A new means test will penalise more than 600,000 working families for saving, according to analysis of official moves to introduce a single working-age credit.
Rules to be unveiled in the welfare reform bill this week will prevent working families with children from claiming the new “universal credit” if they have savings of more than £16,000.
Once the system is in place, about 400,000 working families will lose their entitlement altogether, according to calculations by the Social Market Foundation, a think-tank.
A further 200,000 households with more than £6,000 savings will see their benefit docked.
Labour said the restrictions would punish prudent families that would have been eligible for tax credits and hamper first-time homebuyers. Bereaved families inheriting significant sums would also be hit.
“This sort of disincentive does not just make saving unattractive – it makes it impossible for a large group of working people on modest incomes,” said Stephen Timms, shadow employment minister. “What would you do if you want to save for a deposit and you are told that it will cost you £100 a week?”
The reforms are designed to harmonise savings rules, which currently apply only to out-of-work benefits, so that a single working-age credit can be introduced.
“This change might save the government money, but it sends all the wrong signals,” said Ian Mulheirn of the Social Market Foundation. “The savings penalty means that a family with two children and a combined income of £25,000 per year could lose out to the tune of around £50 per week.”
Lord Freud, the welfare reform minister, has said that families at the point of transition to universal credit will not lose out, as long as their circumstances do not change.
“We have committed to providing protection to ensure that no households in receipt of the relevant benefits and tax credits at the point of transition will lose in cash terms,” he told peers. “New cases or those whose circumstances change will be subject to the £16,000 threshold.”
Financial researchers said the reforms could significantly change behaviour, encouraging families to pay off mortgages or supplement pensions – assets that are excluded from the means test.
“This is something that people had not really noticed,” said James Browne of the Institute for Fiscal Studies. “This is a much harsher treatment of capital than we have in the tax credit system.”
In 2008 there were 957,000 tax-credit recipients with savings of more than £6,000, according to government figures taken from the Family Resources Survey.
The SMF analysis uses the Wealth and Assets Survey, which gives a more accurate picture of savings levels, and takes account of restrictions to tax-credit eligibility announced since 2008.