Two thirds of families about to lose tax credits are already living in poverty

Date: 20 March 2012

New figures released today by the shopworkers’ Union Usdaw and the Child Poverty Action Group reveal that two thirds of the families about to lose all of their Working Tax Credit because they cannot find enough hours of work are already living in poverty.

From 6 April, around 200,000 couples with children face losing £3,870 if they cannot increase the total number of hours they work from 16 to 24 hours. An analysis by Howard Reed of Landman Economics shows that around 140,000 of these families are already living below the poverty line. A further 35,000 families with around 80,000 children will fall below the poverty line if they are unable to find extra hours of work.

Usdaw and the Child Poverty Action Group (CPAG) are making another urgent call on the Chancellor George Osborne to use his Budget tomorrow to postpone the changes.

Both organisations have welcomed the news announced today that the Government has decided to exempt full-time carers and their partners from the requirement to work extra hours, but stressed that this new exemption would only affect a small minority of families.

Alison Garnham, Chief Executive of CPAG, called on the Government not to exacerbate the suffering of families already on the breadline:

"This is a precision-guided attack on the poorest working households. Two thirds of the households being hit by the cut are working families already below the poverty line. Slashing their household income by a further £3,870 will be devastating and will leave children in severe deprivation. With 470,000 children living in the families that will lose their tax credits if they cannot find extra hours of work, we should expect to see a surge in the extent and severity of UK child poverty. This is a terrible penalty to inflict on families who are working as many hours as they can find and trying to do their best for their children."

John Hannett, General Secretary of Usdaw, said that it was wrong to impose such a heavy financial cost on families unable to find more work due to the current high level of unemployment and squeeze on employers' wage budgets.

"Thousands of Usdaw's members are affected by the changes to tax credits. 78% have said it is impossible for them to find the additional hours of work they need. When this policy was proposed, back in 2010, the Government thought that unemployment would be falling in April 2012. Instead, unemployment is at its highest level for 17 years and a record 1.4 million people in part-time work are seeking more hours."

"This change to tax credits means that 200,000 couples are seeking an average of around 6 hours a week of extra work, equivalent to over 50,000 jobs of 24 hours a week, to be delivered by next month, mainly in the retail and service sectors. With spending still low and those sectors still struggling, the extra work is just not available so George Osborne needs to delay this cut or thousands of families with children will suffer through no fault of their own."

"In October 2013, the rule for minimum hours of work will be abolished when Universal Credit is introduced. This policy simply needs to be delayed for 18 months until Universal Credit comes in, and there is more work available."

Case Studies - Couples Due to Lose Working Tax Credit on 6 April

Donna and Jim live in Guisborough in Cleveland. They have three children aged 10, 9 and 2. Jim works for 16 hours a week. Donna was made redundant before Christmas and can now only find work for 6 hours a week. In April they will lose £70 a week - 20% of their income. Donna says:

"We cannot cut back any more than we are doing and we face the uncertainty of whether or not we will be able to feed our children. We are a normal hard working family, we have three lovely kids who understand and appreciate all they are given but it is becoming increasingly hard to manage and if they reduce our money even further I am afraid for the future. My husband and I should not have to choose between us which one eats tonight."

Emma from Abertillery works 23 hours a week but her employer says they cannot even give her 1 extra hour a week so she can keep her tax credits and her husband cannot find a job as unemployment is so high. Emma says:

"I'm totally with the incentive of rewarding the working and not just giving out money to anyone but why because of 1 hour a week employment should I lose all tax credits? It's a really worry to me how I'm going to keep a roof over our heads."

Heather from Gosport says: "We struggle to keep things going on an even level week to week as it is now. With the changes to tax credits I'm very worried! I've spoken to my boss regarding increasing my hours from 17 to 24 a week as I'm going to lose my working tax credit and I've been told that we are already overspent on our wages budget so it's not likely I'll be able to get more hours. My partner is looking for work but is struggling to find anything. Like many others, this is a worrying time for us and I'm very concerned with what's going to happen."

Notes for Editors:

  1. Howard Reed is an economist with over a decade of research experience. Before leaving to found Landman Economics in 2008, Howard's most recent job was Chief Economist at the ippr. Landman undertakes high-quality economic consultancy, research and analysis for a range of clients including NGOs, trade unions, think tanks, government organisations and the private sector.
  2. The definition of child poverty used here is the HBAI definition: below 60% of median BHC household income.
  3. Changes to the rules for Working Tax Credit that require couples with children to increase their hours of work from a minimum of 16 hours a week to at least 24 hours, were announced in the 2010 Spending Review, to take effect in April 2012.
  4. Government responses to written questions show that 212,000 couples with 470,000 children will be affected by the changes. (Treasury response to Cathy Jamieson MP, Written Answers 88172 and 88178, December 2011). Exemptions have been introduced today for couples who are full-time carers, but this will only include a very small minority of families affected.
  5. A DWP response to a written question from Ann Coffey MP shows that a family on 16 hours a week on the minimum wage, currently on total household income of £330 a week, will lose £74 a week if they cannot increase their hours of work. From April, the same family would be £14 a week better off on benefits than working. Yet in 18 months time, when Universal Credit is introduced, they would be £95 a week better off working than on benefits.
  6. An Open Letter to David Cameron on 5 March from Usdaw, CPAG, Barnados, Citizens Advice, Carers UK, Working Families, Contact a Family, Church Action on Poverty, Family Action and the National Children's Bureau called on the Prime Minister to delay the cuts to tax credits to prevent 18 months of severe hardship to working families and their children. No substantive response has been received to date.
  7. CPAG is the leading charity campaigning for the abolition of child poverty in the UK and for a better deal for low-income families and children. CPAG is the host organisation for the Campaign to End Child Poverty, which has over 150 member organisations and is campaigning for public and political commitment to ensure the goal of ending child poverty by 2020 is met.
  8. Usdaw (the Union of Shop, Distributive and Allied Workers) is the UK's fourth biggest and fastest growing trade union with over 410,000 members. Membership has increased by more than 20% in the last six years and by nearly a third in the last decade. Most Usdaw members work in the retail sector, but the union also has many members in transport, distribution, food manufacturing, chemicals and other trades.