'Many families over £1k worse off due to tax and benefit changes'

Families with children will be the biggest losers due to tax and benefit changes brought in by the Government, according to a report commissioned by the Family and Parenting Institute.

The report, prepared for the Institute by the Institute for Fiscal Studies, is the first to reveal the prospects for poverty rates and income for different family types up to the year 2015.

The study found:

- The median household with children faces an average drop in income of 4.2 per cent by 2015-16, equivalent to an annual income drop of £1,250 for a couple with two children. The 4.2 per cent average drop for families with children is significantly higher than the loss for the median household overall, which is 0.9 per cent. This is equivalent to a reduction in annual income of £215 for a couple without children.

- Families with children under five will experience a significant financial hit. Between 2010-11 and 2015-16, 500,000 more children will fall into absolute poverty as defined by the Child Poverty Act (2010), where the poverty line is fixed at 60% of the median income in 2010–11. 300,000 of these children come from households where the youngest child is under five. The median household with a child under five faces a drop in income of 4.9 per cent by 2015-16.

- Larger families will suffer a disproportionate financial hit. For example, the median household with three children see their income fall by 6.8 per cent by 2015-16, compared to the median household with one child which sees it fall by 3.3 per cent.

- These patterns have a differential impact on children from ethnic minority groups who tend to have more children per family. For example, the absolute and relative poverty rates for Pakistani and Bangladeshi children increases by more than 5 percentage points by 2015-16(the relative increase is from 49.2 per cent to 54.6 per cent and the absolute increase is from 49.2 per cent to 55.8 per cent).

The study also examines the impact of tax and benefit changes to be introduced between 2010–11 and 2014–15 on different family types. It confirms that families with children will lose more through tax and benefit changes than pensioners or adults without children – before and after the introduction of Universal Credit. This reflects the fact that benefits for those of working age are being cut, and families with children are more reliant on benefits than those without children, says the FPI.

It says the UK’s poorest families with children lose the largest proportion of their income from tax and benefit changes. Before taking Universal Credit into account, families in the poorest income decile will be 10% worse off in 2014–15 than they would have been had no changes been made to the tax and benefit system. Even after the introduction of Universal Credit, this group loses more than average, at just over six per cent. In particular, lone parents not in employment lose more than 12% of their income on average as a result of tax and benefit changes to be introduced between 2010–11 and 2014–15, or £2,000 per year.

It adds that the Government’s plan to introduce Universal Credit will soften the blow for certain family types, but will not be introduced fully in place for existing claimants until 2018. The report offers evidence that although Universal Credit strengthens work incentives for most individuals, it weakens the incentive for a second earner in a couple, typically the mother in a couple household, to take up employment.

The report says carers will suffer a disproportionate financial hit. Average loss from tax and benefit changes for households claiming carer’s allowance is just over 6 per cent, compared to a loss of just over 4 per cent (pre or post-Universal Credit) for all households.

Dr Katherine Rake, Chief Executive of the Family and Parenting Institute, said: “These figures reveal the full extent to which families with children are shouldering the burden of austerity. Having children has always been expensive. But now many families with children face an extra penalty of more than £1,000.”

“It is particularly surprising to see that some of the most vulnerable groups – such as families with new babies and lone parents out of work– are bearing the brunt of the tax and benefit reforms. 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 full report, entitled The Impact of Austerity Measures on Households with Children, can be read here.

It comes as Save the Children warn that unaffordable energy prices are having a damaging effect on children's health. Single parent charity Gingerbread has joined Save the Children's calls for renewed action on fuel poverty, saying single parent families are the most likely to be in fuel poverty. Around a third of households nationwide spend more than 10% of their income on keeping warm, but that rises to half for single parents who work, according to the price comparison site uSwitch.