Reversal on tax credits doesn’t affect Universal Credit

Low-income working families will still face big cuts in state subsidies in the future despite the Chancellor’s decision to abandon planned cuts to tax credits, according to the Institute for Fiscal Studies.

It says the long-term impact of the decision will be nil because those moving onto Universal Credit will face those same cuts.

Although the Chancellor abandoned cuts to tax credits, they still remain in place for Universal Credit. Paul Johnson of the IFS said: “The long-term generosity of the welfare system will be cut just as much as was ever intended.”

Universal Credit brings together Income Support, income-related Jobseeker’s Allowance and Employment and Support Allowance, Working Tax Credit, Child Tax Credit and Housing Benefit into one Universal credit and aims to simplify the benefits system. It is being phased in over the next few years and has already been brought in in some regions.

The IFS estimates that 2.6 million families will be on average £1,600 a year worse off under Universal Credit that under tax credits, although it says 1.9 million will be £1,400 better off. It says couples with children will gain more than single parent families and those on the lowest wages will be better off, as long as they work above a certain number of hours. Also likely to lose out are families with two earners.

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