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June 22, 2010 11:23 pm
George Osborne squeezed at least £3bn of savings from benefit payments to families, while largely protecting the system of tax credits and universal child benefit he inherited from the last government.
The chancellor took the edge off the cuts by redirecting about £2bn – through an increase in the child element of the tax credit – to prevent any rise in child poverty for the next two years.
But without further increases in spending, the tighter conditions will hit low-income families over the medium term, leaving the coalition’s long-term goal of eradicating child poverty by 2020 under doubt.
A clutch of complex changes included increasing withdrawals of tax credits, freezing child benefit for three years and removing some supplemental grants to mothers.
Perhaps the most fundamental long-term change came in switching the system of uprating benefits and tax credits to the consumer price index, which in effect shaves about 1 per cent a year from payments.
The Treasury estimates the shift away from the retail price index for benefits, tax credits and public sector pensions would save almost £6bn a year by 2014.
But Mr Osborne decided against a bigger overhaul of the child benefit system through the introduction of means testing, a cost-saving measure that had been predicted by many economists. “This was far less dramatic than expected,” said Mike Brewer of the Institute of Fiscal Studies.
The main squeeze on the middle classes came through freezing child benefit – saving almost £1bn by the end of the parliament – imposing restrictions so that, for a one-child family, tax credits run out at about £26,000 of income instead of £56,000.
The overall effect was to narrow the number of eligible recipients – closing tax credits off to some middle class families – while putting a brake on the overall level of payments.
A few obscure changes to rules will also mean tax credits will respond more quickly if income goes up and more slowly if income goes down, netting the Treasury about £1.3bn of savings.
Ian Mulheirn, director of the Social Market Foundation, said: “The government has retained the tax credits system and in fact used it to direct more money to the poorer half of families with children, while cutting eligibility for the better-off half.
“But far from simplifying the system, it will become more complicated. With reductions in the income disregard we could see the return of tax credit overpayments, while the system will no longer respond so generously to income falls.”
The Trades Union Congress estimated that a “poor mother” would lose up to £1,200 of benefits as a result of Mr Osborne’s decision to axe a maternity grant, a pregnancy grant and an element of the tax credit boosting payments
to families with children under the age of one.
“Today’s big claim is that this is a fair and progressive budget – try telling that to those poor mothers who will lose more than £1,200 as a result of today’s announcements,” Brendan Barber, TUC general secretary, said on Tuesday.
Shan Nicholas of the Child Poverty Action Group said the Budget “did not go far enough” to pass the fairness test.
“An important increase in child tax credit may just keep a child poverty rise in check, but the numbers growing up in poverty certainly won’t fall,” he said.
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