'Protection' From Tax Credits Cuts Is A 'Tiny Fraction' Of Saving From Working Family Benefits

Labour seizes on £34m in 'transitional protection' in same year as £2.2bn cut
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The Government has been accused of "picking the pockets" of working families as it emerged cuts to top-up benefits far outstrip money earmarked to protect households from a welfare overhaul.

The Labour Party has seized on figures that it claims shows George Osborne's dramatic U-turn last year to reverse scrapping tax credits is "risible".

The Chancellor promised households claiming tax credits would be helped by “transitional protection” as they are moved to the new single Universal Credit welfare payment, which critics say is far less generous.

Yet figures published by the independent Office for Budget Responsibility suggest the money set aside to ensure families do not witness a cut is modest - or in Labour's words represent "virtually no form of protection".

As the table below shows, 44% of people - or around 2m claimants, mostly in work - would have moved from tax credits to Universal Credit in 2018-19.

But it suggests there is no money - "0.0" - to make sure those affected don't lose out.


The Department for Work and Pensions (DWP) explained to HuffPost UK that while "0.0" is listed for the three years between 2016-17 and 2018-19, this was effectively a result of rounding down by the financial watchdog any amount below £50 million.

When pressed further, the DWP said the estimated figure for 2018-19 was £34 million.

Labour says this indicates its claims to support families rings hollow when during the same year the Government will save £2.2 billion through cuts to "work allowances" - the component of Universal Credit handed to families on low incomes that replaces tax credits.

The saving is spelled out in another OBR document - and below - and Labour says it shows ministers have set aside a "tiny fraction" of money to protect those receiving tax credits compared to the cuts the DWP intends to make.


Over the four years, "work allowances" are cut by more than £9 billion, according to the OBR's estimate.

The DWP could not provide a figures for how much “transitional protection” would be available over the same period - but the most generous estimate would be around £850 million.

The DWP robustly rejects Labour's "completely misleading" analysis, arguing Universal Credit "work allowances" are different to tax credits - principally since the savings are based on new people receiving Universal Credit who "clearly do not need transitional protections".

But the Labour Party is not the only organisation to compare the two benefits.

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.

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.

The DWP points out the OBR figure is not a fixed budget, and that Universal Credit includes more support than under the old system, including increased childcare. It also points to the boost to low pay through the new National Living Wage.

Universal Credit, rolling a series of benefits in to one, is arguably the trickiest issue in new Work and Pensions Secretary Stephen Crabb's in-tray after taking over from Iain Duncan Smith, who quit over proposed cuts to disability benefits.

HuffPost UK has previously revealed families on tax credits could miss out on “transition” funding if they have a “significant change in circumstances” such as having a child, moving home or turning 65.

Shadow Shadow Work and Pensions Secretary Owen Smith
Shadow Shadow Work and Pensions Secretary Owen Smith
Gareth Fuller/PA Archive

Labour's Shadow Work and Pensions Secretary, Owen Smith, told HuffPost UK: "The Budget small print has once again totally exposed the Tories’ deception – this time on the so-called U-turn on tax credit cuts.

“Last year, they said cuts to working families would not be phased-in, they would be avoided altogether. That risible claim has been left high and dry by the independent Office for Budget Responsibility.

“They clearly show nearly half of all families on tax credits will be hammered by these cuts over the next three years with virtually no form of protection. As the Tories have earmarked a tiny fraction – just over 1 per cent - of the savings they plan to make from cuts to the incomes of low and middle paid working people for transitional protections.

"It’s an insult to workers who are having their pockets’ picked, despite doing everything right to make ends meet and support their families.

“While in the coming months, more and more families will be moved from tax credits to Universal Credits and will be made thousands of pounds worse off.

“Labour demanded a full and fair reversal of the cuts to working families. The Tories have failed to deliver it. They should now reverse these cuts in full before they make more than two million working families an average of £1,600 a year worse off.”

The forecasted savings from the Work Allowance changes included future UC claims rather than current UC claims.

A DWP spokesman said: “This analysis is completely misleading.

"The reality is that 'transitional protection' will be in place for everyone moved from existing benefits to Universal Credit.

"Savings are based on new people coming onto Universal Credit, who clearly do not need transitional protections.

“Under Universal Credit people are moving into work faster and earning more and get a range of extra support.”