Family finances hit by £2.3 billion bombshell in April

April 1, 2013

Low income households will have their family finances hit by multiple cuts this month. The main cuts are:

  1. Bedroom Tax (housing benefit penalties for excess rooms in social sector) - £490m
  2. Council tax benefit localised and devolved budgets cut by 10% - £485m
  3. Local housing allowance annual uprate at CPI (instead of RPI) - £90m
  4. Benefit cap introduced - £290m
  5. Tax credit disregard for in-year increases reduced to £5,000 - £455m
  6. Working age benefits and tax credits: uprating capped at 1% - £505m

Total losses - £2,315m

The £2.3 billion figure represents how much is cut from support for how income households compared to last year (2012/13). However, households have already faced significant cuts since 2010/11. So in 2013/14 the government will be spending £16.5 billion less on social security and tax credits than it was in 2010/11. The majority of these cuts impact on the finances of low income families.

Although the government is further raising the personal tax allowance in April, this mainly benefits better off workers and does very little to benefit low income households. The working poor generally rely on housing benefit and council tax benefit, so get 85% of the gain from the raising of the tax allowance taken away again because of tapers that mean their benefit is withdrawn as their income rises.

Alison Garnham, Chief Executive of Child Poverty Action Group, said:

“Families already struggling with rising living costs face another body blow as a potentially devastating package of benefit cuts is introduced this month which will grab desperately needed financial help away from families and suck billions of pounds of spending power out of local businesses and communities.

“Cuts that hit families put our children in the frontline of austerity.  All the indications are that they are paying a heavy price; recent progress on child poverty and child wellbeing, after first stalling, is now being slammed into reverse.

"Spending cuts that increase child poverty will cost society more in the long run.  The Government’s child poverty strategy urgently needs reviewing because it is on course to leave behind the worst child poverty record of any government for a generation."

ENDS

Notes to Editors

  • These changes compound the already significant losses that low-income families and individuals have experienced over the course of the government’s austerity programme to date. At the top right of this page is a downloadable table that shows the in-year losses for 2013/14 to households from each of the social security and tax credit cuts to date. The table also gives indicative losses per claimant.
  • Alongside the six specific cuts in the table in the press release above, there are two other significant changes being made to the benefits system.
  1. Disability Living Allowance (DLA) is being phased out starting April 2013 and will be replaced over a three-year period by the Personal Independence Payment (PIP). The government has made clear that it expects fewer people to be eligible for PIP, and as a result, they anticipate claimants will lose on average £746 million a year in support over the transition period. The current spend on DLA will be reduced by 20% once PIP is in a steady state. (Source: DLA reform Impact Assessment, May 2012 available at http://www.dwp.gov.uk/docs/dla-reform-wr2011-ia.pdf)  
  2. April 2013 also sees the localisation of elements of the Social Fund. Community care grants and the majority of crisis loan expenditure will, from April, be the responsibility of local government. However, the budget they receive to provide these services has been cut and is not ring-fenced.
  • The additional £2.3 billion cut households face this April, when added to the cumulative impact of earlier cuts, means that households will be receiving £16.5 billion less in support this year than they were in 2010/11. By 2014/15, the cumulative effect of cuts to social security and tax credits since 2010 will be £22 billion annually relative to 2010/11. The chart below shows how the cuts stacked up over time, with each block representing the compound losses each year of both the previously announced cuts and new restrictions introduced for that year.

How the £50 billion of social security cuts stack up from 2010/11 to 2014/15 (£millions)

Year on year loses to households of cuts

  • Although the government is further raising the personal tax allowance in April, this mainly benefits better off workers and does very little to benefit low income households. The working poor generally rely on housing benefit and council tax benefit, so get 85% of the gain from the raising of the tax allowance taken away again because of tapers that mean their benefit is withdrawn as their income rises.
  • CPAG is the leading charity campaigning for the abolition of child poverty in the UK and for a better deal for low-income families and children.
  • CPAG is the host organisation for the Campaign to End Child Poverty, which has over 150 member organisations and is campaigning for public and political commitment to ensure the goal of ending child poverty by 2020 is met.

For further information please contact:

Tim Nichols

CPAG Press Officer

Tel. 020 7812 5216 or 07816 909302