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Publication - Research Publication

UK welfare policy: impact on families with children

Published: 1 Sep 2017

Report focusing on the financial impacts of UK welfare policy on families with children.

29 page PDF

1.1MB

29 page PDF

1.1MB

Contents
UK welfare policy: impact on families with children
8. Case study 3 – In work couple with 4 children (Mr and Mrs C)

29 page PDF

1.1MB

8. Case study 3 – In work couple with 4 children (Mr and Mrs C)

Case study 3

Mr and Mrs C live with their four children (aged 16, 15, 13 and 10) in a 4 bedroom house. The family currently rent a 4 bedroom property for £175 per week. Mr C has a zero-hours contract, but on average works around 20 hours per week. Mrs C also works two days per week (12 hours). Both earn at the National Living Wage.

The family have always claimed a combination of Tax Credits and benefits. They currently claim Universal Credit and Child Benefit. Because all of their children were born before April 2017 they are entitled to four child elements under Universal Credit.

Total Net Income (2020/21) without policy change – £38,410

Total Net Income (2020/21) with all policy changes - £37,280

  • 3% lower
  • £1,130 less in Net Income per year

7.1 The impact of welfare policy on Mr and Mrs C

In 2015/16 there were around 8,000 in work households in Scotland with 4 or more children claiming Working Tax Credits and Child Tax Credits. In GB as a whole, around 80% of families are couples, rather than lone parents [26] .

As a result of welfare policy changes introduced since 2015/16, Mr and Mrs C and their family would be worse off by around £22 per week or around £1,130 per year by 2020/21. This represents almost a 3% reduction in what the family could have been entitled to in 2020/21 had UK welfare policies not been enacted.

Although Mr and Mrs C have 4 children, they are not affected by the removal of the family element or the 2 child limit because all of their children were born before April 2017 and they did not make a new claim to Universal Credit but wee migrated over from legacy benefits.

Due to the freeze to Universal Credit elements, the reduction in the UC work allowance and the change in the taper rate, the family is around £1,468 per year worse off compared to a scenario where no welfare policies are applied. The family loses an additional £264 per year due to the freeze in Child Benefit. Due to the rise in the National Living Wage, the family does earn around £1,625 more per year, however £1,024 per year (63%) of this is lost due to the corresponding reduction of the UC award [27] . Overall, the family loses around £1,130 per year by 2020/21.

Figure 9 – Change in benefit income and net earnings due to welfare policies by 2020/21 (Case Study 3)
Figure 9 – Change in benefit income and net earnings due to welfare policies by 2020/21 (Case Study 3)

Analysis of future poverty thresholds (see figure 10) suggests that the poverty threshold (before housing costs) for this household in 2020/21 would be around £35,700 per year. This means that, on a before housing cost basis, in both scenarios Mr and Mrs C's net income is above the poverty threshold.

Figure 10 - Net incomes (with and without welfare policies) against relevant poverty thresholds by 2020/21 (Case Study 3)
Figure 10 - Net incomes (with and without welfare policies) against relevant poverty thresholds by 2020/21 (Case Study 3)

Alternatively, on an after housing cost basis, Mr and Mrs C's net income places their family below the poverty line in both scenarios. However, the impact is still significant in terms of distance from the poverty threshold in both scenarios. Without welfare policy changes Mr and Mrs C's income is just 12% lower than the relevant poverty threshold, whereas with welfare policy changes Mr and Mrs C's income is 15% lower.

8.2 The impact of Mr C losing employment – application of the Benefit Cap

Mr and Mrs C are exempt from the Benefit Cap because they earn £1,258 per month, which is above the Benefit Cap minimum income threshold of £630 per month [28] . The cap is set at £20,000 per year, which means if, for example, Mr C lost his job and the family relied solely on Mrs C 12 hours of work per week (£5475 per year), the family would lose a considerable amount of benefit income [29] .

Due to Mr C losing his job, and the fact that he was not able to find a replacement within the 39 weeks grace period, the family's net income falls by around £11,745 per year or around £225 per week (compare 2 and 4 in figure 11) [30] . However, this is the combined effect of a drop in earnings due to Mrs C's loss of employment and the impact of the cap itself. The full impact of welfare policies only is shown in comparing 3 and 4 in figure 11.

If Mrs C continues to only work 12 hours per week, then her family's total net income is £25,530 per year. This is compared to £30,921 had no welfare policies been passed since 2015/16. In total this represents a reduction of £5,390 per year (a 21% reduction in net income).

Figure 11 - The impact on net income of Mr C losing employment and the Benefit Cap applying to the household
Figure 11 - The impact on net income of Mr C losing employment and the Benefit Cap applying to the household

Figure 11 shows the impact of the Benefit Cap on the net income of the family when Mr C loses his employment. Four scenarios are presented:

1. None of the 2015/16 welfare policies or changes to income tax thresholds or the National Living wage are implemented, Mr C and Mrs C work a combined 32 hours per week and are not subject to the Benefit Cap. By 2020/21 the family's income is Ms P's net income is around £38,406 per year.

2. All 2015/16 welfare policies and other changes are implemented, Mr and Mrs C work a combined 32 hours per week and are not subject to the cap. By 2020/21 her income is around £36,719 per year.

3. No 2015/16 welfare policies or other changes are implemented, but Mr C does not work and only Mrs C only works 12 hours. They are subject to the old Benefit Cap (£26,000 per year), with household income being topped up by earnings to £30,921 per year.

4. All 2015/16 welfare policies and other changes are implemented, but Mr C does not work and only Mrs C only works 12 hours. They are subject to the new lower Benefit Cap and the household income is £25,530 per year.


Contact

Email: Philip Duffy, Philip.Duffy@gov.scot

Phone: 0300 244 4000 – Central Enquiry Unit

The Scottish Government
St Andrew's House
Regent Road
Edinburgh
EH1 3DG