Local figures for children and families losing Working Tax Credit in April

March 20, 2012

In April 2012, around half a million children will suddenly be at risk of being plunged into poverty as the Working Tax Credit hours rule changes for couples.

Research by Usdaw, the union representing shopworkers, suggests most people affected simply cannot get extra hours from their employer.

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

“This will pull the rug from under the feet of hundreds of thousands of families desperately trying to make ends meet. It’s shocking how many children in some places are going to be hit by this change and inevitable that many will be thrown into poverty.

“Just imagine how hard it will be on low pay, with low hours and with kids to take care of when suddenly up to £70 a week gets taken away. It’s not like it was these families who caused the economic crisis, so why does all the austerity have to land on them?

“When the plan was announced the government said the economy would be strong again by now. But people can see in their own community that this hasn’t happened. Employers simply don’t have the extra hours to give and unemployment is still rising.

“The absurd thing is that, from next year, the new universal credit will get rid of the hours rule altogether because ministers say that they want to make work pay for everyone, no matter how many hours they work. The sensible thing for David Cameron to do is put this change on hold, or it will mean many families are no longer better off in work and it could cause a surge in child poverty.”

ENDS

Notes to editors

  • In April 2012 the rules for Working Tax Credit for couples with children will change. Currently, couples have to work at least 16 hours a week between both parents. From April they will have to increase their working hours to at least 24 hours, or they will lose their whole entitlement to Working Tax Credit, worth £3,870 a year.
  • Key problems with the change:
  1. 894,000 people will be affected. House of Commons figures show that 212,000 couples (424,000 adults ) will be affected. These families include 470,000 children. This is an average of 1,375 people in each constituency.
  2. 78% say they cannot find the extra hours of work they need. Most people working 16 – 24 hours on a low wage work in the service sector, which has been hard hit by recession. In retail, where a high proportion of the affected families work, hours are being cut as much as possible and no extra hours are available in most stores. Very high levels of unemployment mean there are no additional or alternative jobs. Usdaw, the union, surveyed members who know they are affected by the changes, 78% of whom said they would not be able to find the additional hours of work they needed. Rising ‘underemployment’ – people who cannot get all the hours of work they want – is a growing problem.
  3. Child poverty will surge. A typical household with 2 children where a couple works between 16 and 24 hours a week has total income, including wages, tax credits, and benefits, of around £18,000 a year. This is already close to the poverty threshold, which is currently, according to the IFS also around £18,000 a year (see the weekly estimate of £347 for the 2011/12 poverty line in this IFS press release: http://www.ifs.org.uk/pr/poverty_pr_1011.pdf). The loss of Working Tax Credit of £3,870 (even with some counteracting increase in housing benefit as a consequence) will mean many, if not most, of these couples and their children will be plunged below the poverty line. This would cause a surge in child poverty of hundreds of thousands of children.
  4. Families will be better off out of work. The current margin between those out of work on benefits, and those in work between 16 and 24 hours, will be erased by this change. It will mean that families lose all incentive to be in work. If they opt to take an offer of redundancy and stop working, they will cost the state thousands of pounds more. If a couple with 2 children decide that it is not worthwhile to continue in work when they no longer receive Working Tax Credit, they will qualify for around £14,600 in JSA and other benefits” – £2,800 more than they currently receive in WTC and other benefits. If the couple qualify for Housing Benefit on a typical small rented house, they would receive around £19,900 in benefits if they did not work, compared to £16,100 that they receive currently – costing the state £3,800 more.
  5. Families with disabled children and full-time carers are not exempt. Families with disabled children or other caring responsibilities are obviously less able to do more hours of work. However they have not been exempted from working additional hours, even where one partner is a full-time carer. The loss of £3,870 WTC will be a devastating additional blow to these hard-hit families.
  6. Universal Credit will abolish the criteria for working hours in 2014. One of the key points about Universal Credit is that it will reward people for however many hours work they can do. The criteria for set hours of work will be abolished and families will receive support that is tapered at a set rate depending on their earnings rather than their hours of work. This change will therefore create untold misery for hundreds of thousands of working families and their children for a small and temporary gain to the Treasury.
  7. The strong economic situation needed to support this change has not been reached. The government first announced this change in November 2010 in the Spending Review. At the time the Office for Budgetary Responsibility (OBR) was predicting that the economy would be back in strong growth now of 2.1% in 2011 and 2.6% in 2012. But the economy grew at just 0.9% in 2011 and we have just had a contraction for the most recent quarter. The OBR have also significantly revised upward the job losses they expect in the public sector, many of which will be implemented in the form of reduced hours. The argument by government that the change would incentivise increases in working hours no longer makes in sense in the current economic context.
  • 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.