UK welfare policy: impact on families with children

3. Long-term impact of welfare policy change

This section highlights recent analysis by the Institute of Fiscal Studies and the Resolution Foundation, who modelled the impact of changes to the tax and welfare system at a GB level.

Both analyses look at the impacts on income in the long-run, when all cuts are fully in place. For example, they assume that the 2 child limit applies to all families with more than 2 children, rather than affecting new births and new claims only, as they do at the moment.

Analysis by the Resolution Foundation is presented in figure 1 ^[9] . This shows that change in average annual income (in £ per year and % of average income) across all income deciles due to all key welfare policies listed in section 2.2 apart from the Benefit Cap.

Figure 1 - Long run impact of welfare policy changes on net household income

(Source: Resolution Foundation)

The analysis shows that households in the bottom 2 deciles are expected to be £800 and £1,000 per year (real terms ^[10] ) worse off financially in the long-run compared to a scenario where thee welfare policy changes had not taken place. This is the equivalent of between 5% to 6.5% of average household income.

Similar analysis by Institute of Fiscal Studies (at a GB level) highlights the particular impact on households with children ^[11] . Figure 2 ^[12] shows the impact of 2015-17 tax and welfare policies, and splits households within each income decile into working-age families with children, working-age families without children and pensioner households.

Figure 2 - Long-run impact of planned tax and welfare policies by income decile and household type

(Source: Institute of Fiscal Studies)

The modelled impact on the net incomes of working-age families with children is large, with average losses of more than 10% of net income for families in the bottom two income deciles expected. This is equivalent to a cut in net incomes of over £1,000 per year (in 2017-18 prices) for these families.

The impact is expected to be worse for families with children and no one in paid work, with the average loss expected to be around £3,000 per year. Those working with low earnings and entitled to tax credits (or Universal Credit) are expected to be worse off by £2,500 per year. In contrast households with children who are in-work and not claiming benefits are expected to be a marginal £100 worse off per year,

It is important to note that many of the welfare policies changes will not create immediate losses of benefit income because of protections for existing claimants.