The Government’s plans to cut tax credits caused uproar in the political establishment. In October 2015 a majority of members of the House of Lords ‘rebelled’ against the Government by refusing to accept changes that would have reduced working tax credits (WTC).
Consequently the Chancellor of the Exchequer announced in his Autumn Budget statement that he would be withdrawing some – but not all – of the planned changes.
Amendment regulations
The Government will proceed with introducing amendment regulations to make the following changes to tax credits from April:
• The claimant will have to report an increase in income where it exceeds £2,500 compared to the previous tax year, and the amount of WTC they receive will be reduced accordingly. Before April, if a claimant’s income rises by less than £5,000 within the year this does not affect their claim;
• Tax credits ‘elements’ , added together in the calculation of the claimant’s entitlement, will be frozen at current rates (except for the disability elements).
There are two major changes to WTC that the Chancellor will not proceed with:
• A reduction to the annual threshold before earnings and other taxable income start to affect a tax credits award. The threshold will remain at £6,420 per year. And the income threshold used in assessing a claim for child tax credits only will stay at £16,105.
• An increase to the income ‘taper’. Once the income threshold is reached, an income taper reduces a tax credits award by 41p in every £1 of income over the threshold. This taper will not be increased.
However, the Government is already planning to make cuts to Universal Credit (UC), the benefit that will eventually replace all means-tested benefits, including tax credits. These cuts include reducing the level of money a claimant can earn before the amount of UC they get is affected (similar to the taper mentioned above).
Furthermore, there are also the following changes being made to Child Tax Credits, (CTCs) via The Welfare Reform and Work Bill:
– removing the family element of any claims which do not include a child born before April 2017; and
– limiting the number of children that can usually be included in a CTC claim to two.
The Government state that any changes to tax credits and UC will be ameliorated by the introduction from April 2016 of the ‘national living wage’ (NLW). This will be guaranteed for workers, aged 25 and above, at £7.20 an hour, with a target to reach more than £9 per hour by 2020.
The think-tank Resolution Foundation has analysed the combination of changes to benefits (including tax credits and UC) and changes to the tax system. They have found that by 2020:
• a low-earning couple with three children, where one parent works full-time and the other works part-time, will lose £3,060;
• a single parent with one child, working part-time on the NLW, will lose £2,800;
• a single person with no children, working full time on the NLW, will be £1,280 better off.
Qualifying conditions
As the majority of claimants that qualify will still be able to claim tax credits, the following is a reminder of some of the basic qualifying conditions.
• Tax credits are a cash benefit for people in low-paid work of at least 16 hours a week, and/or people who have dependent children and whose income is low.
• To get WTC the claimant or their partner must be aged 16 or over and working for 16 or more hours a week, and the claimant/partner:
– qualifies for the disability element (see below); or
– is in a couple with a child/qualifying young person, one partner works at least 16 hours, and between them they work at least 24 hours, a week; or
– is in a couple with a child/qualifying young person and one partner works at least 16 hours a week and the other is entitled to carer’s allowance or getting certain disability benefits or is in hospital or prison; or
– is a single parent; or
– the claimant is aged 60 or over.
Otherwise a claimant may qualify for WTC if they are aged 25 or over and work at least 30 hours a week.
To get the disability element included in the calculation for WTC, the claimant/partner in work must have both a physical or mental disability that puts them at a disadvantage in getting a job, and be getting (or be recently in receipt) of a ‘qualifying benefit’.
Qualifying benefits include any current award of Personal Independence Payment (PIP)or Disability Living Allowance (DLA).
A ‘severe disability element’ is part of the WTC assessment where the claimant or partner gets PIP daily living component at the enhanced rate, or DLA care component at the highest rate.
The House of Lords made a significant stand in forcing the Government to roll back on some reforms to WTC. But some cuts will still be made to tax credits, and to its replacement, Universal Credit. But, as always with welfare benefits, the sooner that claimants can establish their entitlement to tax credits the better off they are likely to be.
