The Emergency Budget was delivered to Parliament on 8th July by George Osborne, Chancellor of the Exchequer. In his speech Mr Osborne said: “This budget sets out a plan for Britain for the next five years to keep us moving from a low wage, high tax, high welfare economy; to the higher wage, lower tax, lower welfare country we intend to create."
Key highlights delivered in the speech were a freeze on working age benefits until April 2020 which will aim to reduce government spending by £4 billion. Further changes announced were to reduce benefit spending by £12 billion by 2019-20 – two years later than widely reported. This reduction was made by further-across the board freezes in benefit rates (£4bn), a very large cut to tax credits (£6bn) and a cut to housing associations and Local Authorities (£1.4bn).
The total amount of benefits out-of-work families can claim will be cut down to £23,000 in London and £20,000 outside London. This aims to bring savings of a further £200m. Also announced was the abolition of the work group related activity group in Employment and Support Allowance (ESA) for new claimants - £640m in 2020-21.
The Chancellor also announced that he was introducing a new National Living Wage of £7.20. The compulsory wage will begin next April and has been set to reach £9 an hour by 2020. It was also suggested that the Low Pay Commission will investigate benchmarking the New Living Wage to at least 60% of median income, currently the rate used to describe relative poverty.
Winners and losers
The tax credits designed to support those with low family incomes will start to be withdrawn once families begin earning over £3,850 rather than £6,420. The entitlement for third or subsequent children will also be removed from April 2017. Currently there are 872,000 families getting an average of £3,670 for third and subsequent children with 548,000 of those in work. The New Living Wage will help those on low hourly wages although some fear it may put pressure on employers.
Many of those who will gain will be single people without children or those married to a higher earner who is above the current tax credit threshold. However, many of them will be hard hit by the changes. With most working-age benefits frozen for the next four years, once inflation is taken into account that will mean 13 million families losing an average of £260 a year. Universal Credits will also be withdrawn much earlier or straight away for non-disabled households without children.
Concern over tax credit cuts
Simon Hopkins, Chief Executive of Turn2us raised concern over the cuts to the tax credit system. He said: “The cuts to the tax credits system announced by the Chancellor could plunge many of the most vulnerable in society into poverty. Tax credits are a significant source of income for many families in the UK, helping them to pay bills, and buy food and other essentials. Removing this support, before impact of any proposed wage increase can be felt, is likely to push many into financial hardship.”
Simon added: “Whilst there may be many who benefit from the measures announced around the budget, it is vital that as a compassionate society we address the concerns of those who will not be so lucky. We will continue to work with together with charities and other organisations to make all the help available as accessible and straight forward as possible."
Turn2us for support
If you are struggling to make ends meet, use our Benefits Calculator to check your entitlement to benefits and our Grants Search to see if you are eligible for help from a charitable fund, based on your personal circumstances and needs. The ‘Your Situation’ section on our website contains resources on benefits grants and managing money, including useful links sheets and a Find an Adviser tool to help you find national and local sources of further help.