How will last week’s Budget changes to tax credits by the Chancellor of the Exchequer, George Osborne, affect people in work?
From April 2016, some working people will lose tax credits altogether, while others will see theirs reduced.
The level of income at which people qualify is being brought down, and the formula for calculating tax credits is being toughened up.
The level of income you have to be on to qualify depends upon individual circumstances.
For example, a full-time working family with two children can currently qualify for something if their total gross earnings are up to £600 a week.
If their weekly pay before deductions is, say, £385, they can get tax credits of about £100 a week.
From next year, however, this family would lose all tax credits if they earn above £500 a week.
If their gross earnings are £385, their tax credits will go down to £60 a week.
Going further down the income scale, a lone parent with one child and working part-time is currently due something if they earn under £460 a week.
From next April, this level will go down to about £365. Today if he or she works 16 hours a week on the national minimum wage (about £104 a week), they get the maximum tax credit – in this case, about £140 a week.
From next April, according to my calculations, no employee will be entitled to the maximum rate.
So this worker, on the new national living wage (£115.20 for 16 hours) will see their tax credits cut to about £120 a week.
On this income, however, they would probably be receiving housing benefit if they have rent to pay.
With their income going down, they should get more housing benefit but would still be worse off overall.
For simplicity, I have not included childcare costs in these examples.
Are the welfare cuts in the latest Budget going to apply to those on the sick?
Not for those currently receiving employment and support allowance (ESA).
It is those who go sick after April 2017 who will be treated differently. Rates of ESA are higher than those for fit people who claim jobseeker’s allowance (JSA). People on ESA fall into two groups, a support group and a work-related activity group (WRAG).
The support group is for those with little prospect of returning to the workplace, and the WRAG is for those who can take steps to be job-fit.
People who claim ESA from April 2017 and are in the WRAG will be on the same footing as those on JSA.
They will not receive the extra £29.05 currently paid to WRAG claimants and can only claim £73.10 a week, the same as those on JSA.