What more austerity might mean

The government’s reported package of welfare cuts in next month’s budget would overwhelmingly hit the poorest third of families in the UK, new research by the Resolution Foundation shows.

Ministers have been looking at putting the value of the childcare element of child tax credit (CTC) back to to its 2003-04 levels in real terms, it has been reported. The Resolution Foundation says that if the measure goes ahead, more than two-thirds of the families affected will be in work and that families with two children will lose up to £1,690 a year. Not all families would lose this much – about 800,000 working families receive less than the full value of the CTC entitlement as some of it is tapered away from those households not on the lowest incomes. As well as hitting the poorest, it would remove some modest-income families from CTC eligibility altogether. Currently, entitlement to CTC for families with one to three children is fully exhausted when gross household earnings reach about £26,000 and £40,000 a year respectively. A £5bn cut to CTC would reduce those figures by about £2,000 and £6,000.

In addition, almost two-thirds of the cut would be borne by the poorest 30% of households; almost none of the cut would fall upon the richest 40% of households.

The childcare element of the child tax credit is paid to a total of 4 million families (with 5 million children). More than two-thirds of these families (2.7 million) are in work. The annual value of the childcare element for each child in a family is £2,780 in 2015-16. Reducing it back to its 2003-04 level in real terms would cut support by £845 a year per child – a cut of 30%.

Cuts would improve work incentives because they would make out-of-work benefits far less generous.

Gavin Kelly, chief executive of the Resolution Foundation, said: “There will inevitably be lots of speculation about all sorts of possible measures that may be introduced in July’s budget. Let’s just hope that in relation to this proposal it remains speculation.”