Millions To Be Affected By Government Benefit Changes

With government plans in place to make significant changes to the benefit tax system, the impact could extend to millions of working households. According to recent research, more than three million families could be left worse off as a result of tax credit changes, with the average family likely to lose around £1,100.

Here at Hylton-Potts, we help those either being investigated for suspected benefit fraud or dealing with tax credits on a daily basis, so we understand just how much stress this issue causes millions of families across Britain.

In fact, a poll conducted by ITV found that 51% of people are against cutting Child Tax Credits, with another poll suggesting that 53% of people were against working tax credit cuts. For the majority of families just getting by, this will be a huge dent in their finances.

What the changes mean to working families

According to a recent report by the Children’s Society entitled The Future of Family Incomes, families could lose up to 12% from the value of their benefits over the next four years,. This is due to government plans to freeze child tax credits, working tax credits and jobseekers’ allowance from April.

The report is intended to educate people in how the overall income of different households are likely to be affected by key changes that will be introduced over the next five years. How? By using several case studies depicting common but differing working household types.

They compare the results of benefit claims made for tax credits and other benefits in 2015, against the same household type making a new claim for Universal Credit and other benefits in 2020.

One case study depicts a couple who are over the age of 25 with three children, with rental outgoings of £800 per month and council tax of £20 per week, with one adult earning £22,000 per year as a nurse. Under the new laws, they stand to lose £5100 per year from what they were on in 2015, due to the two-child limit within Universal Credit, as well as the four year freeze on LHA rates.

This seems like a serious deduction from a fairly typical working household, but the situation becomes even worse in this second case study, where a couple with three children (where one of them is disabled) receive a low rate of DLA care component. They own their own home with a mortgage of £600 per month, with one partner in work as an army corporal on £27,053.

There are four main factors impacting this household scenario: there is a two-child limit, they receive low rate care (as opposed to high) which reduces their entitlement by half, they are heavily affected by work allowance reductions from Universal Credit, and they lose around 12% of the value of their current benefits due to the four year freeze. Altogether, this family will lose £9,252 in a year.

With this report in mind, Chief Executive for the Children’s Society, Matthew Reed, told the press: “Families on low incomes are facing a barrage of cuts. If ministers are genuinely concerned about child poverty they must reconsider plans to freeze benefits over the next four years.

“Austerity has hit families hard, including those in work. Further cuts to support would push more children into poverty, and undermine incentives for families to move into work or earn more.”

An increasing population in poverty?

Aside from the obvious losses that will be endured by many families across the UK, there are two other trends highlighted by the report. Firstly, the fact that the National Living Wage simply will not be enough to bridge the gap between the benefits people have previously been entitled to, and the ability to provide a comfortable home and environment. For families in receipt of Universal Credit, up to 65% of any gain from higher wages will be lost through reductions in their entitlement.

Secondly, young parents in particular are likely to lose out the most as a result of the changing measures, given their exclusion from the National Living Wage. Aside from these trends, many families with disabled children are likely to be heavily affected. As can be seen in the case study above, it is possible for certain circumstances to result in losses of over £9,000. These kinds of concerns have left many people considering the impact this will have on the poverty line.

In a recent article, the Huffington Post referred to a study conducted by the Institute of Fiscal Studies (IFS), which predicted that upcoming Tory cuts will lead to more than 2.6 million British children living in poverty by 2020, on account of their household being an average of £1,600 worse off per year. The IFS report states that over the next four years it will be the poorest households in the lowest 10% of society that are likely to be hardest hit.

When even last year, the Chancellor called for the scrapping of tax credits, and the top-up of payments to low-income families, this kind of changing position led Labour’s Owen Smith to tell the press: “The Tories led working families to believe they won’t be hit by tax credit cuts. However, that was a convenient lie to weather their way through a political storm. In reality, anyone on tax credits who moves home, has a child, finds a new partner or turns 65 faces being moved onto Universal Credit, and losing thousands of pounds as a result.

“Far from being cash-protected, the tax credits of millions of families are effectively hanging in the balance. The original cuts are still being made, they’re just being introduced by stealth through Universal Credit. With next month’s Budget, the government has got a second chance to u-turn on cuts to working families. Labour is calling on George Osborne to get it right this time round, and reverse the cuts in full.”

What you can do if you’re facing this issue

We know from our expertise that not everyone over-claiming on their child tax credits is doing so through sheer greed. They know that they’re doing wrong, but do so either through ignorance or through making errors on their claims forms, rather than intentionally trying to defraud HMRC.

As you can see from the tables below, claimant error accounts for a lofty 73% of claimant fraud and error, but it only accounts for 55.5% of the overpayments made. Based on these estimates, the average figure for over-claimed money as a result of error is £1166.66. So, if those who claimed additional payments in error were to see those amounts adjusted, and they lost the average of £1100 a year due to cuts discussed, they would stand to lose a total of £2266.66.

HMRC Figures: Level of Error and Fraud Favouring the Claimant, 2013-14

Number (‘000)Amount (£m)
Lower boundCentral estimateUpper boundLower boundCentral estimateUpper bound
Estimated error favouring the claimant540600660610700800
Estimated fraud favouring the claimant190220260450560670

Table and Figures taken from HMRC’s own published information: Child and Working Tax Credits – Error and Fraud Statistics 2013 to 2014.

At Hylton-Potts, we’ve helped thousands of people over the years who have been investigated for overpayments. If you’re experiencing any of these problems, or if you’d like more advice on this, then you can call us on 020 7381 8111, or send us an email at [email protected].

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