Tax credit U -Turn and Amber Rudd to scrap the Bedroom Tax

Amber Rudd the DWP Minister is to reverse the no more than two child tax credit policy today which is being touted as a U-turn by the BBC, which it is, and stated by CPAG to be “fantastically good news” … which it most certainly is not as I explain here.  It also means Amber Rudd believes the Bedroom Tax is unfair and should be scrapped! You couldn’t make it up could you!

ruddy nonsense

The detail of tax credit U-Turn and interplay with Overall Benefit Cap

15,000 more families will be put at acute risk of eviction and homelessness due to the Overall Benefit Cap policy is why this cannot be described as good news at all and especially not fantastically good news.

Simply, this £2,780 per child per year more they will receive means £2,780 less per child per year in Housing Benefit or its Universal Credit equivalent so a household with 4 children and two more than the previous 2-child limit will get £5,560 more in Child Tax Credits and the same £5,560 less in Housing Benefit.

The U-Turn

The opening of the BBC article on this tells us what the apparent changes are and all outlets are running the same detail:

About 15,000 families no longer face having their benefits capped after the government performed another U-turn over its flagship universal credit. The work and pensions secretary has ditched plans to extend a benefits cap on families of more than two children.Amber Rudd said those with children born before the system began in 2017 would remain exempt, as she aimed to ensure it was “compassionate and fair”.

The Child Poverty Action Group said the decision was “fantastically good news”.

However, the group is still calling for the two-child cap to be scrapped for all other families. Labour said the change “does not go far enough”.

The BBC article, its comment and that of CPAG all miss the very significant way this U-turn will interact with another welfare reform policy of the Tories in the Overall Benefit Cap (OBC) that limits households to £20,000 per year in ‘welfare’ (social security benefit plus tax credits) which is £384 per week.

How the OBC works for a household and 3 children

The OBC policy starts with the OBC limit of £384 per week. Then deducted from this £384 cap limit are:

  • The base benefit (Income Support / JSA / ESA) of £73.10 per week for a lone parent
  • The amount of Child Benefit which for 3 children is £48.10
  • The amount of 3 lots of Child Tax Credit of £160.50

That comes to £281.70 per week for a lone parent 3 child household and leaves a residual maximum amount of £103 per week that can be paid as the maximum Housing Benefit figure – or in London a maximum Housing Benefit amount of £161 per week as London has a higher OBC limit of £442 per week and £23,000 per year.

If the household is a two parent one the extra base benefit is £41.75 per week (£114.85 for a couple compared to £73.10 for lone parent) and so the household in the regions will have a maximum Housing Benefit entitlement of £61 per week and in London a maximum Housing Benefit entitlement of £100 per week.

Try finding a 3 bed house which is the housing need of a household with 3 children with a maximum HB amount of £61 per week. Or try finding one in London with a maximum HB of £100 per week and the point becomes clear.

This change only happens when the household moves on to Universal Credit and which means the HB element of the UC payment will be paid directly to the tenant not the landlord.  How many social landlords will thus refuse to house such a household based on the premise that they cannot afford the rent with this change?  The answer is every one of them.

That aspect has always been the problem with the Overall Benefit Cap policy as it forces the so-called social landlords to operate a NO DSS allocation policy.  It was a slow burner of a policy as the original £500 pw cap was a fixed constant from its introduction in 2013 and as Child Benefit, base benefit and rents increased it gave a lower figure as the maximum HB that could be paid.

From November 2017 the Tories then decided to go much further and reduce the £500 constant OBC limit to £442 pw in London and £384 per week in the rest of the UK, respectively swingeing cuts of 11.5% and 23%.

The Bedroom Tax dimension

The same BBC article sees the Chair of the All Party Working Group on Work and Pensions, Frank Field be equally ignorant of this overall benefit cap policy, ignorant of tax credits and ignorance of the Bedroom Tax (so no change there then!) :

Former Labour MP Frank Field, who chairs the work and pensions committee, said: “I strongly welcome the secretary of state’s decision not to press ahead with what could have been the cruellest benefit cut in history. “At the eleventh hour, she has prevented thousands of children from being plunged into poverty by an unjustifiable retrospective policy.”

They will still be plunged into poverty Mr Field and a worse version of that as existing households will be evicted and plunged into the greater poverty of homelessness as this U-Turn interacts with the Overall Benefit Cap policy.  Has anyone noticed the bedroom tax dimension here?  Frank Field most certainly hasn’t!

Amber Rudd,according to the BBC article will say:

On the two-child limit, she will say in her speech later that it was “not right” for it to apply to those who had their children before the cap was announced. “These parents made decisions about the size of the family when the previous system was the only system in place,” she will say.

Amber Rudd like Frank Field will know and realise that this ‘retrospective nature’ is exactly the same principle as the bedroom tax  policy.  Families chose and were allocated their family homes when the bedroom tax policy was not in place.  So why have they been hit by the retrospective bedroom tax Amber Rudd?

The Tory position on the bedroom tax ignores this same retrospective issue. These parents made decision about the size of their family when the previous system was the only one in place is a very telling phrase and rationale minister!

The Tories not only ignored the retrospective aspect of the bedroom tax, they closed the mistake they made in the Pre-1996 issue that meant for the first year of the bedroom tax they wrongly applied the bedroom tax to over 40,000 households and cut an average of £700 or so from their Housing Benefit.  Then they changed their mistakes to ensure that retrospection did apply in the Bedroom Tax.  Now, apparently, retrospection is unfair in the Tory welfare benefit policy lexcicon.

I look forward to the DW minister amending the bedroom tax policy to disapply it from all those who took up residency in social housing before 1 April 2013 as such a policy is retrospective and unfair isn’t it Amber Rudd?

3 thoughts on “Tax credit U -Turn and Amber Rudd to scrap the Bedroom Tax”

  1. Gary, you will also know or at least should know that the overall benefit cap does not apply to the rent (HB) element in a refuge for those fleeing domestic abuse so families in this situation would not have the OBC applied!!


  2. Gary, I used the 15,000 figure as that was the figure quoted in the article. DWP estimates are notoriously wrong eg 3 -5k affected by pre 96 bedroom tax issue was over 40k – DLA to PIP will remove 500k (15.1%) out of disability benefits altogether when latest figures show it is 26% and on target for 860,000 DLA recipients who this government can only claim to be swinging the lead and obviously hoodwinking their GPs and consultants who have assessed them as being disabled. The reality is far worse and I have massively understated the impact in this post not overstated it. I note – as per usual – you have chosen to be eclectic once more in your comments and missed the housing NO DSS allocation issue that is huge and severely understated here, as you have missed the fact of the systemic flaw in the OBC which sees a constant cap figure increasingly met with higher ‘welfare’ and higher rent increases that all mean constantly lower maximum HB amounts.

    PS Yes irony is one word, the more correct word or phrase for the Tories rationale here as opposed to the exact opposite rationale for the bedroom tax in their thinking is “rank incompetent duplicity!”


  3. Joe….apart from the wholly misleading headline (which I know you meant as irony but some will take it at face value) I think you have misunderstood today’s announcement. The original proposal was to limit brand-new uc claims made after Feb 1st to two children, ,no matter when the children were born. So women fleeing DV or newly-unemployed households, who hadnt been on ctc or uc within the previous 6 months, would have their uc capped at two kids even if their children were 10, 12 and 15. This now wont happen. I agree that some of those families will be caught by the overall benefit cap instead but it’s simply untrue that all of the estimated 15,000 who would no longer be capped by the retrospective extension of the two-child policy will fall foul of the total benefit income cap. Some will still be working; some will have recently been in work; some will be exempt from the total benefit income cap through receipt of dla/pip/ESA SG.; some will have no allowable housing costs such as owner-occupiers or mortgagees. Overstating the negative impact isnt good tactics


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