The Welsh Government has challenged the UK Government over how care leavers receiving the Welsh Government's new basic income for care leavers will be taxed.
The scheme will see some young people given £1,600 every month for two years and is designed to help those who have been brought up in care transition to adult life.
The total cost of the scheme will be £20m and an evaluation of the three-year scheme will be carried out, with the Welsh Government saying that it will be classed as a success if there have been positive improvements in areas like mental health, wellbeing, employment or education. Those eligible can get £1,600 per calendar month with no restrictions on what the money can be spent on.
Read more: Wales is giving people £1,600 month in a trial of basic income
However the minister responsible for the scheme in Wales, Jane Hutt, has written to Thérèse Coffey (secretary of state at the Department of Work and Pensions) over the UK Government's "disturbing" decisions on how the income will be taxed.
The whole thing is quite complex but put simply the issue is the following, according to the Welsh Government:
- A care leaver who is eligible for a £1,600 basic income payment will only have £1,280 per month credited to their bank account. This is because an automatic tax deduction of 20% must be taken from their payment at source.
- However when the young person is assessed for Universal Credit, the Treasury will be treating them as if they have received the full £1,600.
- This means they will be ineligible for several benefits because they are being treated as though their income is £1,600, not the £1,280 it actually is.
In her letter Ms Hutt said: "I find it disturbing that the Universal Credit regulations can treat any person as having income that they clearly do not have, and never will have. And I simply cannot accept that the policy intent of Universal Credit is to make people, especially those with protected characteristics, who have other income worse off than those with no unearned income at all."
She went on to say: "I am unsure if the use of gross figure in the Universal Credit regulations is an intentional policy decision to support an automated administration system or an oversight. However, using the gross figure creates an outcome that is contrary to the basic premise of Universal Credit to provide financial support to those who need it the most. By assessing a person as having income that they do not have prevents that person accessing financial support that is required to top-up their income to the level of income they have been assessed as needing under Part 3 of the Universal Credit regulations. "
Up to 500 people could be eligible for the scheme but one estimate said around half of those are expected to sign up initially. The Welsh Government admit it is not clear how many people will take the offer up as some will be better off on existing benefits.
At the year-end care leavers will be able to apply to HMRC for a tax refund to end up with an amount closer to the gross £1,600 figure. However, only some care leavers, depending on their other income, will be entitled to receive a tax refund and none will get back all the tax deducted from their Basic Income payment.
Ms Hutt also sent a copy of the letter the the Secretary of State for Wales Simon Hart.
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