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Thursday, 9 October 2014

CARERS STUCK IN EARNINGS TRAP

Some carers face losing £61.35 a week after their earnings rise just £3 due to a Government failure to coordinate its policies.

The people affected claim Carer’s Allowance – which means they already work unpaid looking after a disabled person for at least 35 hours a week. And they supplement that with part-time work of 16 hours a week on the minimum wage. Most of them will be parents – many single parents; some may be over 60 without a state pension; others may be disabled themselves.

Until 30 September 2014 National Minimum Wage was £6.31 an hour. For 16 hours work that is £100.96. On 1 October it rose to £6.50 an hour. So 16 hours’ work comes to £104 a week. One of the conditions for getting Carer’s Allowance is that you do not earn more than £102 a week. So before the change in minimum wage carers could work 16 hours and stay below the threshold. From 1 October 16 hours’ work will put them above the threshold. Once that line is crossed the whole £61.35 a week benefit disappears completely. So an extra £3.04 a week costs them £61.35 in lost benefit.

The simple answer of working fewer hours creates another problem. People on low pay can claim a benefit called Working Tax Credit. This group of people (single parents, some other parents, over 60s, and those who are disabled) must work at least 16 hours a week to get Working Tax Credit. So if they cut their hours below 16 to bring their pay under the threshold for Carer’s Allowance they stop being entitled to Working Tax Credit. It is worth up to £75 a week for some.

So this small rise in the National Minimum Wage faces this group of carers with the choice of losing a benefit of £61.35 a week or one of up to £75 a week.

Benefit complexities
Nothing in benefits is quite that simple. If they give up Carer’s Allowance they would not lose the full £61.35 a week. That is because their income is lower and Working Tax Credit might therefore rise – though never by more than £25 a week.

And two things might stop Working Tax Credit increasing. First there is a maximum amount payable and if they are close to or at that level already a further cut in income may not result in a significant rise in Working Tax Credit. Second, the Credit is worked out on annual income in the previous tax year. So it is insensitive to changes in the current tax year. You can apply for it to be changed if income has fallen significantly. But then you might hit a further problem. Unless your income in the current tax year falls by more than £2500 a year compared to the previous tax year no adjustment is normally made to tax credits. And losing £61.35 a week for half a tax year will not pass that test. So to get Working Tax Credit changed is going to be difficult. And of course HMRC which administers it may not get the sums right. It often doesn’t.

If the carer also pays rent and council tax they will probably already get help with those expenses through Housing Benefit and local Council Tax Support. Again, a reduced income from losing Carer’s Allowance could mean those benefits rise, though always by far less than the amount they have lost. They will have to apply (remember they are already working at least 51 hours a week plus travelling time doing their caring and part-time job) and hope that the local council works it out correctly and swiftly.

But even at the very, very best they are going to lose many tens of pounds for a pay rise of £3. Earn £3, lose £30 is not a slogan to encourage work.

Government steps in
As this problem emerged this week the Office of the Deputy Prime Minister Nick Clegg announced a rise in the earnings threshold for Carer’s Allowance. It will increase to £110 a week. But not until April 2015. So six months after the National Minimum Wage went up the threshold will finally increase.

This year is not the first in which this problem has occurred and unless something changes will not be the last. The rise in April 2015 will sort the problem until at least October 2015 when the minimum wage rises again. But if that goes up to £6.90 an hour – and remember both Conservatives and Labour plan big rises – then that will again put this group of carers above the earnings threshold for getting Carer’s Allowance.

The obvious answer is to link the earnings threshold for Carer’s Allowance to the minimum wage – fix it at 16 times as much plus £1. So when the minimum wage rose to £6.50 on 1 October the threshold would automatically have gone up to £105. Problem sorted.

But if you want to lobby for this change where do you go? The Department for Work and Pensions administers Carer’s Allowance. Her Majesty’s Revenue & Customs runs tax credits. The Department for Business, Innovation and Skills determines the National Minimum Wage. And the Office of the Deputy Prime Minister announced the rise in the Carer’s Allowance earnings threshold for 2015. Oh, and local councils determine the rules of Council Tax Support and administer Housing Benefit.

Joined up Government anyone?

Postscript
Buried deep in the rules is one small glimmer of hope. The income which counts for the Carer’s Allowance earnings threshold is earnings minus half the contributions paid into a pension scheme. So a carer who earns £104 a week but then pays £4 a week or more into a personal pension (or a pension at work) would bring their weekly income down to £102 and just scrape below the threshold.

Even though these carers earn far too little to pay tax the Treasury would still boost this £4 contribution by another £1. And the small fund they build up could be cashed in at any time once they reach 55. If their circumstance remained the same no tax would be due on it. All that is needed is to find an insurer who will take such a small contribution and levy reasonable charges on it.

PS A benefit geek writes: when they cash in their pension it may reduce any working tax credit, housing benefit, council tax support, or other means-tested benefit they receive.

Sigh.

Version 1.1 updated 10 October 2014