Comprehensive Spending Review: employment and PAYE

It was widely expected that the spending review would focus on welfare funding. One of the areas to be affected by the cuts is employment.

Claims for the contributory Employment Support Allowance are to be limited to 12 months for those in the work related activity group.

This is likely to have an impact on some 1 million claimants.

Household welfare payments, as has already been announced, are to be capped at around £500, which is estimated to be median earnings for households after tax.

However, the Chancellor announced that the Working Tax Credit is to be exempted from the cap.

As from April 2011, the basic and 30-hour elements of the Working Tax Credit is to be frozen for three years. After that, it will rise by the rate of inflation as determined by the Consumer Prices Index.

From April 2011, the proportion of costs covered by the childcare element of the Working Tax Credit will fall from 80 per cent to 70 per cent of costs.

In future, real time PAYE information will be used to update the tax authorities on tax credit calculations. It is estimated that linking real time details on earnings and tax credits will help to eliminate errors and overpayments, so saving £300 million by 2014/15.

A new Universal Credit is to be phased in over the next two Parliaments which will replace the current system of benefits. The government hopes that the new tapered single payment will encourage more people to seek employment.

The Department for Work and Pensions is to cut its core budget by 26 per cent in real terms by 2014/15.

Some of the savings will come from dropping trhe present welfare-to-work programmes with a single new Work Programme.

The DWP is also to stop issuing national insurance cards and will send out letters with the relevant information instead.