Working families £18k worse off than benefit claimants after Budget
Parent would need £71k wage to match jobless household’s income under Reeves’s system, research finds
Families on modest incomes will be £18,000 worse off than jobless parents claiming benefits following Rachel Reeves’s abolition of the two-child cap in the Budget, an analysis has found.
A family with three children that has at least one parent claiming the average rates of Universal Credit (UC), combined with other benefits, will receive up to £46,000 by next year, according to the Centre for Social Justice (CSJ).
That compares with the £28,000 take-home earnings of a family where one adult is working full-time, and another part-time, on the national living wage.
The disparity will fuel criticism of the Chancellor’s Budget for raising taxes on working people by £26bn to pay for an extra £16bn on welfare spending.
The findings come amid demands for Ms Reeves to quit after she and her officials were accused of falsely exaggerating the scale of the fiscal shortfall as she prepared the ground to increase taxes and welfare spending in the Budget.
Writing in The Telegraph, Kemi Badenoch, the Conservative leader, said that Labour had created a system “where people who work hard and do the right thing struggle to get by, while those who do not work can end up with greater security funded by other taxpayers who are getting crushed by the burden”.
Sir Iain Duncan Smith, chair of the CSJ and architect of UC as work and pensions secretary in the 2010s, said: “Getting welfare spending under control is critical. We must make work pay and, as this Government loses control of a ballooning welfare budget, it will ensure work does not pay.”
Ms Reeves’s decision to axe the two-child cap introduced by the Tories in 2017 cost £3bn and was the centrepiece of her Budget. It was widely welcomed by Labour MPs.
The CSJ analysis found that a family with three children, with at least one parent claiming the average rates of UC, housing and health benefits, including the Personal Independence Payment (Pip), will now receive £46,000 by 2026-27. For a family with five children, this rises to £55,000.
This compares to the £28,000 after tax taken home by a family where one adult works full-time and another works part-time on the national living wage, according to the CSJ.
The think tank calculated that to take home the same amount as a three-child family with combined benefits, a worker would now require a salary of around £71,000 before tax. This would have to rise to £90,000 to match the benefits of a family with five children.
A single out-of-work parent on the same combined benefits with three children would be paid £43,000. That is over £22,000 more than someone would net after tax from working full-time on £20,600, according to the CSJ.
By contrast, a single parent of three with a child receiving an allowance for a condition (such as ADHD or autism) will now receive £38,000 – £17,000 more than the take-home pay of a living-wage job.
The CSJ report entitled “The Benefits Budget” highlighted what the think tank described as a “worsening of deeply perverse incentives” in the welfare system.
It estimated the out-of-work benefit population with no requirement to work now exceeded five million, almost double the pre-pandemic level when taking “legacy benefit” claimants into account.
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