London - Families with more than two children will not receive tax credits or housing benefit for their third or subsequent children under a fundamental change to the welfare system.
The controversial “two-child policy” has been championed by Iain Duncan Smith, the Work and Pensions Secretary, who wanted the Conservatives' £12bn of welfare savings to change people's behaviour rather than salami-slice his budget.
The new limits will be introduced in April 2017 and will save £1.35bn by the 2020-21 financial year. They will not affect the 870 000 families with three or more children currently claiming these benefits, and child benefit will not be affected. However, families who have a third child after April 2017 could be caught. Higher tax credits and housing benefits for the first child will also be axed in 2017, saving a further £675m by 2020-21.
Treasury officials insisted on Wednesday that George Osborne was not telling parents how many children they should have. His Budget document said: “The government believes that those in receipt of tax credits should face the same financial choices as those supporting themselves solely through work.” It said an out-of-work family with five children could currently claim more than £14 000 a year in tax credits alone.
Osborne achieved his £12bn savings target by trimming £9bn off the £30bn annual bill for tax credits for those on low incomes, two-thirds of whom are in work. Nine out of 10 families qualified for the state top-ups introduced by Gordon Brown when he was Labour's Chancellor. The figure has fallen to six in 10 since 2010 and will now drop to five in 10.
From April 2016, the level at which a household's tax credits are withdrawn for every extra pound earned will be reduced from £6 420 to £3 850. For Universal Credit, which is replacing six working-age benefits including tax credits, the figures will be £4 764 for those without housing costs and £2 304 for those with housing costs. State top-ups will also be reduced by larger amounts as people progress in work.
A two-year freeze on working benefits, promised in the Tories' election manifesto, will be extended to four years and last until the 2019-20 financial year. This will save £4bn a year by then.
However, sick and disabled people on Employment and Support Allowance (ESA) who are likely to be able to return to work will see their payments reduced by about £30 a week to the level of Jobseeker's Allowance, currently £73.10 a week for those aged 25 and over. The change, predicted by The Independent last week, will affect new claimants from 2017 but not existing ones.
Mark Lever, the chief executive of the National Autistic Society, said: “The government has broken its promise to protect disability benefits. Most autistic people on out-of-work benefits want to work, but struggle due to employers' misunderstandings and a lack of support. They need ESA to pay for basics like food.”
Automatic entitlement to housing benefit for jobless 18- to 21-year-olds will be scrapped. Social housing rents in England will be reduced by 1 percent for four years to keep down the housing benefit bill.
The benefit cap, the total one family can claim in a year, will be reduced from £26 000 to £23 000 in London and £20 000 in the rest of the UK. Single parents criticised the announcement that lone parents would have to look for work when their children reach three and four rather than five, as at present. Fiona Weir, the chief executive of Gingerbread, said: “Forcing single parents with very young children to work is both impractical and, in many situations, not in the best interests of their children.”
Twenty-nine million people were offered a tax cut as the Chancellor raised the point at which people start paying income tax to £11 000 next year and increased the bar before people start getting hit by the 40p rate.
George Osborne labelled the measures a “down payment” on his pledge to increase the personal allowance to £12 500 and the higher rate threshold to £50 000.
The increase in the personal allowance will make a basic rate taxpayer £80 better off next year compared to this year, while raising the higher rate threshold from £42 385 to £43 000 next year will be worth £142 to a typical 40p taxpayer, the Treasury said.
The personal allowance - the amount you can earn before paying income tax - increased by more than 60 percent under the coalition government to £10 600 this year and was due to rise to £10 800 in April 2016.
The Independent