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Autumn Statement commits Treasury to UC

November 26, 2015


The Chancellor cancelled plans in yesterday’s Autumn Statement to reduce the value of Tax Credits first announced in the July Budget. The change of direction followed months of opposition from inside his own party and elsewhere, culminating in the House of Lords voting against the measure in two votes on 26 October. In their place however, George Osborne, plans to deliver the savings by accelerating the roll out of Universal Credit in this Parliament.

For first time HM Treasury has committed to Universal Credit reforms and is now relying on them to deliver the £12bn of welfare savings given in the Conservative party’s manifesto in the May General Election. George Osborne and the Treasury’s fiscal plan for the UK now rely on the success of Universal Credit and the quality of PAYE earnings data reported by UK employers.

A more positive forecast of the public finances given by the independent Office for Budget Responsibility, gave the Chancellor the room to cancel the Tax Credit cuts outright. From April 2016 the accelerated roll out of Universal Credit will begin to supersede Tax Credits, delivering the required savings automatically.

The reduction in the July Budget of the Universal Credit work taper, the amount of earnings claimants can keep before their UC claim reduces, attracted little criticism or comment because of the low numbers of current claimants. However the reduced UC work taper means that the Treasury will now achieve its £12bn of welfare savings by 2020 as a direct result of the UC now becoming the main welfare support for low income working families.

In documents released by the Treasury following the Chancellor’s statement it is clear that the roll out of Universal Credit will commence on a significant scale from April 2016 and continue throughout the remainder of this Parliament. The IFS released figures today confirming the Treasury’s updated fiscal plans show that there will be some 1m claimants in UC by the end of the 2016-17 financial year.  DWP will also have completed the roll out of UC to all of its 850 Jobcentres by April 2016 ready for the migration of Tax Credit claimants to UC.

What has often appeared to be the personal project of the reforming Secretary of State for Work & Pensions, Iain Duncan-Smith, is now shared by the Treasury. The Chancellor, George Osborne is now personally identified with its success. Universal Credit is unlikely to succeed if the quality of earnings data reported by employers and used automatically in UC claims is not accurate or timely, as the system depends on employers reporting PAYE error free every time they submit RTI.

In another significant development the Chancellor’s Autumn Statement announced £1.3bn of funding to deliver “the most digitally advanced tax administration in the world” by 2020. This investment will provide for the creation of a Digital Tax Account (DTA) requiring most businesses, the self-employed and landlords to manage their tax affairs digitally and update HMRC "at least" quarterly. “This will give individuals and businesses a more convenient real-time view of their tax affairs, providing them with greater certainty about the tax they owe,” said Mr Osborne.

The Statement contained little additional detail on the DTA plans and how they would integrate with RTI data values captured from earnings reported in PAYE.

The Chancellor also announced a new Apprenticeship Levy payroll tax. Designed to get round the block the Government itself imposed on any increase to National Insurance, the Apprenticeship Levy will be set at 0.5% of employers’ payroll costs from 6 April 2017. It amounts to an increase in employer’s National Insurance Contribution for larger employers. The Levy will only apply to employers with a total payroll in excess of £3m per annum. Every employer will be given an allowance for the Levy of £15,000, effectively exempting all employers whose salary costs are less than £3m. The new Levy will be both assessed and collected via RTI.

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