Finance Bill

Written evidence submitted by the Interlink Foundation, Agudas Israel of Great Britain and the Union of Orthodox Hebrew Congregations (WRW 44)

Impact of limiting child tax credits and child allowance within Universal Credit to 2 children per household


1. This submission is about the measures in the Bill to restrict child tax credits and child allowances within Universal Credit (UC) to two children per household. We submit evidence about the harm in this measure and urge that these measures should be omitted from the Bill. We recommend that Bill be amended to omit Subsection (3B) of Clause 11 (Changes to Child Tax Credit) and to omit Subsection (2) of Clause 12 (Changes to child element of Universal Credit).

2. This submission is made jointly by the Interlink Foundation, Agudas Israel of Great Britain and the Union of Orthodox Hebrew Congregations (the three main representative bodies for the UK's strictly Orthodox Jewish community).

The Interlink Foundation is the membership organisation for Orthodox Jewish community organisations in the UK, with 200 constituent organisations concentrated mainly in areas with Orthodox Jewish populations.

Agudas Israel Community Services provides employment and welfare advice to the Orthodox Jewish community in London. It is a division of Agudas Israel of Great Britain and linked to the international Agudas Israel world movement for Orthodox Jewry.

The Union of Orthodox Hebrew Congregations is the synagogue membership body for the strictly Orthodox Jewish community of about 60,000 members. It represents 100 synagogues.

3. Families in faith communities are likelier to be large, with more than two children. Across the entire Orthodox Jewish community, ranging from the strictly to modern Orthodox, family size is significantly larger than average [1] . The 2-child benefit cap has therefore commanded our attention and we have explored the likely impacts which are set out below. Obviously, these impacts will be felt across households of all faiths and none, but will be disproportionately felt by faith communities where large households are more likely to occur.

4. Our organisations invest considerable effort and resources to support people into employment. We agree with the government that decently paid work is the best route out of poverty. We also recognise the need for government to control welfare spending. But we have deep concerns about the limiting child tax credits and child allowances within Universal Credit to two children, which we set out below.

5. In some of our evidence below, and in the examples, we refer to child tax credits only. This is because when we describe the current regime that supports working families, this is the system currently in force. However, the same principles apply to child allowances within Universal Credit, and we are arguing for the removal of the 2 child limit in respect of both regimes.

Financial Analysis - what the cap will mean in financial terms

6. Child tax credits, and the child allowances within Universal Credit, help working families get by. Even when one or both parents are in work, if that work is low paid or part time, a large family may not have enough income to cover basic living expenses. [2]

Currently, child tax credits increase for each additional child in a household. There is a natural logic to this; the purpose of child tax credits is to ensure that working families have adequate income to meet the most basic costs of living. Obviously the amount of income required increases with each child.

The measure in the Bill to limit Child Tax Credits and child allowances within Universal Credit to two children means that the tax credit system and welfare safety net will be blind to additional children in a household. Even at two children, the welfare safety net is tightly stretched and for poor working families does not meet the Minimum Income Standard [3] . The inevitable consequence of a policy of limiting tax credits to 2 children will be that poor working households with additional children will not have the wherewithal to pay for basic needs such as food, clothing, heat and rent. The more children in the household, the greater the problem will be.

Most work that has been done around a Minimum Income Standard (MIS) has of necessity concentrated on a range of typical households, ranging from single person to a couple with two children. We have not found any modelling of MIS for a large family, or modelling the impact of a two child limit on child tax credits or child allowance within Universal Credit for these households. We have therefore modelled this ourselves [4] . The impact will be different in each individual situation; the table below shows the impact on a family with 5 children earning £20,000 per annum; the difference in current entitlement of such a family and the complete inadequacy of the entitlement of a newly claiming family post 2017 is starkly evident. We note that this model is not a precise calculation, but is intended to illustrate the impact of the Bill.

Table 1 : Financial position of 5 child family before and after Welfare Reform and Work Bill


Welfare Reform and Work Bill

Earned income



Child and working tax credits



Total income (including child benefit)



Gap between income and MIS


- £9,296

Gap between income and MIS for renters

- £3,947

- £15,016


7. Child tax credits will not be withdrawn from existing families in receipt of them. This is a future measure, from 2017 onwards. The intent of this is that in future, parents - knowing that the state will not provide welfare for more than two children - will of necessity exercise responsibility and restrict the number of children they have.

There are a number of concerns arising from this assumption, which we set out below.

8. Families who unexpectedly lose an earner. Typically a couple will have their children while in a position of financial self-sufficiency, and have no need for state support. But many people unexpectedly fall upon hard times (for example one partner might die, become unemployed, sick, need to become a carer and so on.) A large family in this situation, post 2017, will not have a welfare safety net to protect them for the duration of their difficulties, beyond their first two children. Larger families, once they exhaust any savings, will find themselves destitute, dramatically short of what is needed to meet their basic living costs.

9. Disincentives for couples to join. There will be large financial disincentives (thousands of pounds a year) to poor working couples wishing to join or marry, where each have their own children. For example, a couple each with two children might find they are simply unable to afford to become a single family. (The irony is that when living and/or renting separately there is significantly greater expense to the taxpayer.)

10. Perverse incentives for couples to split. Table 1 demonstrates the sort of impossible financial pressures that families beyond 2017 will face. A family that may be under duress for other reasons, such as one partner losing a job, will have a perverse financial incentive to split as perhaps the only way to ensure a welfare safety net for their children.

11. The assumption that people will act 'responsibly'. Beyond 2017, regardless of this Bill, there will continue to be poor working families with more than two children. There will be many reasons for this. In some cases, the poverty is unexpected (as per Paragraph 9 above). In others, deep and profound faith encourages family size, or prevents the termination of an unplanned pregnancy. In still others, families are troubled and parents lack capacity to plan their family size using rational economic models. In these and many more wide-ranging situations, the welfare safety net will have been removed beyond the first two children. Whatever the need for government austerity, we do not believe that the public or government wish to countenance a situation in which families cannot afford the most basic necessities for their children.

Working harder and earning more will not make families better off

12. It is a stated fundamental principle of the government’s welfare reforms (particularly the Universal Credit) that people should be better off in work than out of work. 

Currently, the incentives to increase income for families claiming tax credits, are very weak, particularly if they are receiving housing benefit.  Those tax credit claimants not in receipt of housing benefit retain only about 25 pence per pound for every extra pound earned [5] . If they are in receipt of housing benefits, the incentive to work is almost eliminated, with claimants retaining only 5 pence per pound. 

There is no relief to this problem in the changes set out in the Bill. Increasing hours or income will not make families better off, as they will still face the same loss of benefits as with the current system.

But there is an additional cruelty to the proposed changes.  The current system of tax credits provides a basic safety net, with additional tax credits for each additional child and therefore adequate income to meet the family's basic needs.  In the new system, parents will be awarded tax credits for the first two children only and will find their income 'stuck' at that insufficient level; any additional earnings will just correspondingly reduce their tax credits and other benefits.  They will have no feasible way of working their way out of desperate poverty.

13. Weight has been given to the introduction of the National Living Wage as a counter-measure to ensure that working families will get by despite the loss of income from tax credits. This will have no impact at all on larger families; as explained in Paragraph 12, their income will be ‘stuck’ at the government-set level for a 2 child family.

Faith considerations

14. This Bill has come from a government which is supportive of traditional families. We have described in 10 and 11 the disincentives for couples to join and the perverse incentives for couples to separate. We therefore regard this a fundamentally anti-family measure.

15. Larger families are strongly prevalent within faith communities, and this measure will have a strongly disproportionate impact on families of faith. For many faith couples, having children is a matter of deeply held religious conviction (although of course this choice will be driven by various reasons for different families). We do not believe that the state should be directing people through their policies about what is a reasonable family size and do not believe that this measure is consistent with a government that expresses itself as pro-faith. This is by no means only about the rights of poor couples of faith to choose the size of their family. The government’s policy will impact even on financially self-sufficient and comfortably-off families, who are concerned about eventualities such as loss of job, illness and so forth.


16. Larger families requiring welfare so that they can meet a Minimum Income Standard will often be contributing significantly through their taxes, or may have done so in the past. For example, in the scenario in Table 1, the family is paying £3312 annually in income tax, with an additional contribution of £1,648 from Employer's National Insurance. The family is also contributing as consumers through VAT and other taxes. But despite intense hardship, they will only be entitled to £2,588 annually in child tax credits and their income is too low by thousands of pounds to meet their basic needs.

17. The tax system does not take into account the number of dependent children a tax-payer has, so during ‘good times’ families may have even been higher rate taxpayers. There will be many situations in which a family will have contributed very substantially to the public purse, before falling upon hard times and needing support – which will not be available to them.

Welfare reforms, and in particular measures to cap welfare and limit the number of children that attract welfare, have been presented as being about fairness to the tax payer. In fact, we believe this measure will in many cases be deeply unfair, as it will be failing to recognise the essential and basic needs of families who have paid/are paying into the system but have no assurance of a safety net when they need it.


18. Families with more than two children represent a very small portion of welfare expenditure. The larger the family size, the more rare its occurrence. We believe that the benefits of this measure in terms of savings to government expenditure are overwhelmingly outweighed by the disbenefits that we have set out above. The harm of this measure is disproportionate.

Tax reform

19. We reiterate our support in principle for government to control expenditure and to incentivise individual responsibility and paid work. As stated in Paragraph 17, the current tax system is blind to family size, and does not take into account the number of dependent children a tax-payer has. This was not historically always the case, and removing the link between personal taxation and dependent children, in favour of a universal child benefit system, may have brought protection and benefits to non-tax payers but it has disadvantaged tax-paying households with children. The removal of child tax credits from large families without any counter measures reducing personal taxation for people with more than two dependent children is very punitive and fails to adequately recognise people’s rights to larger families and the costs associated with this.

We recognise that it is beyond the scope of this Bill to address tax reforms or other measures that might incentivise work for families with children, but assert that there is scope to explore other ways to achieve the government's goal of making work pay for families.

Our Recommendations

20. We recommend that Bill be amended to omit Subsection (3B) of Clause 11 (Changes to Child Tax Credit) and to omit Subsection (2) of Clause 12 (Changes to child element of Universal Credit) [6] .

September 2015

[1] Holman 2002 found 5.9 persons in a survey of a representative sample of Orthodox Jewish Households in London Boroughs of Hackney and Haringey. Mayhew 2008 and 2013 found 6.1 and 6.3 persons respectively.

[2] Tax credits act both as a welfare benefit to the poorest working families and also as a tax payback for families who are earning more and making regular tax contributions.

[3] Minimum Income Standard identifies the minimum income that different types of family (e.g. single person, couple with two children) based on work carried out by Joseph Rowntree Foundation (JRF).


[4] Joseph Rowntree Foundation calculates an MIS for a nuclear family consisting of a couple with 2 children ages 2 and 4. We averaged the MIS per person and added another 2 persons (assuming that each of the additional 3 children costs somewhat less than the average of the 4 person family).


[5] After tax and earnings-based reductions from tax credits


[6] Subsections (3), (4), and (5(a)) of Clause 12 also become redundant. Clause (5(b)) removes the reduction of the child allowance in UC for a second and subsequent children. If the clauses limiting tax credits and UC to two children are removed, then consideration may be given to removing Clause (5(b)), and rescinding the reduced allowance for 2nd and subsequent children.

Prepared 14th October 2015