By Steve Doughty
Last updated at 12:57 PM on 13th January 2011
Squeezed middle-income earners are to be hit yet again by the Coalition's radical reforms of the benefit system, a high-powered analysis found yesterday.
The shake-up meant to draw hundreds of thousands of the workless into jobs will penalise middle-income families and savers, it showed.
In all, 1.4 million people will lose out when a string of benefit payouts are replaced in three years by Iain Duncan Smith's Universal Credit. The great majority will be those who have built up savings and those struggling to get by on wages in the 25,000-a-year bracket.
Welfare reform: The 'universal credit' scheme planned by Iain Duncan Smith, left, will hit the middle class hardest, according to the IFS. Labour's Douglas Alexander said the Government 'still has questions to answer' over benefits
The calculations by the independent and respected Institute for Fiscal Studies undermine the Work and Pension Secretary's claim two months ago that 'there will be no losers'.
Its report said that 'a clear group of losers' will be families with children who have savings of more than 16,000.
At present, these families have their incomes boosted by tax credits. But their savings mean they will not be eligible for Mr Duncan Smith's Universal Credit.
Families on middle incomes will also lose out if they work harder.
The highest number of losers are middle earners with savings
The benefit system means they keep just 27 pence of every extra pound they earn. But when the Universal Credit is introduced, people on incomes approaching 25,000 will keep less than 24 pence of their added earnings.
Tax analyst Don Draper, of the CARE charity, said: 'If you tell people they will keep less than 24p of the pounds they earn, that is a huge disincentive.'
Mike Brewer, of the IFS, said: 'One clear group of losers will be families with children having savings of over 16,000: they can currently receive tax credits but will not be eligible for a Universal Credit.
'This may well focus spending on those who need it most, but also gives families an extremely strong incentive to keep financial assets below this level.'
... BUT SOME PEOPLE WON'T FEEL THE SQUEEZE AT ALL
Bonus: Eric Daniels is set to be awarded 2m by the Lloyds board despite the taxpayer owning 41% of the bank
Lloyds Bank boss Eric Daniels is in line for a 2million bonus just days before he retires.
The payout will cost taxpayers, who are the bank's largest shareholders, more than 800,000 in cash and shares.
The scale of the handout brought a furious reaction and piles further pressure on ministers to stop state-owned banks handing out sky-high bonuses.
Mr Daniels is the last of the bank bosses still in place who presided over the financial meltdown.
Lloyds received 17billion in bailout funds from the taxpayer and MPs last night called on the Chancellor to use the Government's 41 per cent shareholding to block the bonus.
Ministers could seek to vote down the windfall at the bank's annual general meeting.
Senior Government sources said the bonus was now the subject of intensive talks with Lloyds but indicated that intervening at the AGM would be a 'last resort'.
The 59-year-old banker, who will stand down as chief executive on March 1, enjoys a basic salary of 1.035m.
But he is eligible for a bonus worth up to 225 per cent of his salary – a maximum of 2.32m.
His annual pension is worth 192,000 a year, according to the company's 2009 annual report.
For the past two years, Mr Daniels has refused a bonus. But sources say he will show no such restraint this year, receiving the payout just days before he quits.
One banker said yesterday the boss had no reason to turn down the payout: 'Why on earth should he? He has returned Lloyds to profit. Also, he is leaving Lloyds this year, so why should Eric care if the bonus makes him unpopular?'
if that is the case those picking up benefits of 25,000 or more should be getting less money we will watch closely to see this government talks a lot of hot air
- cassieraf, uk, 13/1/2011 18:37
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