Work allowances – the nasty little cut in the #AutumnStatement
This afternoon the Chancellor told us that one of his “steps to control benefit spending” will be “freezing Universal Credit work allowances for a further year”. The work allowance is one of the key elements of Universal Credit – it is the amount of earnings you’re allowed before your Universal Credit starts to be reduced. For earnings up to the allowance, your benefit stays the same, so you have quite a strong incentive to increase your earnings up to that amount. But earnings above that amount are “tapered away” – for every £1 you earn, your UC is reduced by 65p, so the employment incentive is much weaker.
It isn’t just incentives that are affected by changes to the work allowance. A low-paid working family’s income will have two main elements: wages and in-work benefits. If the work allowance is cut, more of their wages count against their UC and the amount they get will be cut.
Everyone who wants to “make work pay” will worry about the effect on incentives. Politicians who claim to sympathise with low-paid workers should worry about the boost to in-work poverty.
But the work allowance is one of the side-streets of the benefit system. It’s complicated and, if you don’t have to rely on in-work benefits, it’s unlikely you’ll have heard about it.
All of which makes it ideal for a Chancellor who is intent on making cuts and would rather that no-one noticed. Last year it popped up at the Autumn Statement, when he announced that the work allowances would be kept at its current cash level for three years till April 2017, and not increased in line with inflation. Then, the Office for Budget Responsibility estimated that this measure would reduce low-paid workers’ incomes by £600 million a year by 2017-18.
And here we go again, with the freeze extended to April 2018. The Autumn Statement estimates that it will reduce spending by £115 million in 2018-19 (table 2.2). And, from the Chancellor’s point of view, this is the gift that goes on giving: because uprating when it does start will be from a lower base, it delivers savings every year after that too.
Of course, this cut isn’t the mainstay of the Chancellor’s plans – that honour goes to the Chancellor’s plan for cuts to 2020 in day-to-day spending on public services equivalent to 4.7% of GDP. But it’s still quite nasty enough for me to hate it with a vengeance.