Implications of Welfare Benefit and Tax Credit announcements for Tameside

The Chancellor, George Osborne, delivered an emergency Budget on 22 June 2010 which sets out welfare reform savings of £11 billion designed to 'reward work and protect the most vulnerable' and to make the benefit and tax credit system 'fairer and more affordable'.

Welfare benefit and tax credit measures outlined by Mr Osborne include -

Uprating

The Government will adopt the Consumer Price Index (CPI) for the uprating of benefits and tax credits from April 2011 (except for State Pension and Pension Credit)(paragraph 2.32).  This replaces the previous practice of uprating against the Retail Prices Index (RPI) and reduce the purchasing of those residents reliant on benefits over time.  It will save the Government over £6 billion a year by the end of Parliament.

DLA (Disability Living Allowance)

The Government will Introduce the use of 'objective medical assessments' for all Disability Living Allowance (DLA) claims from 2013/14 (paragraph 2.58).  There are currently 15,080 recipients of DLA in Tameside, receiving an average £71.69 per week.  So the annual value to the Tameside economy of DLA payments is £56,216,430.  The Government is to bring in a new points based eligibility system, with a view to reducing the caseload and expenditure by 20%.  So the impact in Tameside is likely to be that 3,000 claimants see a reduction in, or elimination of their benefit entitlement at a total cost to the economy of over £11 million a year.

Tax Credits

• From April 2011, the second income threshold for the family element of child tax credit will reduce from £50,000 to £40,000, and from April 2012, the family element of child tax credit will be withdrawn immediately after the child element (paragraph 2.37)
• From April 2011, the first and second withdrawal rates for tax credits will increase to 41% from 39%, this increasing effective marginal tax rates (paragraph 2.38)
• From April 2001, the baby element will be removed from child tax credit, and from April 2012, the 50 plus element will be removed from working tax credit. (paragraph 2.39)
• In April 2011, the child element of child tax credit will increase by £150 above CPI indexation, and in April 2012 it will increase by £60 above indexation. (paragraph 2.40)
• The Government will not introduce the £4 supplement in child tax credit for each child aged one and two from April 2012, which was announced in the March 2010 budget. (paragraph 2.41)
• From April 2011the level of in-year rises of income that will be disregarded from calculations of tax credit entitlement will decrease from £25,000 to £10,000 and from April 2013, will be reduced further to £5,000 (paragraph 2.42)
• From April 2012, the period for which a tax credit claim and certain changes of circumstances can be backdates will be reduced from three months to one month (paragraph 2.43) and
• From April 2011, people aged over 60 will qualify for working tax credit if they work at least 16 hours a week, rather than 30 as now (paragraph 2.44)

There are 29,985 families with 50,735 children in Tameside.  Of these 24,800 families are in receipt of Child Tax Credits in of 42,550 children.  So 83% of families with children in Tameside receive an amount of Child Tax Credit each week.  By way of comparison, 65% of families with children in South Oxfordshire receive Tax Credits.

Table 1:  Average number of benefiting families and annual entitlements in Tameside 2008/09.

View a larger image of Table 1

Table 2:  Average number of benefiting families and annual entitlements in Tameside 2008/09.

View a larger image of Table 2

NB tax Credit Entitlement is based on family income. e.g a family where both parents work earning £21,000 a year (so the total family income is £42,000) will see a reduction in payments next year as a result of these announcements.

The present total value of all Tax Credit payments to the Tameside economy is in excess of £109 million a year.  Based on treasury estimates, Tameside stands to lose in excess of £5.4 million a year by 2015 as a result of the changes announced.

Benefits and Children

• From October 2011, lone parents whose youngest child is aged 5 or above will be eligible for jobseekers allowance rather than income support, and existing claimants will be transferred from income support to jobseekers allowance from April 2012. (paragraph 2.59)
• From April 2011 the Government will restrict eligibility to the sure start maternity grant for the first child (or children where the first is a multiple birth) (paragraph 2.46)
• The health in pregnancy grant will be abolished from January 2011 (paragraph 2.45) and
• Child benefit will be frozen for three years from April 2011 (paragraph 2.47).  The treasury estimates that this will save the exchequer £975 million a year by 2015.  Tameside's share of this will be £3.6 million a year.

Benefits for Older People

• State pension will be uprated by a 'triple guarantee' of earnings, prices or 2.5 percent, whichever is the highest, from April 2011, but the basic state pensions will increase by at least the equivalent of the retail price index (paragraph 2.33)
• The standard minimum income guarantee of pension credit will increase in April 2011 by the cash rise in a full basic state pension (paragraph 2.36).  There are currently 14,680 pensioners benefiting from receipt of Pension Credit (PC) in Tameside.  By linking the rise in PC to the cash rise in state pension, rather than the percentage rise in RPI, it is likely that their purchasing power will decline over the term of this Parliament.  The basic state pension is presently £97.75 per week.  Basic Pension Credit for a single pensioner is £132.60 per week.
• The Government will review the age at which the state pension age will rise to 66, and will consult shortly on how quickly it will phase out the Default Retirement Age from April 2011.  (paragraphs 2.34 and 2.35)

Housing Costs and Housing Benefit

• From October 2010, the standard interest rate used to calculate support for mortgage interest payments will be set at a level equal to the Bank of England’s published monthly Average Mortgage Rate (paragraph 2.49);
• From October 2011, local housing allowance rates will be set at the 30th percentile of local rents (paragraph 2.50);
• From April 2013, housing entitlements for working age people in the social sector will reflect family size (paragraph 2.53);
• Deductions for non-dependents will be uprated in April 2011 on the basis of prices, reversing the freeze in these rates since 2001/2002 (paragraph 2.51);
• From 2013/2014, local housing allowance rates will be uprated in line with the CPI (paragraph 2.52);
• From April 2013, housing benefit awards will be reduced to 90 per cent of the initial award after 12 months for claimants receiving jobseeker's allowance (paragraph 2.54);
• From April 2011, housing benefit claimants with a disability and a non-resident carer will be entitled to funding for an extra bedroom (paragraph 2.55);
• From April 2011, local housing allowance rates will be capped at £250 per week for a one bedroom property, £290 per week for a two bedroom property, £340 per week for a three bedroom property and £400 per week for four bedrooms or more (paragraph 2.56); and
• The government contribution to discretionary housing payments will be increased by £10 million in 2011/2012 and £40 million in each year from 2012/2013 (paragraph 2.57).