Welfare changes forecast to save the Exchequer around £1.7 billion in 2019-20 start to take effect this Thursday (6 April 2017). These are taking place alongside other changes, such as increases to the National Living Wage and tax-free Personal Allowance.

Measures include cuts to Child and Working Tax Credits, Housing Benefit and incapacity benefits, changes to Universal Credit (UC) and reform of support paid to bereaved families. Taken together, these account for around 14% of the roughly £12 billion of welfare cuts announced by then Chancellor George Osborne at Summer Budget 2015.

Many of these changes affect new claimants only. As a result, there is potential in coming years for benefit claimants in the same circumstances (i.e. the same earnings, housing costs and number of children) to receive differing awards depending on when and where they started their claim.

Six example lone parent families, each with three children

This blog analyses the impact of changes to tax credits and UC on six example lone parent families. Each includes a lone parent working 35 hours a week on the National Living Wage (NLW) with three children and not in receipt of support for housing in 2019-20.

Depending on when and where each of these six families started their claim, each is affected by a combination of the following welfare changes:

Rolling out Universal Credit (UC)

UC is a new working-age benefit combining multiple existing benefits, including Child and Working Tax Credits, Jobseeker’s Allowance and Housing Benefit. It is now available from all Jobcentre Plus offices in Great Britain. However, in the majority of areas gateway conditions remain in place – meaning only claimants in certain circumstances (e.g. single claimants with no children) can apply; otherwise, new benefit claimants are directed to the “legacy” system. As roll out progressess and the UC “Full Service” is implemented in further Jobcentres, UC will become available to all family types.

Limiting support to two children

Support paid to families through tax credits and UC will be limited for new claims and births from April 2017 (equivalent changes are being made to Housing Benefit). In 2017-18 the child element within Child Tax Credits and UC is worth £2,780 per annum per child (not including the ‘first child premium’ within UC – see below).

Removing the family element

Families who start claiming tax credits or UC from April 2017 will no longer be eligible for the family element in tax credits or the equivalent first child premium in UC (equivalent changes were made to Housing Benefit in 2016). In 2017-18 the ‘family element’ within Child Tax Credits and equivalent ‘first child premium’ within UC is worth £545 per annum.

Cutting UC work allowances

Cuts to UC work allowances took place in April 2016 and affect almost all in-work claimants.

A UC claimant’s work allowance is the amount they may earn before their UC award starts to be reduced (“tapered away”). Lone parents without housing costs experienced the largest reduction in their work allowance, from £8,808 in 2015-16 to £4,764 in 2016-17. The our briefing paper Changes to Universal Credit from April 2016 provides further analysis.

Changing the UC taper rate

The Chancellor announced at Autumn Statement 2016 that, for all UC claimants from April 2017, the UC taper rate will be reduced from 65% to 63%. This means that from April a claimant’s UC award will be reduced by 63p for every £1 of net earning in excess of their work allowance, as opposed to by 65p for every £1.

Also, from the 1 April 2017 the National Living Wage (NLW) is worth £7.50 per hour (an increase of £0.30) and, from the 6 April 2017, the tax-free Personal Allowance is worth £11,500 per year (an increase of £500). In 2019-20 the NLW is expected to be £8.30 per hour and the Personal Allowance is expected to be around £12,060 per year (rising each year to reach £12,500 in 2020-21). All six of these families benefit from increases to the NLW and the Personal Allowance.

Each family’s award will vary according to when and where they started their claim

Which welfare changes effect each family – and what benefit award they receive – will depend on when and where they started their claim and when their third child was born. The diagram below shows how each of these six claimant scenarios arises, determining their benefit award in 2019-20.

Note that Example 1, shown in blue, is a “legacy” claimant not affected by any of the above measures.

The six scenarios

The diagram shows that in 2019-20:

Example 1, a “legacy” benefits and tax credits claimant whose claim started before April 2017 and whose third child was born before April 2017, might receive a Child and Working Tax Credits award of £10,090.

This family is not affected by any of the cuts announced at Summer Budget 2016.

Example 2, a “legacy” benefits and tax credits claimant whose claim started before April 2017 but whose third child was born after April 2017, might receive a Child and Working Tax Credits award of £7,310.

This family is affected by the limiting of support paid through tax credits to two children for new claims and births from April 2017.

As a result, they might be around £2,780 worse off than example 1.

Example 3, a “legacy” benefits and tax credits claimant whose claim started in or after April 2017, might receive a Child and Working Tax Credits award of £6,760.

This family is affected by the limiting of support paid through tax credits to two children for new claims and births from April 2017 and removal of the family element for new claims from April 2017.

As a result, they might be around £3,325 worse off than example 1.

Example 4, a UC claimant whose claim started before April 2017 and whose third child was born before April 2017, might receive a UC award of £7,200.

This family is affected by cuts to UC work allowances and gains from the change to the UC taper rate.

As a result, they might be around £2,892 worse off than example 1.

Example 5, a UC claimant whose claim started before April 2017 but whose third child was born after April 2017, might receive a UC award of £4,420.

This family is affected by cuts to UC work allowances and limiting of support paid through UC to two children for new claims and births from April 2017. They also gain from the change to the UC taper rate.

As a result, they might be around £5,672 worse off than example 1.

Example 6, a UC claimant whose claim started in or after April 2017, might receive a UC award of £3,900.

This family is affected by the limiting of support paid through UC to two children for new claims and births from April 2017, the removal of the UC ‘first child premium’ for new claims from April 2017 and cuts to UC work allowances. They also gain from the change to the UC taper rate.

As a result, they might be around £6,198 worse off than example 1.

These are example families

These calculations are all for example families. In reality, it is not possible to say how many families are likely to find themselves in each of these six scenarios as we do not know how quickly the roll out of UC will take place, how many families are likely to have a third child nor how many of these are likely to start a benefit award.

These examples are not necessarily representative of all families on average. Others such as the Resolution Foundation, Institute for Fiscal Studies and Department for Work and Pensions (DWP) have published further research analysing these changes.

The table below shows the calculations summarised above in full.

Photo Credit: Man and Child Walking Near Bushes during Daytime, Creative Commons Zero (CC0)