The Chancellor says he’s on the side of those who want to work hard and get on, yet the biggest cuts to welfare announced today fall on low income working families, undermining the government’s ambition to make work pay.
Gillian Guy, Chief Executive at national charity Citizens Advice said:
"At last we have some recognition that the welfare budget has been squeezed dry. Cutting another £3.7 billion will still hit working families and families on the edge. It would have been reckless to cut more just ahead of the biggest shake up in the benefits system for over 60 years. It’s vital that the government makes sure Universal Credit works for people before thinking of any more welfare cuts.
"Holding down benefit increases to 1% is better than a total freeze, which would have been disastrous for people on the lowest incomes already having to spend a higher proportion of their income on essentials when rents, food and heating bills are all rocketing.
"But the government can’t keep hitting the same people over and over again. Let’s not forget, below inflation benefit increases will not just hit people who are out of work. It will also hurt working families in low paid jobs who have already been hit by wage freezes and cuts in working hours. People on basic benefits and looking for work already have to survive on just £10 a day – less if they’re under 25. Many thousands of people already battered by the impact of the recession are on a financial cliff edge.
"On top of the big cuts to housing benefit already in place, the effects of which are yet to be fully felt, the Chancellor today announced he would peg local housing allowance (LHA) increases to CPI next year and then 1% for a further two years, breaking the link that has kept LHA in line with rents. At a time when more people are locked out of home ownership and forced into private renting, and rents have reached record highs and are still rising*, this sets off a ticking time bomb that could see working families falling deep into debt and at risk of losing their homes.
"The announcement of 120,000 new homes is welcome, but nowhere near enough to tackle the desperate shortage of affordable housing driving rent increases.
"We already see people who are finding it hard to keep a roof over their heads because they are left with a big shortfall to make up after housing benefit cuts. The government said the cuts would force landlords to lower rents, but that’s not happening, and cheaper places are not available. We’re seeing people getting into serious debt and in some cases going without food and heating to make sure they can pay their rent. Some people have been forced to move away and even give up work.
"The government is pushing through the biggest programme of welfare reform for over 60 years, with Universal Credit replacing most means-tested benefits from next October.
"I want to see universal credit work. It has solid aims. Making work pay, ending dependency, simplifying a complicated system of top-ups and payments – these ambitions should be applauded.But the Chancellor would be wise to make sure that it does work for the people who need it before trying to make savings.
"Limiting to 1% any increase in how much people can earn before they lose benefit will hurt those in low paid jobs, and the growing army of people struggling on short time because they can’t get any extra hours of work, making the key work incentive measures in Universal Credit less effective. Tinkering with the structure of Universal Credit like this means the government risks creating a rod for its own back in trying to make a success of welfare reform.
"The combined impact of cuts to the welfare budget that hit low income working families - including the below inflation increases in Local Housing Allowance; in working tax credit (WTC - which is already frozen); child tax credit(CTC); and child benefit (CB - frozen until 2014 then increased by 1%);– makes nonsense of the government’s claim to be doing everything it can to make work pay. Our calculations show that families on average earnings will be up to £15 a week worse off after three years.* (see Appendix for full details)
"Only yesterday official figures confirmed that families are having to shell out more on basics as food, heating and travel to work costs rocket. It’s people on the lowest incomes who have to spend a higher proportion of a meagre income on these things, and these cuts will not make it any easier.
"Many disabled people on Employment and Support Allowance (ESA) have already experienced needless hardship and distress as a result of botched Atos assessments too often leading to their being wrongly denied ESA and having to go through a lengthy and stressful appeals process. They will also see a fall in real terms in their income as ESA increases are held down below inflation at 1%, though it will be some compensation that some disability and carers’ benefits will rise in line with inflation.
Out of Work Benefits
"We see people every day who are desperately looking for work and fighting a losing battle trying to survive on jobseeker’s allowance of £71 a week – less if they are under 25. People out of work and reliant on Jobseeker’s Allowance (JSA) and income support (IS) will see basic breadline benefits of just £10 a day fall further in value with rises also pegged at 1% and will struggle to survive without resorting to payday loans, foodbanks, doing without heating and falling behind with rent.
"Cancelling the 3p fuel duty rise willbea relief to drivers. Particularly those who live in rural areas where public transport has been cut back and for those people who do jobs, like carers, where they rely on a car to get them around but don’t get travel costs from their employer.
"It is good news that the Government will continue the Support for Mortgage Interest (SMI) scheme at the current rate until March 2015. This will help homeowners who fall on hard times avoid repossession.
"With £20 billion in benefits going unclaimed each year we’re worried there are hard pressed households who are unnecessarily struggling and making severe cut backs when they don't have to.
"There are lots of different benefits that can help people including working families and pensioners. It is really important that you check you are getting all of the financial help available as this will ease the pressure on your purse strings."
You can find out more about benefits including what is available and who can get it online at adviceguide.org.uk or by going to your local Citizens Advice Bureaux.
Calculations of impact on families on average earnings over 3 years
Couple with 2 children earning in total £26,000 a yr - one of the couple working fulltime and earning £385 (about £20,000 /yr) the other working part-time and earning £115 / wk (about £6000 /yr) and paying rent of £240/wk and council tax of £25 have a work income of £425, and a benefit income of about £200 including housing benefit of £118
After paying rent and council tax family have an income of £360.50 this year – assuming inflation is 2.2% for the next three years – the value of this will have dropped by the £17.48.
The rise in the tax threshold of £235 is worth £47 to those not on housing benefit but for those who claim housing benefit(HB) any increase in net income will be offset by a loss of HB so is only worth 35% of £47/yr = 31p/wk
Same family paying a mortgage
A single person earning £35,000 a year will gain £0.90/week