Osborne rocked by claim that millions will lose out in benefits

Chancellor George Osborne suffered a post-Spending Review blow when a respected economic think tank predicted that his changes to benefits would result in millions of families more than £1,000-a-year worse off.
Chancellor of the Exchequer George Osborne lays bricks during a visit to a housing development in South Ockendon in Essex.Chancellor of the Exchequer George Osborne lays bricks during a visit to a housing development in South Ockendon in Essex.
Chancellor of the Exchequer George Osborne lays bricks during a visit to a housing development in South Ockendon in Essex.

The Institute for Fiscal Studies estimated that the new Universal Credit system will mean 2.6 million working families will be on average £1,600 a year worse off.

Transitional protections mean that no existing claimants will lose out in cash terms when the new system comes in, but new claimants and those whose circumstances change will lose out in the long run, the IFS said.

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Despite Mr Osborne’s decision in Wednesday’s Autumn Statement to scrap cuts to tax credits proposed for next April, the IFS said that his plans still envisage reducing non-pension benefits to their lowest level as a share of national income for 30 years.

Research economist Andrew Hood said: “No existing claimants will see a cash fall in their entitlements.

“Previously, in April 2016, some people were going to see less money than they previously had. That’s no longer going to be the case. Even when existing claimants are rolled on to universal credit their entitlements are protected in cash terms.

“The point we are making is the system is still less generous in the long run, so new claimants and claimants whose circumstances change and lose that transitional protection, will lose out in the long run.”

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However there was some good news for the chancellor, who spent the day visiting a housing development in South Ockendon in Essex, in the respect that the IFS modelling suggests that in the long run, as well as 2.6 million working families being an average of £1,600 a year worse off than they would have been under the current system, some 1.9 million will be £1,400 a year better off.

IFS director Paul Johnson said Mr Osborne was “lucky” to receive a £27 billion windfall which allowed him to perform his U-turn on tax credits.

And he said the Chancellor will “need his luck to hold out” if he is to meet his target of a surplus by 2019/20 without raising taxes or imposing further spending reductions.

While Wednesday’s Autumn Statement and Spending Review has resulted in cuts “less severe” than envisaged in July’s post-election Budget, Mr Johnson cautioned that it was “absolutely not the end of austerity”.

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The Spending Review settlement is “one of the tightest in post-war history” and a swathe of government departments will face real-terms cuts.

Even the NHS, which had its budget protected, will receive only a total increase of 3 per cent over the next five years - close to the annual average over the past half-century - he said.

Mr Johnson said the Chancellor had effectively abandoned his cap on annual spending on welfare, which will be breached in each of the next three years.

And while the ditching of tax credit cuts means no family will take an “immediate cash hit”, the long-term generosity of the welfare system “will be cut just as much as was ever intended, as new claimants will receive significantly lower benefits than they would have done before the July changes,” said Mr Johnson.

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A Treasury spokesman said it was “not legitimate” to compare the payments received by a new claimant under the Universal Credit system with the amount the same person would receive under the current system.

“Universal Credit is designed to ensure that work always pays. It is an entirely different system to the current one, taking in six different tax credits and benefits - with none of the cliff edges of tax credits.

“So comparing what someone making a new claim would receive under the new system in 2020 to what they would be eligible for now is not legitimate.”