What does Universal Credit mean for middle earners?
Despite the real lack of detail about who gains and loses from today’s reforms, there are some ominous signs for middle earners in the White Paper. While the ‘gainers and losers’ graph only shows very small losses among those in the top deciles, these appear to be averages of the entire population, so give no sense of how, for example, middle income families with children will be affected. It is also far from clear whether this graph reflects changes from the current system, or changes from the current system after cuts. But either way, there are some worrying signs that the outcomes for middle income families may be worse than the Government would like us to believe.
Firstly, Tax Credits are being integrated into UC. This means that the taper rate will move from 41 per cent to 65 per cent. Combined with wider Tax Credit changes, this will mean that for every £1000 a family earns about £6,420, they will lose an additional £260 of their Tax Credit entitlement. For a middle income family using childcare the losses will be substantial.
UPDATE (12th Nov): It now looks as if the Tax Credit changes may not be as bad as we feared – but they are still significant. The White Paper reads:
The Tax Credits taper of 41 per cent (from April 2011) on gross income is equivalent to a net income taper of about 60 per cent….We believe that a withdrawal rate of around 65 per cent woudl deliver sufficient work incentives while also being affordable
This may therefore mean that the Tax Credit taper is being moved from 39 per cent (current) to 41 per cent (April 2011) and then to 46 per cent (introduction of UC). But the situation remains far from clear. We will report more on this as information becomes available.
There is also a suggestion that in addition to the increased taper rate, further childcare cuts are on the cards for middle earners, as the Government suggest:
Help with childcare for people on Universal Credit would be restricted to those in work. The aim would be to allocate some of the current support to those working fewer than 16 hours, so that all types of work are rewarded.
Allocating more for those on fewer hours inevitably means less for those working more hours – who may well find that they can no longer afford to work.
The Government seem to share this assessment, as the White Paper contains this rather ominous phrase:
Although the number of workless households will reduce, it is possible that, in some families, second earners may choose to reduce or rebalance their hours or to leave work. In these cases, the improved ability of the main earner to support his or her family will increase the options available for families to strike their preferred work/life balance.
Does this mean that some families on middle incomes will find that, as their childcare help is cut, they can no longer afford for both earners to work? What are the implications for women returning to work after having children – and for their longer term career progressio – not to mention the impacts on the incomes of middle earning families? The Department acknowledge that:
Some of the design and operational issues have the potential to affect the protected groups under the public sector equality duty.
But as yet no further details are available.