The Labour Party released details of research last month, showing how new claimant families will get lower in-work benefit entitlements when tax credits are replaced by the Universal Credit benefit system.
Owen Smith, the shadow Work and Pensions secretary, said research commissioned from the House of Commons library shows that next year, thousands of working families will be at least £2,500 a year worse off as a result of the government’s cuts to Universal Credit.
Mr Smith MP, responding to Iain Duncan Smith’s recent claim on the Andrew Marr show that “nobody loses a penny” from cuts to Universal Credit, said:
Iain Duncan Smith is completely wrong to say nobody loses a penny from his cuts to in-work support.
Cutting Universal Credit raises £100m for the government next year and that money has to come from somewhere.
What the Tories aren’t telling us is that the £100m – and a further £9.5 billion over the next five years – comes from the pockets of low- and middle-income families.
That means those currently on Universal Credit face losses of up to £2,400 come April.
Just like tax credit cuts, working families will be worse off next year and just like those cuts, Labour will fight them at every turn.
Earlier this month, analysis from the independent Office for Budget Responsibility, (OBR) suggested the changes to universal credit announced in the July budget would save the Chancellor close to £3bn by 2019-20.
The Labour Party is taking advice from lawyers about the legality of the benefit cuts under universal credit. Owen Smith, the shadow work and pensions secretary, said it is discriminatory that a single mother working full-time on the minimum wage could be almost £3,000 worse off under universal credit than a mother in precisely the same circumstances on tax credits.
The challenge raises the possibility that the new welfare system could be challenged in court.
Although the Chancellor abandoned plans to cut tax credits affecting millions of working families, in his Autumn Statement, it was due to pressure from the opposition, because the cuts were rejected by the House of Lords and a number of uneasy Tory backbenchers also raised concerns about the negative impact the cuts would have on working families.
Labour MPs have highlighted that claimants will be substantially worse of claiming Universal Credit, the in-work benefit payments are much lower.
In his autumn statement speech, the Chancellor said: “The simplest thing to do is not to phase these changes in but to avoid them altogether.” But he added: “Tax credits are being phased out anyway as we introduce universal credit.”
The OBR’s analysis show that by 2021 the changes to Universal Credit will save the Treasury almost as much each year as the controversial tax credits policy would have done.
Mr Smith said:
Those lucky enough to stay on tax credits will be massively better off than those on universal credit … That disparity cannot be fair, it cannot be right and it may not even be legal, and we are seeking advice as to the legality of that move.
Mr Smith also confirmed that a Labour government would reverse cuts to benefits happening under Universal Credit. He said:
We will press for the same reversal for the victims of the universal credit heist that will hit precisely the same Tory and Labour constituents just before the next election.
He made the comments in a debate about the welfare cap, after the government sought approval for a motion that said the breach of Osborne’s own fiscal rules were justified because of the reversal of tax credit cuts.
Junior Work and Pensions minister, Shailesh Vara, has confirmed that on current forecasts the cap will not be met for three years.
Universal Credit is to be rolled out gradually, with about 500,000 people on the new benefit by next April. The government has insisted they will be compensated for lower payments through a special scheme called the flexible support fund.
However, Owen Smith said the only money on offer was a £69m grant for job centre managers to help people who are close to getting into work with costs such as bus fares and new clothing.
Even if it were permissible to use that money, it is in no way going to make up for the £100m shortfall next year, the £1.2bn shortfall the year after, and certainly not the £3bn shortfall in 2020. It is completely impossible and I fear it is also misleading to the public.
Mr Smith also queried the Chancellor’s absence from the House of Commons during the debate, saying he had “carelessly, ignominiously fallen into his own welfare trap” and “slipped on his own smirk”.
But inexplicably, he’s not here to account for it. Last spring he was quite definite that he should be. He said: ‘The charter makes clear what will happen if the welfare cap is breached. The chancellor must come to parliament, account for the failure of public expenditure control’”.