March 9, 2011 • 3:44 pm

“Around 400,000 families with children currently receiving tax credits will lose their entire eligibility for financial support under the universal credit, Liam Byrne claims”
The Guardian, 9 March 2011

With the Welfare Reform Bill beginning its passage through Parliament in earnest today, the impact of some of its wide-ranging proposals have been the subject of claims in this morning’s papers.

Such was the case in this morning’s Guardian, which – citing Shadow Work and Pensions Secretary Liam Byrne – notes that the removal of tax credits for those with over £16,000 worth of savings was “penalising” families with children.

The claim echoes one made by think tank the Social Market Foundation (SMF), who argued last month that “around 400,000 families with children – currently receiving tax credits – will lose their entire eligibility for financial support under the Universal Credit.”

The SMF’s claim is based on their analysis of the Office for National Statistics’ Wealth and Assets Survey. This places the mean wealth held by couples with children at £38,000, with lone parents holding an average of £6,400.

By fitting these figures with the distribution models also contained in the report, the figure of 400,000 families with savings above the threshold can be reached.

The Government has, however, suggested that there is a problem with this approach.

According to the Government’s Minister for Welfare Reform Lord Freud, the changes made by the Bill account for those “currently receiving” these tax credits to ensure that they don’t lose out.

Lord Freud told the House of Lords in December: “We have committed to providing protection to ensure that no households in receipt of the relevant benefits and tax credits at the point of transition will lose in cash terms as a direct result of the introduction of universal credit. New cases or those whose circumstances change will be subject to the £16,000 threshold.”

The Government’s Impact Assessment therefore only deals with new applicants and those whose circumstances may change in the future. Whilst this does show that up to 900,000 households with children would have lower entitlements after the switch, a further 1.7 million would be entitled to greater awards. It is important to note therefore that the numbers of those “losing out” under the reforms are ‘gross’ rather than ‘net’ figures for those in receipt of lower payments.

The figure of 400,000 families with children that may be entitled to lower payments as a result of the withdrawal of the Universal Credit for those with savings of more than £16,000 can be substantiated, but only with the important caveat that it may only apply to new and changed applications. This is not a distinction that is made in Mr Byrne’s claim as it stands.

UPDATE: Speaking in the House of Commons today, Liam Byrne was more circumspect, referring to what the change “would mean” to “future savers”, which avoids the pitfalls associated with his earlier use of the figures. (Iain Duncan Smith nevertheless told his Shadow that the “figures were incorrect”.)

UPDATE 2: Full Fact has discussed these issues with the SMF’s Director Ian Mulheirn, who has pointed out that the HMRC’s definition of what constitutes a ‘change of circumstances’ is rather broad, meaning that many of those ‘currently receiving’ credits could legitimately be expected to fall into this category at some point in the future. Hence the differences between the ‘steady state’ model offered by the SMF and the real numbers of existing claimants affected may be negligible, although this is impossible to quantify with any certainty. The SMF argue that when they refer to families ‘currently receiving’ tax credits, they take it to mean the type of family currently receiving the benefit, rather than ‘real’, identifiable individual cases. Taken in this light,  their figures can be considered a steady state model, and therefore as accurate as a forecast can be.

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