Tax credit reform fears for struggling farmers

RABI says in its autumn bulletin: “Nine out of ten working families helped by RABI rely on tax credits to boost their income. Under the government’s proposed Universal Credit, these families would lose out.”

The Universal Credit is a plank of the Welfare Reform Bill, which is due for a second reading in the Lords on September 13, on the way to taking effect in 2013. Its aims are to simplify what the government calls a “labyrinthine” system bequeathed by Labour and to encourage low-income families to try to earn more rather than stay as they are for fear of losing benefits.

It will be based on estimated earning capacity rather than actual earnings claims and is aimed at people who do a little work so they can call themselves self-employed rather than unemployed and qualify for income top-ups.

RABI says: “A family with two children, with the husband’s annual earnings from farming around £8,000 and the wife employed off-farm with a salary of around £15,000, would currently receive approximately £3,500 a year in tax credits to boost their joint income.

“Under the proposed rules, the husband’s income will be calculated as the number of hours worked, multiplied by the national minimum wage. So if he conservatively says he works 45 hours a week, his annual income would be assumed to be around £14,000.

“As a result, his tax credits would reduce to some £1,000 a year – £2,500 less than at present. There would be cases for which the difference will be far greater.”

Robin Williamson, who runs the Low Incomes Tax Reform Group for the Chartered Institute of Taxation, told the Yorkshire Post this week that his group was concerned about the impact of the proposed reform on farmers and on people trying to get started in a whole range of other employments. Peers were being briefed in preparation for the next stage of the Parliamentary debate.

RABI’s head of welfare, Patricia Pickford, wrote to the Prime Minister to say: “Part of our work is ensuring that applicants are in receipt of all they are entitled to. We are very concerned that the proposed Universal Credit will penalise those who are self-employed, due to the fact that it is to be assumed that they are earning at least the equivalent of the national minimum wage.

“Farmers work very long hours, particularly dairy farmers and those rearing livestock. It is especially hard for small tenant farmers who have no collateral. There are years when they make a loss, or only a very small profit, when circumstances such as ill health, bad weather, TB or other diseases, the high price of animal feed and fuel, all conspire to make it difficult to make a living. Many will suffer even more if calculations for eligibility for Universal Credit are not based on actual income.

“Looking at the wider picture, the proposal will discourage people from all walks of life from starting up small businesses.”

DEPATMENT’S RESPONSE

RABI has been told by Lord Freud, minister for welfare reform at the Department of Work & Pensions: “It is our intention that the new system works efficiently for self-employed people and we will not impose any unnecessary burdens on them. We will balance this efficiency with safeguards to make sure the public funds are distributed wisely.” A DWP spokeswoman said: “We cannot add to that.”

* Are you in the tax credit trap? Or do you have an opinion? Email [email protected] or call 0113 238 8426.