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Protect work incentives for low income families, CSJ urges Chancellor
Work incentives for the low paid should be safeguarded as Chancellor George Osborne presses ahead with reforms to tax credits, the Centre for Social Justice says in a new report
As the architect of Universal Credit, the welfare reform underpinning Britain’s jobs miracle, the CSJ is concerned that Mr Osborne’s quest to phase in tax credit savings does not undermine incentives to work.
The core principle behind the Universal Credit reform – that work should always pay more than welfare – must not be put in jeopardy, the think-tank says.
The warning is contained in an “options” paper drawn up by the CSJ setting out various ways in which the Chancellor could resolve the tax credit controversy while still making substantial savings in public expenditure.
These include:
- Expert advice for working families at risk
- A transitional fund for the families most affected
- Phasing in the changes
- Restricting the tax credit reforms to new claimants
Amid opposition in the Lords and Commons, the Chancellor has announced that the Government will “continue to reform tax credits and save the money needed so that Britain lives within its means, while at the same time lessening the impact on families during the transition.”
Philippa Stroud, Chief Executive of the CSJ, said: “There are no easy choices, but these are the options the Chancellor has. What he should not do is raid Universal Credit to pay for any transitional changes or he will be recreating the same problem there.”
The CSJ suggests that restricting the tax credit cutbacks to new claimants, while the most expensive option, would ultimately achieve profound structural change in the welfare system while minimising the political and social fallout.
Spending on tax credits has increased by over 360 per cent since 2000/01. By 2010, 9 out of every 10 families with children were eligible for tax credits. The proposed changes take the bill for tax credits back to their 2007/08 levels and reduce the number of those eligible for tax credits to 5 out of every 10 families with children.
Tax credits and the Universal Credit reforms, first proposed by the Centre for Social Justice, are fundamentally about making work pay. They are at the heart of the Government’s ‘jobs miracle’.
By 2020 only 9 per cent of people currently on tax credits will still be on tax credits. The vast majority of those on working-age benefits will have moved to Universal Credit and the Government will have succeeded in fundamentally transforming the welfare system by making work pay.
In its report, the CSJ sets out a series of options:
- Learn the lessons of the Benefit Cap: When the Government introduced the Benefit Cap Job Centre Plus staff offered to speak with every affected worker in person to help them plan for the cap. This has contributed to over 16,000 people moving into work since the cap was introduced. The Chancellor should learn the lessons of implementation from the Benefit Cap. Cost: Doing this would still give George Osborne his £4Billion of savings each year.
- A Transitional Fund: Make transitional funds available to those families who lose the most from the changes. When the Government introduced the Benefit Cap it gave local authorities £110m over 2 years to identify and help the most badly hit make up losses through discretionary payments. Similarly, the Government has used £55m a year Discretionary Housing Payments to support those affected by the removal of the spare room subsidy – a policy which has saved about £500m a year. Cost: If the changes to tax credits are phased in, the Chancellor could create a fund to help those most affected transition.
- Slow down and phase in changes: The Government’s changes to the National Living Wage and Personal Allowance are being introduced incrementally between now and 2020, the Chancellor could align cuts with these dates. Cost: By doing this the Chancellor wouldn’t see his changes as soon, but would achieve £4billion of savings by 2019/20 as planned and the structural change he is after.
- Only New Tax Credit recipients are affected: The means of impacting least on families, whilst still reducing spending in the long term, would be to apply changes to new recipients only. Cost: This is the most expensive option, but it would achieve the structural change the Chancellor is after with the least social and political cost.
Commenting on the report, Baroness Stroud said:
“The Chancellor has a matter of weeks to come back to the country with new proposals for changes to the tax credit system. The Centre for Social Justice has published this options paper to help the Chancellor achieve his historic aim of delivering a budget surplus by 2020 whilst restructuring the balance between wages, taxes and welfare.
“This advice note was sent to the Chancellor last night and gives him a number of options – help people find a few extra hours work, set up a discretionary fund for those hit hardest, bring changes in line with a new National Living Wage and Personal Allowance or limit changes to new recipients only. There are no easy choices, but these are the options the Chancellor has. What he should not do is raid Universal Credit to pay for any transitional changes or he will be recreating the same problem there.
“The projected savings through changes to tax credits is £4.4 billion, the Government plans to turn a surplus of £10 billion in 2019-20 and of £11.6 billion in 2020-21. Why have a surplus if we can’t protect those on the lowest pay, doing the right thing by taking work? The Chancellor can protect these workers and have a surplus by 2020. This Government is set to achieve its historic aim to make sure work always pays more than welfare, we shouldn’t put that at risk.”
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For media enquiries please contact Frank Young, Centre for Social Justice 07780 707 322
The Centre for Social Justice
The Centre for Social Justice (CSJ) is an independent think tank established in 2004 to put social justice at the heart of British politics. In June 2013, the CSJ was awarded UK Social Policy Think Tank of the Year at Prospect magazine’s Think Tank Awards.
Last year the CSJ published Breakthrough Britain 2015, which set out almost 200 evidence-based policy recommendations to tackle poverty in the UK. This included solutions to worklessness, educational failure, addiction, family breakdown and problem debt.
The CSJ has published dozens of seminal papers which have shaped government policies, including Dynamic Benefits, which has led the Coalition’ welfare reforms. Further to this, the CSJ manages an Alliance of over 300 of the most effective grass roots, poverty-fighting organisations. The CSJ is able to draw upon the expertise and experience of Alliance charities for research work and media inquiries. Journalists wishing to conduct grass-roots research into social problems can be put in touch with front-line charity directors and staff.
Baroness Stroud
Baroness Stroud of Fulham (Philippa Stroud), was an original founder of the CSJ in 2004. Philippa Stroud served as Director from 2004-2010, before leaving to become Special Advisor to Rt Hon Iain Duncan Smith MP (Secretary of State for Work and Pensions) in Government from 2010-2015. Philippa Stroud was ennobled by the Prime Minister after the 2015 General Election and became Baroness Stroud of Fulham and a Conservative Peer in the House of Lords. Baroness Stroud re-joined the CSJ in October 2015 as Chief Executive.
