Planned welfare cuts will "significantly reduce" income of poorest working-age households, finds IFS

Cash - image credit: Fotolia

Planned UK Government cuts to welfare spending will “significantly reduce the incomes of low-income working-age households, particularly those with children” according to the Institute for Fiscal Studies.

In a new analysis of the impact of tax and benefit changes since May 2015, the IFS found the most significant changes introduced by the UK Government are the cash freeze in most benefit rates, cuts to child tax credit and the continued rollout of the less generous universal credit.

Cuts to tax credits, including changes which limit entitlement to two children, are expected to reduce government spending by around £5bn a year.

RELATED CONTENT

IFS senior economist David Phillips on the fiscal framework and the future of the Barnett formula

SNP Air Passenger Duty cut passes stage one debate

The IFS warned that if planned cuts were in place today nearly three million working households with children on tax credits would be an average of £2,500 a year worse off, with larger families losing out even more.

Meanwhile the one million UK families with children and nobody in paid work would be £3,000 per year worse off on average.

Tom Waters, a research economist at the IFS, said: “As suggested by the 2015 Conservative manifesto, the government have announced income tax cuts that mostly benefit middle and higher-income households and working-age benefit cuts that mostly hit lower-income households. But while the tax cuts have largely already been delivered, most of the benefit cuts are yet to take effect.”

The IFS said the period since 2010 has seen lower-income households lose as a result of benefit cuts and the richest households lose from increases in income tax. But those on average and moderately high incomes, as well as most pensioners, have seen their incomes almost completely protected on average.

It found pensioner households are mostly protected from future benefit cuts, while the impact on the incomes of working-age households with children will be much greater, with average losses of more than 10 per cent in the bottom two income deciles.

Cuts to income tax will cost the government around £5bn in 2017–18, with most basic-rate taxpayers gaining £160 a year, and most higher-rate taxpayers gaining £380 a year.

Around 11 million households have been affected by the cash freeze applied to most working-age benefits.

It found that, under current inflation forecasts, the cash freeze on benefits will reduce their real value by five per cent between now and 2020, and reduce government spending by over £3bn a year.