‘Welfare cap in chancellor’s budget imposes unnecessary risks on children in poverty’

The chancellor’s budget this week was a real mixed bag for low income families.

There was some great news about childcare and Universal Credit. Last year the government said that under the new system all but the lowest income working families – those with one or more parents earning under £10,000 a year – would be able to get up to 85% of their childcare costs covered through Universal Credit.

Two-tier system

Worryingly, this left those on the lowest incomes getting a significantly lower rate of 70% of their childcare costs covered. The Children’s Society warned that this not only created a confusing two-tier system, but it also actually provided less support for the families that needed this help the most.

So, it was great to see the government making the change to provide 85% of childcare costs for everyone receiving Universal Credit – including the lowest paid. This will not only create a fairer and simpler system, but crucially, will make a real difference to hundreds of thousands of the UK’s poorest families that are struggling to make work pay because of childcare costs.

Our major concern with the announcement is that the extra £200m needed to fund this is to be found from the wider budget for Universal Credit. It is really important that when the details of this are set out in the next Autumn Statement, the costs of this crucial support are not taken from the pockets of the poorest families.

Personal allowance

On first glance, raising the personal allowance for taxation from £10,000 to £10,500 also appears a very positive move for working families struggling on a low income – meaning they keep more of their pay.

However, many families will see little benefit from this. Some earn under £10,000 (for example, a single mum working 25 hours a week at the national minimum wage of £6.32 per hour brings in just £8,200 per year). And for many other families, even if they are earning in excess of £10,000, this change will show little real benefit.

This is because for the many thousands of working families that depend on housing benefit to top up their earnings, the vast majority of any gain is lost in deductions from their benefit – so they gain on the one hand, but lose on the other.

Cap on welfare spending

A final change that raises real concern for the future, is the government’s plan to apply a new cap on overall welfare spending. It’s intended to control welfare expenditure by limiting the amount that can be spent on most benefits and tax credits together to a fixed annual limit.

But, having a cap on welfare spending makes it harder for policy makers to respond to changing economic circumstances and take necessary action to end child poverty through a fairer welfare system.

By limiting action which would increase this, it transfers the risk of unforeseen rises in living costs – such as costly childcare or rocketing rents – from the treasury to children and families that are struggling make ends meet on low incomes.

Applying an arbitrary cap is not the right approach to bringing down the welfare bill. The best way to bring down welfare spending is better pay, and action to address costs of living. The cost of any inaction in these crucial areas should not be passed on to the poorest children.

The government must do more to make sure the most vulnerable families in our society do not bear the biggest burden.

• Lily Caprani is director of strategy and policy at The Children’s Society