Autumn Statement announces change in UC taper rate

The Chancellor of the Exchequer has announced in today’s Autumn Statement that he is to reduce the rate at which benefits are withdrawn as people increase their earnings.

The move to reduce the taper rate on Universal Credit from 65% to 63%, meaning benefits will be withdrawn at a rate of 63p for every pound of net earnings, will benefit low-income families, but it is expected that other cuts to benefits which have already been agreed by Parliament will mean the majority will still lose out.

The Resolution Foundation think tank estimates couples with children on the higher work allowance [without housing costs] will face a maximum possible loss of £2.2K in their annual income by 2020 as a result of changes to the work allowance and will claw back a maximum of £200 from a 2% reduction in the Universal Credit taper if one member of the household works full time.

Torsten Bell, director of the Resolution Foundation says: “If the government does not act to change course on upcoming cuts to Universal Credit, the very just about managing families Theresa May is focused on will see big hits to their income. Just about managing families with children will be an average of £715 a year worse off by 2020, even after accounting for increases in the minimum wage, tax threshold and government help with childcare. Many will lose much more – a couple with kids where one person works full time on the wage floor will lose nearly £2,000. Single parents could be hardest hit with reductions in the work allowance in Universal Credit alone costing them up to £2,800 a year.”

He says the government should reverse in full reductions to the Work Allowances “to ensure that incomes are protected and that work pays”.

The Chancellor also announced a rise in the National Living Wage from £7.20 to £7.50 an hour from April 2017 and plans to raise the income tax threshold [what you can earn before income tax kicks in] to £11,500 in April, from £11,000 now. And he said the higher rate income tax threshold would rise to £50,000 by the end of Parliament.

The Chancellor cut salary sacrifice schemes for things like healthcare and gyms, but kept them for childcare. He also said he would tackle the “longstanding problem of our fastest growing technology firms being snapped up by bigger companies, rather than growing to scale” through the injection of £400m into venture capital funds through the British Business Bank, unlocking £1bn of new finance for growing firms and announced  a National Productivity Investment Fund of £23bn to be spent on innovation and infrastructure over the next five years.

One of the first organisations to respond to the statement was the Preschool Learning Alliance who called it a “missed opportunity” with serious consequences for the government’s childcare plans.

Neil Leitch, chief executive of the Alliance, said: “We are very disappointed that today’s Autumn Statement included no mention of additional support for the early years sector.

“For years, government funding hasn’t kept up with the rising costs of delivering free entitlement places – and with the rollout of the 30-hour offer less than a year away, more and more providers are warning that they may opt out of the scheme if the proposed funding rates do not increase. What’s more, with the ‘national living wage’ set to increase to £7.50 next year, and growing pressure from other rising business costs such as pensions and national insurance contributions, many providers will struggle to simply stay afloat if chronic underfunding is not addressed.”

Hannah Maundrell, editor in chief at www.money.co.uk, also expressed disappointment that there was by announcement by the Chancellor of funding for extending free childcare to one and two year olds. She said: “My take is he’s waiting to see how next year’s Tax Free Childcare scheme is received before he starts handing out giveaways. The exorbitant cost of childcare is eating into so many household budgets. If he wants to keep Britain feeling flush and help working families out of a jam this is something that needs to be sorted out as a priority.”



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