ICAEW Tax Faculty provides analysis of the announcements relating to tax credits and state benefits in the 2016 Autumn Statement.
The government announced that it has no plans to introduce further welfare savings measures in the current parliament, beyond those already announced. The changes previously announced were already very significant. The cap on welfare spending remains but has been reassessed to take account of previously announced changes.
The ‘triple lock’ which applies to the state pension will be retained for the current parliament, in line with the Conservative party manifesto. The Chancellor did indicate that it would then be reviewed, saying: “as we look ahead to the next Parliament, we will need to ensure we tackle the challenges of rising longevity and fiscal sustainability”.
The rate at which universal credit is withdrawn will reduce from 65% to 63% from April 2017. This means that for each £1 of income over the work allowance, the maximum amount of universal credit is reduced by 63p rather than 65p. The work allowance (the amount which a claimant is entitled to earn without a reduction to their entitlement) was reduced significantly from 6 April 2016 and this change has not been reversed.
There is no equivalent change to the withdrawal rate for tax credits which remains at 41%. (Tax credits are based on gross income whereas universal credit is based on net income after tax and NIC.)
From April 2017, new tax credit claims can be made using digital devices. The online system for tax credits was suspended soon after their introduction, due to concerns about fraudulent activity. The ability to renew claims online was reintroduced a few years ago. The option to make new claims online is welcome but does seem rather late in the day, as tax credits are being phased out.
At paragraph 5.9 of the Green Book there is a statement that “HMRC will make in-year award adjustments so the disability elements of child tax credit will be paid to a group of recipients who are eligible, but not currently receiving this entitlement”. The cost of this is estimated at £95m in the current year. We understand this follows a three-year period when HMRC could not automatically update these awards, with the result that around 28,000 families are currently not receiving the higher level of credit they could be entitled to because of their child’s disability.
The new tax-free childcare scheme will be introduced gradually from early 2017. Once the scheme is fully rolled out, the government will review its operation to ensure it is delivering as intended and to assess the benefit it is delivering for working parents.