Budget 2015: Tax Credits Changes

As was predicted ahead of yesterday's speech by the Chancellor, we will be seeing big changes to the current system of tax credits.

Going forward, only the very  lowest-income families will be able to claim tax credits. Along with the changes to entitlement to under the new Universal Credit, this is heralded to cut around £2.9bn from the welfare bill over the course of the next financial year and then an additional £3.4bn a year by 2020-21 with the income threshold for tax credits is to be reduced from £6,420 to £3,850.

Larger families in particular will be hit by the proposed tax credit changes if they have more children from April 2017 onwards with the possible restriction of only receiving benefit for the first two children. Claimants will see child tax credits and Universal Credit limited to the first two children, although mention was made of extenuating circumstance which we can only assume will ocver multiple birth situations.

To put this into context: at present around 870,000 families claiming tax credits have three or more children - this is representative  of about one in five families who receiving tax credit. However, it will only be those larger families making a claim, or having more children, from April 2017 that will be affected. If families of three or more children already have a claim in place prior to April 2017 it will continue to be honoured. So for those currently in that position it is increasingly important to make that claim now rather than delay it!

In addition to this we are also seeing changes to many working age benefits, with some being frozen for four years, such as tax credits and local housing allowance, but excluding maternity pay and disability benefits. This is a further cut to the welfare bill of £4bn a year by 2020-21. The benefits cap - the maximum amount a household can receive in benefits - will also be reduced as a result of yesterday's announcements. For those living outside of London it will drop down to £20,000. For those living in London, where housing costs are higher, the cap will be set at  £23,000.

All in all a wide ranging shake-up of the welfare system, and one that will see those in the "middle" lose out most, more noticeable of course where they have been reliant on those monies generated by  tax credits claims historically. What the Chancellor gives with one hand on the "Living Wage" and personal allowance, he takes away with another...