Millions of families will no longer qualify for tax credits or receive less income from them, Chancellor George Osborne revealed today.

Those who claim child and housing benefit will be among those hardest hit. Benefits across the board will be reduced for those earning over £40,000.

Update, 23 June: However, those who earn £25,000 will also see cuts, which was not originally disclosed by the Chancellor (see the Hidden cuts MSE News story).

And from next April, payments will rise based on Consumer Prices Index (RPI) inflation, not the current Retail Price Index (RPI) measure.

RPI, which includes housing costs, is usually higher than CPI, which means the change will see less generous future payments. The most recent inflation figures for May showed the CPI index rose by 3.4% , compared to a 5.1% RPI rise.

Osborne says the welfare changes will save the Government £11 billion by 2014/15.

Here is a breakdown of the planned changes:

  • Housing benefit. From April 2011, the maximum allowance per property size will be capped, those who are expected to work will see their receipt of payments time-limited and restrictions will be placed for those of working age in the social rented sector whose property is larger than their household size warrants.

  • Child benefit. The Government will freeze payments for three years.

  • Child tax credits. However, the child element of the child tax credit will rise by £150 above inflation next year to help low income families.

  • Disability living allowance. The Government will introduce "objective medical assessments" from 2013-14 to ensure payments are only made for as long as necessary.

  • Sure start maternity grants. From April 2011, restrictions will be placed on eligibility to the first child only.

  • Health in pregnancy grant. This will be abolished from January 2011. Mothers who are already pregnant will not be affected.

  • Support for mortgage interest. Paid to help those on certain benefits to cover their mortgage interest, this currently assumes a 6.08% interest rate but it will be paid at the Bank of England's average mortgage rate (currently 3.67%) from October 2010.

There will also be a shake-up of the state pension system, as previously announced. The changes include:

  • Basic state pension. The Government will increase the payment by the higher of 2.5%, inflation or average earnings every April. CPI will be used as the inflation measure with the exception of the 2011/12 financial year when RPI will be used.

  • Pension Credit. This will increase in April 2011 by the same level as the full basic state pension. Pension credit currently tops up weekly income to £132.60 for individuals.

  • Pension age. The Government will review when the state pension age will rise to 66. It will also consult shortly on how quickly it will phase out the default retirement age (currently 65) from April 2011. At present, employers can sack staff when they reach that age.

Further reading/Key links

Full tax credit guide: Tax Credit Overpayments
What to do & where to get help: Debt Problems

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