Under the welfare changes put forward by Iain Duncan Smith, new parents welcoming their first child could lose hundreds of pounds per year in tax credits, according to the Labour party. The Government has already admitted that people who claim tax credits may be put onto the new universal credit benefit system if they ‘become responsible’ for a child. The shadow work and pensions secretary, Owen Smith, said that this meant people would be ‘penalised’ for having a child.
A study by the Institute for Fiscal Studies found that benefits under the Universal Credit system would be less generous than Tax Credits, at a rate of around £1,600 a year for just over 2.5 million families. However, some families will see their income rise depending on their circumstances. Despite concerns, the Government is pressing ahead with the tax credits cuts, despite having already postponed them in November under pressure from MPs. The new guidance from the Department for Work and Pensions advises that if there is to be any change in circumstances, it may result in tax credits stopping and a claimant may have to put in a universal credit application. It defines change in circumstances as starting work, leaving work or having more children.
Labour has said that the Conservatives are creating a ‘single tier system’ which will see single parents become £3,000 worse off than they would be if they were on tax credits. A spokesperson said the new guidance means that the Government is hoping to move people over to the scheme as soon as possible. Universal Credit combines 6 benefits into one monthly payment and people are gradually being transferred to the new system until 2020. They are supposed to receive transitional protection to protect them from a loss of earnings during the transition, but this protection will not apply to claimants of tax credits forced to make a universal credit claim as a result of their circumstances.
A spokesperson for the DWP dismissed what Labour said as ‘scaremongering’ adding that it has always been the case that if a claimant’s circumstances change they will be moved onto the new system, adding that ‘this is not new’. They later chose to acknowledge that the birth of a first child could trigger the shift from tax credits to universal credit.
The Work and Pensions secretary said that people already on universal credit who get lower payments will be supported by a £69 million ‘flexible support fund’. However, this may not be a cash payment. When asked what the support fund would entail, the Government said it could be help finding more work or developing skills to help them earn more.
If you wish to find out more about working tax credits for low income households, or child tax credits for when you are responsible for a child, you can contact the Tax Credits Helpline who will help you with advice, guidance on applying for tax credits or even the switchover to universal credit.
For more information, call the Tax Credits contact number here.