80 a year (or 32p a week). That means over £95 will be clawed back through reduced benefits.
- In comparison a couple both earning £30,000 – a total household income of £60,000 will gain £224 a year or £4.30 a week.
- Disregarding the extra £2.15 a week (£112 a year) in income when calculating housing benefit and council tax support would make sure the rise in threshold in this Budget was kept by low income households
- A couple with two children and one person working fulltime on the minimum wage would be entitled to housing benefit if they pay rent of £55 or more a week. Under current rules for council tax benefit they would also be entitled to that benefit if they pay council tax of more than £18 a week.
Impact of raising personal tax threshold
|2010/11||2011/12||2012/13||2013/14||2014/15||Total gain by 2014 of the changes since 2010|
|Personal tax allowance||£6,475||£7,475||£8,105||£9,440||£10,000|
|Rise in net earnings|
|Gain if receiving housing benefit & council tax benefit / council tax support*|
|Gain if receiving just housing benefit|
*From April of this year council tax benefit is being localised so each local authority will have to bring forward their own scheme of council tax support – it is likely most will continue to use a 20 per cent taper at least for the first year or so.
Gillian Guy, Chief Executive at national charity Citizens Advice said:
“Behind some palatable giveaways there is still a long, hard road ahead for a lot of working people and those trying to find jobs. Next week the majority of welfare cuts begin to bite, tightening the squeeze being felt by low paid families in work as well as those out of work.
Raising the personal tax threshold to £10,000
“The Government has said it is raising the tax threshold to £10,000 to put more money in the pockets of the lowest paid. But for a typical family with two children and one parent working full time on the minimum wage, this will deliver only £17 a year – a measly 32p a week, less than the price of a loaf of bread. In comparison a couple both earning £30,000 – a total household income of £60,000 – will keep £224 a year or £4.30 a week.
“If the Government is serious about making work pay, George Osborne needs to make sure working people who rely on housing benefit and council tax support to top up low earnings get to keep all the money they gain through a rise in the tax threshold. At the moment, as their income goes up, their benefits go down, losing 85% of any money gained. A simple adjustment in the benefits system could put an end to the self-defeating roundabout of giving with one hand and snatching it away with the other.
“Some 40% of the people we see in bureaux are in work but still struggling to make ends meet. Many are in low paid jobs and have been hit by a combination of wage freezes, reduced working hours and cuts to benefits and tax credits. Often they want to work more to boost earnings but can't get the extra hours, or can't afford the childcare costs. These families are teetering on a financial cliff edge, already having to spend a higher proportion of their income on essentials at a time when rent, food and heating bills are all rocketing.
“Childcare costs are crippling many working parents. The rising cost of childcare has far outstripped earnings over the last decade. Recent figures from the Daycare Trust show nursery, childminder and after-school club costs all rising at more than 6 per cent, more than double the inflation rate (2.7 per cent). A nursery place now costs 77 per cent more in real terms than it did in 2003, but earnings have stayed still.
“The position is more acute for families on lower incomes, who have already been hit by a 10 per cent drop in support for childcare through the tax credit system and face tax credit rises pegged well below inflation at 1per cent. Easing this burden is vital to the success of universal credit and making work pay, ensuring parents moving into a low paid job are more likely to be able to stay in work.
“Families who get help towards childcare costs through housing benefit will see their total help drop when universal credit is introduced, so the extra support announced yesterday is a step in the right direction, but it’s a shame that people have to wait another three years for it. Making childcare cheaper by funding it directly would be the best way to help low paid parents fighting a losing battle to make work pay.
“Bringing the flat rate pension forward to 2016 will help by making things simpler and fairer, ensuring people who miss out under the current system - like women who have taken time out of work to care for children - get a decent pension, and cutting out the need for complex means-tested top-ups which don’t reach a third of those who need them.
“Britain desperately needs a solution to its housing crisis but it needs one that is long-term and encompasses the rental and social housing markets. A quick giveaway could further inflate the housing bubble, making the lives of renters even harder.
“Help to buy will increase home ownership but raising the right to buy discount in London could simply reduce the availability of social housing and could put more money in the pockets of private landlords.
“The Government is still missing a coherent plan to make housing affordable in this country, particularly for the private and social renting sector.
“The Help to Buy equity loans and mortgage guarantee will help those renters who wish to buy but are trapped in properties with high rents and struggling to raise a deposit. It may also bring movement to the market in areas where homes are in negative equity; helping people move into homes that suit their family's needs.
“We want to see a regional cap for property purchases under Help to Buy to make sure that the help given reflects the cost of an average home in the area. This will also see the funding help as many people as possible.
“It is absolutely paramount that the government makes sure lenders lend responsibly to avoid the high levels of repossessions we’ve seen in the past. The Financial Service Authority’s stronger responsible lending rules should be brought forward from April 2014 to coincide with the start of the new scheme.
“Along with rising food prices, energy bills, rents and childcare costs, the cost of petrol is a huge extra pressure on many household budgets. Freezing fuel duty will help ease the squeeze, particularly for low paid workers like carers who rely on their car to do their job.”
Notes to editors
1. Did you know:
- More than 30% of the people coming to Citizens Advice Bureaux in 2011/12 with benefit problems are in work (222,806)
- Forty per cent of Citizens Advice clients are in work but they're still struggling to cope as they continue to be squeezed in this double-dip recession
- Government raising the tax threshold to £10,000 gives the lowest paid £17 extra a year. While a couple on £60,000 get £224 a year.
- Bureaux helped 15,848 people last year (2011/12) with problems concerning Child Tax Credit and 1,866 of them had specific problems concerning childcare
- Pensions are on people’s minds – in 2012 bureaux dealt with 21,718 problems, focusing on state pensions.
- In the last 12 months, 91,684 people sought online advice about pensions
- 9,660 people got online guidance about state pensions from www.adviceguide.org.uk in the last 12 months (780 people a month)
3. The Citizens Advice service comprises a network of local bureaux, all of which are independent charities, and national charity Citizens Advice. Together we help people resolve their money, legal and other problems by providing information and advice and by influencing policymakers. For more information in England and Wales see www.citizensadvice.org.u
4. The advice provided by the Citizens Advice service is free, independent, confidential, and impartial, and available to everyone regardless of race, gender, disability, sexual orientation, religion, age or nationality. For online advice and information see www.adviceguide.org.uk
5. Citizens Advice Bureaux in England and Wales advised 2.1 million clients on 6.9 million problems from April 2011 to March 2012. For full 2011/2012 service statistics see: www.citizensadvice.org.uk/press_statistics
6. Out of 22 national charities, the Citizens Advice service is ranked by the general public as being the most helpful, approachable, professional, informative, effective / cost effective, reputable and accountable (nfpSynergy’s Brand Attributes survey, May 2010)
7. Most Citizens Advice service staff are trained volunteers, working at around 3,500 service outlets across England and Wales.