Young families hit most by benefits changes

Couples with young children will be hardest-hit by changes in the tax and benefit system, with the typical family losing more than £1,200 over five years, a new study has estimated.

The report, from the Institute for Fiscal Studies, also suggested that the Coalition’s flagship welfare reform will reduce the financial incentives for mothers to go out to work.
Calculations show that families with children will see a 4.2 per cent fall in their income by 2015/16 because of changes including cuts in child benefit for high-earners, cuts in tax credits and the new 20 per cent rate of Vat.
For the median family with two children, that is equal to around £1,250 from an income of around £30,000.
By contrast, childless couples and pensioner households will experience smaller losses than parents, the IFS said. The average loss for all households is 0.9 per cent.
The figures from the respected think-tank could raise questions about David Cameron’s pledge to lead “the most family-friendly government ever”.
The biggest falls in income will come during the current financial year, with further falls in 2012/13 and 2013/14, the economists said.
Those with young children will suffer even larger falls in real income, the study said.
Couples whose youngest child is under 5 years old will see their income reduced by 4.9 per cent by 2015. Parents whose youngest is aged between 11 and 18 will experience only a 1.8 per cent fall.
Family size also affects the scale of the reduction in income, not least because of plans to put a £25,000 cap on the total value of benefits that can be paid to any family, regardless of size.
Parents with three children are the worst-affected and will lose 6.8 per cent of their income, more than twice the loss of parents with only one child.
Families with four or more children will see an average income reduction of 5.2 per cent.
The IFS study was commissioned by the Family and Parenting Institute, a charity, which said that Coalition policies unfairly affect parents.
Katherine Rake, chief executive of the Family and Parenting Institute said the figures showed that families with children are “shouldering the burden of austerity”.
She said: “Having children has always been expensive. But now many families with children face an extra penalty of more than £1000.”
“Many families will be left struggling to understand why they have been singled out in this way and how this sits alongside the Government’s ambition for the UK to become a family friendly nation.”
The IFS also considered parents’ decisions to work, and found that Coalition policies tend to encourage mothers to stay at home with children rather than returning to work, the IFS found.
Tax and benefit changes introduced in 2011 “on average weaken the incentive for those with children to undertake paid work”. By contrast, the changes strengthen the incentive for those without children to work.
That will be reinforced in 2013 with the introduction of the new Universal Credit benefit system, which the IFS “tends to weaken the incentive for both members of a couple to undertake paid work rather than just one”.

*reported by*

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