The Government’s promise that families receiving tax credits would not lose money as a result of its welfare reform has been labelled a “convenient lie to weather a political storm”.
The Labour Party claims some families could lose up to £3,000 when they miss out on money pledged by George Osborne to soften the blow of his austerity measures.
The Chancellor performed a dramatic U-turn at his autumn statement last year when he reversed a decision to scrap tax credits, top-up payments to low-income working families.
And he said households claiming the benefit would be helped by “transitional protection” as they moved to the new single Universal Credit welfare payment, which the Government wants all benefit claimants on by 2020.
But Labour has seized on a written parliamentary answer from Employment Minister Priti Patel, which reveals the “transition” funding would not be handed out to families if they have a “significant change in circumstances” and have their claims re-assessed.
Labour’s Owen Smith: "Anyone on tax credits who moves home, has a child, finds a new partner or turns 65 faces being moved onto Universal Credit and losing thousands of pounds as a result."
Households could be moved on to the new benefit, effectively six payments rolled into, if they have a child, move home or turn 65. For them "transitional protection is not appropriate", the minister said.
Owen Smith, Labour’s Shadow Work and Pensions Secretary, said the response undermined the claim by Iain Duncan Smith, his Government counterpart, that “nobody will lose any money on arrival on universal credit from tax credits”.
The Department for Work and Pensions said Universal Credit is "fundamentally different to tax credits" and "cannot be compared like for like", and that "many" would see their support stay the same or increase.
Iain Duncan Smith told the Andrew Marr Show in December: “Nobody will lose any money on arrival on universal credit from tax credits because they’re cash protected, which means there’s transitional protection. They won’t be losing any money. We agreed that. I argued for that at the time. The Chancellor agreed that. This goes back a few years, so that is all in place. Nobody loses a penny unlike they would have done under tax credits if they do.”
Mr Smith told The Huffington Post: “The Tories led working families to believe they won’t be hit by tax credit cuts. However, that was a convenient lie to weather their way through a political storm.
“In reality, anyone on tax credits who moves home, has a child, finds a new partner or turns 65 faces being moved onto Universal Credit and losing thousands of pounds as a result.
“Far from being cash-protected, the tax credits of millions of families are effectively hanging in the balance. The original cuts are still being made, they’re just being introduced by stealth through Universal Credit.
“With next month’s Budget, the government has got a second chance to u-turn on cuts to working families. Labour is calling on George Osborne to get it right this time round and reverse the cuts in full.”
Labour estimates a single mother with two children, working full time on the minimum wage, will be £3,000 worse off if she were on Universal Credit rather than tax credits.
Labour has previously warned of a “grossly unfair two-tier system” with some families on tax credits and others on the Universal Credit “work allowance”, which would be less for new claimants.
The Institute for Fiscal Studies has said that 2.6 million working families will be an average of £1,600 worse off a year than they would have been thanks to shifting from tax credits to Universal Credit, since the new regime is less generous.
A Department for Work and Pensions spokesman said: “Universal Credit is fundamentally different to tax credits and cannot be compared like for like. UC includes a wide range of additional support that is not offered under the old system, including increased childcare and help to progress in work.
“For many claimants a move to Universal Credit will actually mean that they receive the same or higher amount of benefit than they do from the current benefit system.”