Thomas Bridge 08 July 2015

Budget 2015: Osborne cuts benefits cap amid sweeping tax credit reform

George Osborne has promised to forge a ‘lower welfare, lower tax’ Britain with plans to slash the benefits cap and tighten controls on housing support.

While the Conservative manifesto promised a sweeping £12bn of welfare cuts by 2017/18, Osborne today gifted himself a further year to reduce spending and vowed to be ‘bold’ in his reforms.

He said the current welfare system was ‘not fair’ or ‘sustainable’ for the taxpayer and ‘crowds out spending on education and infrastructure.’

In what was the first wholly Conservative Budget for almost 20 years, Osborne announced plans to freeze working age benefits for four years to ensure ‘earnings growth will catch up and overtake the growth in benefits’. This reform will include Tax Credits and Local Housing Allowance. However payments including maternity pay and disability payments such as PIP, DLA and ESA will be excluded.

In what was his seventh Budget, Osborne announced the benefits cap would also be reduced from £26,000 to £23,000 in London and £20,000 across the rest of the country.

He proposed scaling back the housing benefit bill by requiring social housing tenants who earn more than £30,000 per household or £40,000 in London to pay rents at the market rate.

The Government will also look to abolish the automatic entitlement to Housing Benefit for 18-21 year olds, with exceptions for the vulnerable.

‘Young people in the benefits system should face the same choices as other young people who go out to work and cannot yet afford to leave home,’ Osborne said.

Support offered through tax credits and Universal Credit – the combination of six of the main benefit payments - will also be limited to families with two children. These measures would ensure families that have a third child after April 2017 did not receive support for this child. However Osborne announced there would be ‘provisions for exceptional cases including multiple births’.

He said housing benefit would receive similar changes, such as the removal of the family premium for children born or claims made after April 2016.

Measures to be outlined in the Welfare Reform and Work Bill later this year will also reduce the income threshold on tax credits from £6,420 to £3,850. Universal Credit work allowances will be similarly reduced and no longer awarded to non-disabled claimants without children.

Osborne said these tax credit changes ‘are not easy but they are fair’ and would return tax credit spending to 2007/08 levels.

He added that from September 2017 all working age parents of three and four year olds would receive free childcare of up to 30 hours per week, with the expectation that they will ‘look for work if they want to claim Universal Credit’.

Plans will also see the Employment and Support Allowance for the disabled looking to work aligned with the rate of Job Seekers Allowance for new claimants.

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