Monday, 5 March 2012

Poorest working families cease to qualify for Working Tax Credit of £3,870

1. Change to Working Tax Credit rules for couples with children – April 2012
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.

2. Nearly a million people will be affected
House of Commons figures show that 212,000 couples will be affected by the change – 424,000 adults. These families include 470,000 children.

This is a total of 894,000 people, an average of 1,375 in each constituency.

3. 78% cannot find the extra hours of work they need

Most people working 16–24 hours on a low wage work in the service sector. This sector has been very hard-hit by the recession and is cutting all possible costs.

In retail, where a high proportion of the affected families work, additional hours are being cut and no extra hours are available in most stores. High levels of unemployment mean there are no additional or alternative jobs.

Of several hundred Usdaw members who know they are affected by the changes, 78% said they would not be able to find the additional hours of work they needed.

4. Families will be plunged into poverty
A typical household with two children where a couple work between 16 and 24 hours a week has total income, including wages, tax credits, and benefits, of around £17,000 a year – they are already in or on the threshold of poverty.

Losing Working Tax Credit of £3,870 will mean these couples and their children will be plunged into real poverty, with total income reduced to £14,000-£15,000.

Families will struggle to afford basic essentials, enough food and heating. They may well get into debt and homeowners may lose their homes as no support with mortgage interest will be available, as it would if they were out of work.

5. An extra 350,000 children face poverty
78% of Usdaw members said they would not be able to find extra working hours. If 75% of the 212,000 households affected are in the same position, around 160,000 couples with over 350,000 children will be plunged into poverty.

6. Families will be better off by giving up work
When they lose £3,870 Working Tax Credit, many families will be better off if they cease work altogether and claim benefits instead.

Per the attached example, a couple who work 16 hours on the minimum wage will lose a net £3,120 in April 2012 after claiming all other possible support.

But if they give up work, they will be £736 better off - £14 a week more. And they will cost the state £2,675 more.

Even if a family earns a little more than JSA levels, it is often exceeded by the cost of going to work, especially if they need to travel by public transport or car.

7. The short-term gain to the Treasury will be exceeded by long-term costs
If families have to give up work, the increase in the cost to the state will erode the estimated gains to the Treasury from their loss of Working Tax Credit.

However, the long-term consequences of parents leaving the labour market altogether and the effect of this on them and their children mean that the long-term cost to the Exchequer is likely to exceed the small temporary gain.

8. 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.

9. Universal Credit will abolish the criteria for working hours in 2013
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 to Working Tax Credit will therefore create real hardship for hundreds of thousands of working families and their children, in exchange for a small and temporary gain to the Treasury.

Conclusion: Government needs to reverse – or at least delay – the changes
· The families penalised by this change are couples who are sticking together and working for as many hours as they are able to.

· The high level of unemployment and lack of additional working hours available in the service sector means this is the wrong time to bring in this policy.

· The loss of £3,870 Working Tax Credit by around 160,000 couples with 350,000 children will create massive extra deprivation and poverty at a time when services are struggling to cope with existing levels of need.

· The effects of the Tax Credit cut on the deficit will only last 18 months until Universal Credit abolishes the criteria for working hours.

· However the damage to thousands of families and their children will be long-term as they suffer deprivation, get into debt and lose their homes.

Effect of Increase in Working Hours for Couples with Children to Claim WTC

· Couple A have 2 children, aged 5 and 2.

· Mr A works for 16 hours a week as a retail assistant for £6.08 ph.

· Mrs A does not work as it is not possible for her to find a job with hours to fit around her husband’s, and it is not worth paying childcare costs.

· They live in their own home, paying a mortgage and £1,000 pa Council Tax.


Current Income 2011-12:  Working for 16 hours a week, claiming WTC

Mr A's Salary: 16 x £6.08 x 52                                               5,059
(Below threshold for tax or NI)

Working Tax Credit:    Basic element                                     1,920
                                    Couple’s element                                1,950
                                                                                                3,870
                                                                               
Child Tax Credit: (£2,555 x 2) + £545                                    5,655
Child Benefit: (£20.30 + £13.40) x 52                                     1,752
Council Tax Benefit: £19.13 x 52                                              995
Total Household Income                                                 £17,331


Future Income from 2012-13:  Mr A continues in work, cannot claim WTC

Mr A's Salary: 16 x £6.08 x 52                                               5,059
(Below threshold for tax or NI)

Child Tax Credit: (£2,690 x 2) + £545                                    5,925

Child Benefit: (£20.30 + £13.40) x 52                                     1,752
Free school meals: (£2 x 5) x 39 weeks                                   390
Council Tax Benefit: £19.13 x 52                                              995
Total Household Income                                               £ 14,121

Decrease in total income: £17,331 – £14,121 = £3,120 (£62 per week)


Income from 2012-13 if Mr A ceases work

JSA (Income-based) for a couple: £111.45 x 52       :           5,795
Child Tax Credit: (£2,690 x 2) + £545                                    5,925
Child Benefit: (£20.30 + £13.40) x 52                                     1,752
Free school meals: (£2 x 5) x 39 weeks                                   390
Council Tax Benefit: £19.13 x 52                                              995
Total Household Income                                                  £14,857

Difference in income if not working: £14,857 – £14,121 = £ 736 better off

Difference in support from the state: £14,857 – (£17,331 – £5,059) = £2,585 more


Lee and his wife Sarah have two children aged five and one. Lee works for 18 hours a week in a local supermarket. He has repeatedly asked if he can work extra hours, but has been told there are none available.

Lee says, "I can't get any extra working hours as my employer doesn't have any. There are no other jobs in our area but if I can't get the additional hours, we'll lose all our Working Tax Credit in April. We really need this money and it seems unfair what the Government are doing."

Gill and her husband Tim have three children aged 17, 11 and 7. Tim works 18 hours a week at a supermarket since being made redundant from his full-time job as a printer. Gill is well-qualified and used to work full-time but has been a full-time carer since the birth of their youngest child who is severely disabled. She did manage to get a part-time job but had to give it up when her son had an operation and was off school for 5 months. She has been applying for jobs for months, and now does not even receive replies. Tim has asked for more hours at work and has been told there are none available. He has not been able to find another job with more hours.

Gill says "If they take away the WTC element from us, then we are going to suffer, not only financially, but we may even lose our home. My husband wants to provide for his family but his hands are tied. He is so worried, he has now been diagnosed with depression."

Latif and his wife live in Bolton with their children. Latif found work with a major retailer last year on a 26.5 hour contract. However, his employer wanted him to start work at 8 am on Sundays which he could not do as he needs to take 2 buses to get to work and they do not start running early enough on Sundays. Therefore his contracted hours were reduced to 19 a week. Now his employer refuses to increase his hours 'for any reason'.

Bill and his partner Karen live in a small village in rural Sussex with their children aged 16 and 7. Bill was made redundant two years ago at age 56. He tried for a year to find a job but was unsuccessful. He therefore decided to take his small pension and works as a volunteer for 20 hours a week. Karen is contracted for 17 hours a week at a small store, although she actually works 20 hours.

Karen says that the store where she works has many part-timers and the branch management have a very strict/limited budget from the company head office. They have refused all requests for additional hours and will not even change her contract to take account of the actual hours she works (20 hours). She therefore believes it will be impossible to increase her hours there further. Other jobs are almost impossible to come by in a rural location with limited (and reducing) buses.