The squeezed middle hit yet again: Benefit system shake-up will hammer those on £25,000 a year

Squeezed middle-income earners  are to be hit yet again by the Coalition’s radical reforms of the benefit system, a high-powered analysis found yesterday. The shake-up meant to draw hundreds of thousands of the workless into jobs will penalise middle-income families and savers, it showed. In all, 1.4 million people will lose out when a string of benefit payouts are replaced in three years by Iain Duncan Smith’s Universal Credit. The great majority will be those who have built up savings and those struggling to get by on wages in the £25,000-a-year bracket. The calculations by the independent and respected Institute for Fiscal Studies undermine the Work and Pension Secretary’s claim two months ago that ‘there will be no losers’. Its report said that ‘a clear group of losers’ will be families with children who have savings of more than £16,000. At present, these families have their incomes boosted by tax credits.

But their savings mean they will not be eligible for Mr Duncan Smith’s Universal Credit. Families on middle incomes will also lose out if they work harder. The benefit system means they keep just 27 pence of every extra pound they earn. But when the Universal Credit is introduced, people on incomes approaching £25,000 will keep less than 24 pence of their added earnings. Tax analyst Don Draper, of the CARE charity, said: ‘If you tell people they will keep less than 24p of the pounds they earn, that is a huge disincentive.’ Mike Brewer, of the IFS, said: ‘One clear group of losers will be families with children having savings of over £16,000: they can currently receive tax credits but will not be eligible for a Universal Credit. ‘This may well focus spending on those who need it most, but also gives families an extremely strong incentive to keep financial assets below this level.’