From April 2017, those starting a family will no longer be eligible for the family element of tax credits - for CTC, that is £545. The equivalent in Universal Credit, known as the first child premium, will also not be available for new claims. In addition, new tax credit claims will be limited to two children. In other words no allowance will be made for a third or fourth child.
The government has insisted that no existing claimants will lose money as a result of this change. Again, Osborne is unlikely to change this. The Resolution Foundation says a family with three children, making a claim after April 2017, could be £3,450 a year worse off than under the current system.
Mr Osborne says that nine out of 10 families will be better off when all of the changes made in his Budget are considered. To isolate tax credits in this debate would be misleading, he says. The government wants to reduce tax credit spending and says that measures - most notably increasing the level of earnings that are free of income tax - will help to compensate. He claims that the typical family, with someone working full-time on the minimum wage, would be more than £2,000 a year better off, by taking all these policies into account. The source of that claim, made at the start of the conference, were figures published by the Treasury at the time of the summer Budget. The rise of £2,480, for the type of family mentioned, would see their net income go up from £26,040 in 2015-16 to £28,510 in 2020-21.
Groups, such as the Resolution Foundation think tank and the independent Institute for Fiscal Studies (IFS), basically make two key points to counter the chancellor's argument. Firstly, all the Budget changes do not come into effect at the same time. For example, the most significant cuts in tax credits take effect in April, but the point at which the National Living Wage hits £9 an hour will not come until 2020. Secondly, Mr Osborne's "typical family" fails to make it clear who are the winners and who are the losers. For example the Resolution Foundation points out that the National Living Wage compensates only 13% of the lost income faced by the poorest 50% of households following the Budget. "We estimate that 'a standard' tax credit family - a single earner couple with children - must be at least £985 a year worse in 2016," the think tank says. Research by the IFS says that 8.4 million working age households, with someone in paid work and receiving benefits or tax credits, will lose £750 a year, and only gain £200 a year from the National Living Wage.
In Scotland, the SNP has used figures from the Scottish Parliament Information Centre (Spice) to claim that 197,200 families - with a total of 346,000 children - would have less cash under the tax credit reforms. In Northern Ireland, an official analysis of the budget by the Department for Social Development (DSD) suggested that 120,000 households would have their tax credit payments reduced as a result of the July Budget, with an average household loss of £918 a year. Carwyn Jones, the First Minister of Wales, has said that the National Living Wage will not compensate for the loss of tax credits.
The first successful credit unions began in Germany under the leadership of cooperative pioneer Hermann Schulze-Delitzsch. These credit unions would be recognizable today, since they adhered to the basic aspects of the co-operative identity: that is, they were “based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity. In the tradition of their founders, co-operative members believe in the ethical values of honesty, openness, social responsibility and caring for others.” Shulze is credited with developing the bond of association which still forms the legal basis for credit unions today. Unlike many of his contemporaries, Schulze-Delitzsch recognized that the functions of retail lending and purchasing business inputs were best kept separate in the interests of sound cooperative management. In 1852 Schulze-Delitzsch consolidated the learning from two pilot projects, one in Eilenburg and the other in Delitzsch into what are generally recognized as the first credit unions in the world.
Schulze-Delitzsch was an excellent organizer and advocate for the credit union idea. “Wherever he went, new people’s banks sprang up … by 1859 there were 183 with 18,000 members in Posen and Saxony.” Schulze focused much of his attention on developing federations or trade associations to help protect the brand of these small organizations, ensure their stability and link them to the global banking system. As a member of the Prussian House of Representatives and the German Reichstag he secured passage of a national credit union law in 1871. By 1912 the people’s banks he founded had 641,000 members.
While Schulze’s credit unions were situated in urban areas and served traders, shop owners and artisans, Friedrich Wilhelm Raiffeisen founded the first rural credit union in the village of Heddesdorf (now a suburb of Neuwied) in Germany. Raiffeisen’s approach built on many aspects of Schulze’s, but with significant modifications that had important implications for microfinance. Most of these differences reflected the differences between the markets the two types of credit unions served. Members of Raiffeisen’s credit unions were generally poorer than their urban counterparts. Many were ex-serfs, freed in various parts of Germany between 1800 and 1848. They had smaller, more seasonal and less predictable income flows. This made it difficult to rely on standard loan repayment arrangements. The small size of the credit unions, combined with extremely low educational endowments among the people, presented important management challenges. While Schulze could rely largely on a commercial approach, Raiffeisen’s approach addressed the unique problems of the rural poor largely by exploiting the strong bonds of solidarity (known today as social capital) and deep Christian values in the typical village. For example, to make up for the very small and irregular availability of cash in rural communities, credit unions expected their directors to serve in a voluntary capacity, with only the cashier receiving a small stipend. Priests, teachers and other educated villagers were often inspired to serve by the cooperative values advanced by Raiffeisen’s movement.
The two leaders and their movements squared off in several bitter debates. Schulze repeatedly argued that because the Raiffeisen credit unions relied on only one paid staff person – a cashier – they were unsafe. The evidence never supported this allegation, however. And Raiffeisen strongly opposed efforts by Schulze to limit the liability of credit union members, because he felt that such limits would dilute bonds of association and the power of the rural banks to fund their loans from the savings of local members. In spite of this acrimony, by 1913 over 2 million Germans were members of credit unions. Of these, 80% lived in communities with less than 3,000 people. Their participation contradicted the arguments of skeptics who argued that poor people couldn’t be relied on to repay their loans, and that no bank could make a profit serving poor Germans.