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MILLIONS OF SMART METERS MAY HAVE TO BE REPLACED

Six million smart electricity and gas meters installed in homes since 2012 may have to be replaced to make them work with a new communica...

Thursday, 18 May 2017

HOUSING GOLD MINE TO PAY FOR LONG-TERM CARE

In December 2016 I wrote a piece for Money Marketing saying that the way to pay for care home fees was to use the value of the family home for one or for both partners' care costs. 

It is now Conservative policy - see p.65 of the Conservative Manifesto 2017

That is slightly ambiguous but the Conservative press office has confirmed to me today 18 May that the value of the family home would be counted as an asset for the means test for someone who went into care even if they had a spouse still living there. At the moment it is ignored. It is only counted when the house is left empty or with non-relatives or people under 60 living there.

The policy in the Conservative Manifesto is that the value of the home will also be counted when the means-test for care AT home is assessed. It means that the value of the family home could be used to fund the care costs of a couple, leaving less for the heirs. There is a guarantee that at least £100,000 will always be left for them.

My 1 December 2016 piece in Money Marketing:
Changes in the way long-term care is paid for was the dog that did not bark in Chancellor Philip Hammond’s first Autumn Statement. It failed to get even a mention, despite many telling us there is a crisis in long-term care for older people.

There have been calls for tax subsidies for those who save up for their own care or take out insurance to pay for it. In other words, those who could afford to pay for it would get a subsidy from other taxpayers to do so. There is a much better solution.

Let me tell you about my neighbour Marjorie. When I moved into my house in 2001, Marjorie was already well into her 80s. She had one hip operation, then another, but still could not get about and her condition deteriorated.

She had been living in the house since the 1940s, inheriting it when her father died. She had no children and when she could no longer live alone she used the money from the house to buy herself care in a home she wanted to go into in a part of the country near her friends.

It would have been completely wrong if the £485,000 value of that house had been protected and hard-working millennials, who spend half the week keeping their landlord and the other half keeping themselves, had their taxes used to pay for her care.

But if Marjorie had been married that is exactly what would have happened. While her husband lived in the house, its value would have been protected and the local council would have paid for almost all the cost of her care. If this imaginary husband had died a few months after she passed away the whole value of the home would have been intact, to be left to whatever heirs he had.

The care home fee rules ignore the value of the resident’s home as long as their spouse or partner – or any elderly relative aged 60 or more – lives in it. But why?

Society has more right than the heirs sitting thinking: ‘Other taxpayers should pay for mum to go into care for two or three years, otherwise I won’t get the house’

The Miras mirage
The losers are not the people who need the care; they will be dead when it is all sorted out. It is the middle-aged children who complain. They expect to inherit the whole value of the house. Of course, many parents want to leave that legacy to their children. “It’s my home,” they say. “I worked hard for it. Why shouldn’t I pass it on as I choose?”

They may have worked hard to pay the mortgage but they rarely pay anything like its full value.

I bought my first house in 1975 for £9,350 (that was more than 3.5 times my earnings). I did my job and worked some evenings to earn more. My wife worked too.

We paid the mortgage. We kept our three children. And eventually the mortgage was paid off. Today that house is worth £325,000. We paid perhaps £20,000 for it, including interest. Where did the rest of the value come from?

Some came from other taxpayers. Between 1969 and 2000 mortgage interest relief at source meant I did not pay tax on the interest I was paying on my mortgage. That saved me 35 per cent off the bill in the early days.

If I had paid higher rate tax (a dream of mine then) I would have got even more Miras: anything from 40 per cent to 83 per cent off the interest cost. So society – all those other taxpayers, many of whom could not afford to buy their own home – helped pay for mine. Thank you very much.

But that is just the start. Allowing for RPI inflation, the price of £9,350 in 1975 is equivalent to around £75,000 now. Where did the other £250,000 of its current value come from?

It was created by the way society works. By a shortage of housing. By that Miras subsidy. By a growing population. By those who buy more than one home. So there is an argument that society has a right to its share of that windfall gain.

They have more right than the heirs sitting there thinking: “Other taxpayers should pay for mum to go into care for two or three years, otherwise I won’t get the house.”

That is why I say the value of a home should be taken into account when the local council considers the means test to pay for care. That happens now if there is no one left living there.

It should also happen even if there is a spouse or elderly relative in it. Of course, they could stay there for their lifetime, but when they died the cost of their spouse’s care would be taken from the estate and paid to the local council.

The average cost of a nursing home is around £39,000 a year and the average life in care is two-and-a- half years. This means the total cost averages around £100,000. The average price of a home in the UK is £218,000.

So there is enough value in the average home to fund the care for two people at the end of their life. If it does run out, then the council would pay the cost, as now.

When the problem of paying for care was looked at under the coalition government, the Social Care Funding Commission chairman Lord Warner said, in the fashionable phrase of the time, that there was no silver bullet to solve it.

But there is a pile of gold – perhaps a trillion pounds’ worth – sitting in the unused assets of homes owned by the elderly. That is the same amount as the total gold reserves of the top 40 gold-owning countries in the world. It is serious wealth and it should be put to work.

First published 1 December 2016 in Money Marketing

18 May 2017



Sunday, 14 May 2017

118 RIP OFFS TO BE INVESTIGATED

“Shall I put you straight through?” Those are perhaps the most profitable words in the English language. They come at what you may think is the end of a directory enquiry call to a number beginning with 118.

The call may already have cost you more than £9, made up of a connection charge of £4.49 plus a time charge of £4.49 a minute for the first minute then £4.49 a minute after. These are called the service charges. On top of that you will be paying your own phone provider what is called an access charge of anything from 12p a minute on landlines to 55p a minute on some mobiles.

That extraordinary cost is just the start. The real profit for directory enquiry firms comes from putting you through to the number it found for you. If you answer ‘yes’ to that question the £4.49 per minute charge will continue as long as the call lasts. A ten minute call from a mobile phone would cost almost £55. If you are kept waiting on a customer service number it will be the most expensive hold music you have ever listened to. Spotify would be cheaper.

No escape
The charges usually apply even if the number is not found.

They also apply even if the number you are put through to is a ‘free’ 0800 number or if you expect to pay for all your calls in your inclusive monthly payment. That is because premium numbers such as 0844 and 118 and are excluded from these bundles.

If you foolishly do agree to be 'put straight through' you will be told what the service charge is, thanks to a previous ruling by the telecoms regulator. But even if you say 'no' and write down the number on the back of your hand you will already have spent more than £9 for the call even if it lasts less than a minute.

Investigation
The regulator Ofcom has now announced it will investigate 118 directory enquiry services. The move came after several newspapers told tales of readers who had been charged extortionate amounts for a single call. One woman quoted in the Observer was charged £501 by Telecom 2 for several attempts to connect her to a number while charging her £7.99 a minute. There are still eight services that charge £15.98 for the first minute and £7.99 a minute thereafter.

Some popular directory enquiry services put up their prices in May. One operated by The Number UK Ltd has added £2 for the first minute raising the cost to £8.98 and the per minute charge after that is £4.49, up £1.

Ofcom published details of its study on 12 May. “Given the rising cost of calling these service numbers, Ofcom is launching a Call Cost Review, to ensure that prices are transparent and fair to consumers.” No mention there of capping them though that power is available to Ofcom. The first consultation on what it might do is expected later this year but it could be well into 2018 before any changes are announced and longer still before they come into force.

Flat-rate
Directory enquiries has come a long way since BT charged a flat rate 40p – and even longer ago it was free. That old fashioned monopoly was scrapped in 2003 so that competition could increase choice and keep prices down. There are now 400 directory enquiry services so it certainly achieved one of those objectives. But even BT now charges £5.50 for the call and £2.75 per minute after the first. Plus of course the 12p a minute access charge to itself from a BT landline!

Some directory enquiry services do charge a low flat rate fee. The cheapest seems to 118128 run by Verizon which charges a flatrate 35p a call. But the safest advice is to avoid 118. The one your remember is likely to be one of the heavily advertised numbers that make some of the highest charges.

If you are out use your mobile look up the number on the internet and then just tap it connect. At home use the internet on your computer. If it's a personal number ask a friend. Anything but pay more than £9 to find it.

Data
Out of 330 services for which data are available, there are eight which charge £15.98 for the first minute and then £7.99 for each subsequent minute. With the access charge that would be around £50 for a five minute call. Another 40 charge £6.98 for the first minute and then £3.49 a minute. That would cost around £22 for a five minute call. Some have recently raised this charge to £8.98 plus £4.49 a minute. More than 70 charge £4 plus £2. At the bottom end another 70 charge a flat rate for the call with no per minute charge. These flat-rate fees range from 35p to £6. 

Figures in this piece are mainly taken from data provided by Telecom Tariffs. Neither they nor I make any warranty that the numbers in this piece are correct or to be relied on.

14 May 2017
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Monday, 1 May 2017

LABOUR'S HOLIDAY PLAN LEAVES SOME QUESTIONS UNANSWERED

UPDATED 16 MAY 2017

Labour's Manifesto promises new Bank Holidays - one for each of the four nation's Saints Days. They will be in addition to existing statutory rights.

Every worker in the UK is entitled to 5.6 weeks of paid statutory leave. For full time workers that is 28 days. There are also eight scheduled public holidays - normally called Bank Holidays - in England and Wales, nine in Scotland, and ten in Northern Ireland. Employers can include these public holidays in the 28 days leave their workers are paid for. If they do that then those workers have 20 days (or 19 or 18) that are free to take when they choose. In many jobs people have to work on public holidays. In which case that day can be taken at another time.

Labour plans to introduce four new UK public holidays on the Saints' Days of the four home nations. They would be
  • 1 March, St David's Day (Wales)
  • 17 March, St Patrick's Day (Northern Ireland)
  • 23 April, St George's Day (England)
  • 30 November, St Andrew's Day (Scotland).
Labour's Manifesto is clear - "These will be additional to statutory holiday entitlement" (p.47). So they will be on top of the 28 days already given by law (a law which implements an EU Directive).

These four new public holiday would apply throughout the United Kingdom. However, Scotland already has St Andrew's Day as a public holiday and Northern Ireland already has St Patrick's Day as one. So Labour's plan appears to add three days to public holidays in Scotland and Northern Ireland and four in England and Wales. The Manifesto does not mention this problem.

Questions
In Scotland and Northern Ireland will there be an extra day's leave to allow for the fact they already have their Saint's Day as a holiday?

Will these four Saint's Days fall on the precise day or the following Monday as public holidays generally do? In Scotland and Northern Ireland the holiday does fall on the Saint's Day but if that is a Saturday or Sunday they fall on the next Monday. Will Labour do the same?

Easter Sunday can fall on any date between 22 March and 25 April. What will happen in years when one of the Saint's Days falls on the same day as one of the Easter public holidays?

Finally
Will the new public holidays, two of which which fall just before and just after Easter in most years, increase pressure to bring into force the Easter Act 1928 which fixes the date of Easter Sunday as the Sunday following the second Saturday in April, which would fix it between 9 April and 15 April, safely away from 17 March and 23 April.

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16 May 2017

CUTS IN MAY

"Dear Paul, I was so disappointed about the National Savings bond. I had been looking forward to investing my money at more than 2%. But I am told that you have to be online to do it and I am not. Not all of us are up to using a computer. Is this policy likely to change?"

Joan’s letter arrived, of course, by post. And she was not the only one to contact me making a similar complaint.

The table topping National Savings & Investments bond Joan was looking forward to pays 2.2% a year for a fixed term of three years. The closest to that over three years is 1.91% from Oak North bank, but that is also only available online. Joan will have to put up with 1.9% a year for a three year bond which she can open and manage by post – that one from The Access Bank. Because NS&I’s policy is not going to change. 

Another disappointment with the NS&I Investment Guaranteed Growth Bond – to give it its full name – is that you can only put a maximum of £3000 into it. After three years that will return a total of £3202. Although the rate is table topping the amount you can salt away and the amount it will actually earn is quite small for major savers. There is no danger of websites crashing as cash rich pensioners rush to buy the new bond, as they did when the 65+ Guaranteed Growth Bond paying 4% over three years was launched a couple of years ago. NS&I has no sales figures for the new bond which went on sale on 11 April. But it has promised that it will stay on sale for a full twelve months – up to 10 April 2018.

If the bond is cashed in before the three years are up there is a penalty of 90 days interest. If you cash it in early that can mean you get back less than you put in. The interest, although paid at the end, is credited to the account annually. That means it begins to earn interest too. But it also means there will be a taxable interest payment for the small minority who pay tax on their savings income. It will have to be declared on self-assessment forms. NS&I will send an annual statement with the interest shown – online of course.

The table topping rate on the new Bond is in sharp contrast to the other NS&I products. Rates are cut from 1 May 2017 sending them tumbling out of the best buy lists. The Direct ISA rate falls from 1% to 0.75% as does the interest on the Income Bond. The Direct Saver falls from 0.8% to 0.7%. Only Children’s Bonds are exempt from the scissors – remaining at 2%. 

The interest paid on Premium Bonds will fall from 1.25% to 1.15%. That interest forms the prize fund which is around £5m less in May than it was in April. However, because the prize structure is being changed far more £25 prizes will be paid. In May there were over 100,000 more £25 prizes than were paid out in February. That means the chances of winning one of those will actually go up - see my Premium Investment blog

Some people who had index-linked bonds in the past continue to enjoy tax free interest linked to the RPI, currently 3.1%, which must be the best value deal at the moment. And of course the over 65s with the three year fixed rate bond from 2015 are still being paid 4% taxable, in its last year.

NS&I is disappointing for its current rates for most. But historically it is still offering good deals to old customers.

Updated from my Money Box Newsletter 29 April 2017. 

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1 May 2017

PREMIUM INVESTMENT

April was not a good month. Even though I will pay less tax this year and I am lucky enough not to rely on frozen benefits or indeed frozen pay. But I did not win a prize in the April Premium Bond draw! That is unusual. The odds say I should win one or two prizes each month. I put a brave face on it because from May the prospects for us premium bond investors – but not for premium bond gamblers – are looking brighter.

That may seem odd because from May the interest rate on premium bonds falls from 1.25% to 1.15%. That interest is put into a fund which is used to pay out the prizes. The size of that fund is predicted be about 10% less in May than in April. But, and it is a very big but, I will be more likely not less to get a regular return on my investment.

Time to ‘fess up. I like National Savings and I do have a lot of Premium Bonds. Having one or two, or that £100 your mum gave you or even the £5000 you once bought with a bonus are not really the essence of Premium Bond investing. You need loads, the maximum, £50,000. Then the law of large numbers (there really is one) begins to work and when I say ‘chances are you’ll win x prizes in y years’ that is more likely to be true in any given year the more premium bonds you have. If you had an infinite number it would always be true. But £50,000 is not a bad approximation.

Why does a lower interest rate and a smaller prize fund give me a bigger chance of winning? Or, to be completely accurate, a bigger chance of winning the smallest prize, that workhorse of premium bond investing, £25. Millions of those are paid out each month compared with just thousands of all the other prizes. In April a total of £70m was paid out in prizes. In May it was less than £66m. But there will be more £25 prizes – 122,442 more taking the total from 2,117,718 in April to 2,240,160 in May. The lower value prizes £25, £50, and £100 account for a fixed 90% of the prize fund. But National Savings & Investments has confirmed to me that the £50 and £100 prizes will be reduced in number – from more than 72,000 each in April to fewer than 22,000 in May – and that the number of £25 prizes will grow accordingly. That is why winning one of those will become slightly more likely.

If you had the maximum £50,000 bonds before May you were likely to win 18.7 prizes of £25 per year. In May that rose to 19.6 per year. But you will wait more than five years for a £50 or £100 prize compared with well under two years before. Those three are the only prizes you need worry about. Before or after May it will still be a human lifetime (87 years now, was 80 years) before you can expect to win £1000 and several thousand years for a £5000 or £10,000 prize. And the million pound prizes? Forget it. Ice ages are more frequent.

So that £25 workhorse is going to plod along a little more quickly from May. The effective rate of return if you only ever win £25 prizes is 0.98%. Taxfree. Which is the same as 1.22% if you pay basic rate tax and 1.63% if you pay higher rate tax and 1.78% if you are one of the lucky few on over £150,000 a year paying the 45% rate of tax. Before May it was 0.93%.

Of course the first £1000 of interest on all your savings is tax-free anyway (£500 for a higher rate taxpayer). But I am guessing that if you have £50,000 to put into Premium Bonds you probably have a quite a bit of other cash sloshing around and have already used up that allowance. If you are really lucky and pay the 45% additional rate tax then you don’t have a personal savings allowance anyway. Even without a tax saving Premium Bond interest rate of 0.98% is not bad for an instant access account – just outside the top five and better than the 0.75% NS&I now pays on its income bonds.

So that is why I say the new structure will favour investors rather than gamblers who will wait even longer for the big prizes.

If you had bought £50,000 bonds to celebrate killing one of the last woolly mammoths 12,500 years ago you might expect to have won one £25,000 prize by now. Your even more distant ancestor who did the same after she spent a passionate night with one of the last Neanderthal men 55,000 years ago might expect to have won one £1m prize by now and probably one £100,000 one as well. As I am 2.3% Neanderthal I like to think she was an ancestor. From May the £5000 prizes only come along every 2361 years – the time of Dionysius II – and £10,000 every 4825 years – lucky to win once since the Great Pyramid at Giza was built. On average. If you have the max.

If you just have the £100 your Mum gave you on your 5th birthday with visions of you being a millionaire one day then you will be 30 before you get your first £25 prize. You will need more than the patience of a saint or even one of the first saints, the Prophet Ezekiel from around 600 BCE, to get a £100 prize (once in 2677 years) and you will wait nearly 28 million years to get the big £1 million. If you had bought 10 Premium Bonds the year the dinosaurs were wiped out 66 million years ago you would probably have won just one £25,000 prize and nothing bigger.

So Premium Bonds are a rubbish gamble. Forget the big prizes; they will never be yours. Max out on Premium Bonds and check them every month for that small, tax-free income stream that is guaranteed. Not just by the UK Government. But by the laws of mathematics as well.

This is an updated version of my piece in FT Money 13 April 2017

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1 May 2017

Sunday, 30 April 2017

MILLIONS OF SMART METERS MAY HAVE TO BE REPLACED


Six million smart electricity and gas meters installed in homes since 2012 may have to be replaced to make them work with a new communications network which was switched on in November but is still not being used. Despite that energy companies are busy installing more of them to try to meet a government target to get one in every home by the end of 2020.

All the meters installed so far are an early design called SMETS1. They use existing mobile phone networks and the communications system is specific to each supplier. That means if you switch your fuel provider to get a cheaper deal – it is Government policy that you should – then the smart meter will almost certainly go dumb. Then it has to be read manually either by the householder or a meter reader. Some people have complained that reading a dumbed down smart meter is much more difficult than reading a traditional meter designed to be read by a human. Instead of a visible dial with numbers turning round buttons have to be pressed in the right - and forgettable - order. 

The upgraded smart meters – called SMETS2 – have been delayed partly because a new £3 billion communications network was not ready for nearly a year after the planned date. It went live in November 2016. But five months on energy suppliers are still testing it with the new smart meters. They had to be extensively redesigned after security concerns and discussions with GCHQ. If all goes well fitting the new meters will start later in 2017. Those meters using that network should be able to work with all suppliers and allow switching supplier to be easier and quicker. 

But the Data Communications Company, part of Capita which is responsible for the new network, could not tell me when or indeed if the old SMETS1 meters would be connected to it. A spokesman told me that the consultation on how that might be done had not even begun. He said it would “go live in the next few weeks”. The consultation that is. He could not confirm a date for the start or the end of that consultation still less for when SMETS1 meters would be connectable or indeed if that would ever happen. He agreed it was possible that SMETS1 meters would have to be replaced with SMETS2 meters.

He repeated that to a Money Box colleague the next day. But when asked if he would confirm it in writing all DCC would say was “DCC will be consulting with industry on plans outlining how SMETS1 meters will be enrolled into the network.” And he stressed the word 'how'. The Department for Business, Energy, and Industrial Strategy (BEIS) would not deny that there may be problems but told us "The project is on working out how they will be enrolled into the new network not whether they can be enrolled. Our expectation is that all SMETS1 meters will be enrolled into DCC."

Others are not so convinced. Technology consultant Nick Hann, who was involved in early designs of smart meters, told me on Money Box on 29 April.

"It is something that the industry has been very aware for three or four years. The new SMETS2 meters are far more complex and there's always been a question of whether it's possible to upgrade the existing ones. But it is one of those things that everyone has been desperately hoping we can magically wave a wand and all the old ones will start working. It now looks as if reality's starting to bite and people are beginning to think that may not be possible."

The ambitious programme to replace more than 50 million gas and electricity meters in every home is expected to cost at least £11 billion. By the end of 2016 around five million had been installed, nearly a million of those in the final quarter of 2016. Today the number is probably over six million. The remaining 44 million should be replaced by 2020 which will mean trebling the current rate of installation. 

If all the SMETS1 meters have to be replaced or modified that will add to the cost and increase the timescale. Nick Hann said it might add 50% to the costs and call the viability of the whole project into question.

Meanwhile the energy companies are busy encouraging people to accept smart meters – all of the old type – without any clear idea when or if those meters will make use of the new DCC network. Energy companies are not informing customers of these potential problems. And nor is Smart Energy GB which will spend nearly £50million in 2017 telling us all that smart is the way to control dumb old 'gas and leccy'.

Read my updated blog on the smart meter project with links to the Cost/Benefit Analysis 
Listen to Nick Hann's interview on Money Box.

1 May 2017
Vs 1.01

Thursday, 6 April 2017

MOTHERS MUST PROVE THEY WERE RAPED TO GET BENEFITS

From 6 April 2017 the Government will make mothers prove they were raped or sexually abused to get benefits for a third child. 

Rape will be the main exception from the UK's two child policy which now applies to low income families who claim tax credits, universal credit, or housing benefit. It will also apply in some areas for council tax support or reduction. In general there will be no extra money for a third or subsequent child born from 6 April 2017. That will apply to new claims and existing claimants. 

The standard maximum amount for each child in tax credits or universal credit in 2017/18 is £2780 a year. So parents with a child who is subject to the new rule will get nothing rather than £2780. There will be some exceptions. 

Rape
The most controversial exception to the two child rule is for a child born as a result of rape. The mother will be able to claim benefit for the third or subsequent child born from 6 April 2017 if she applies for the exception on grounds of rape and proves that the child was the result of rape or sexual abuse. 

To do that she will have to talk to a social worker, doctor, or nurse and describe what happened and when.

A policy document issued – slipped out some say – on the day of President Trump’s inauguration explained the procedure. A mother claiming this exception would have to “engage with a professional third party” who would provide “Evidence…demonstrating that the claimant’s circumstances are consistent with those of a person who has had intercourse without consenting to it (at a time when the conception of her third or subsequent child might have resulted).” 

The Department for Work and Pensions would then decide whether to grant the exception or not. 

The exception would also apply if there had been a conviction or a criminal injuries compensation payment for the rape.

The Government ignored what it admitted were many responses to the consultation which said "it was unacceptable for Government to ask women to re-live the ordeal of a rape just in order to make a claim for benefit.” It also dismissed “concerns around the mental health impact on victims and pre-conceived perceptions of what a victim should look like.”


The Government also decided that it would include in the rape exception children born as a result of "coercion and control" in a domestic setting. But only if the victim stopped living with the alleged father. “Rather than financial support through benefits for those who do remain with the perpetrator, we think other forms of victim support are more appropriate.”


Twins and multiple births
If someone has one child and then has twins they will get money for both the twins, even though one of them is a third child. But if they have two children already then twins born from 6 April 2017 will have to survive on the money given for their two older siblings. In other words, each child will have half the money it would get if the new additions had been born before 6 April. 

Care
Children adopted from local authority care are exempt from the two child policy as are children living long term with family or friends who would otherwise be in local authority care.

Universal Credit
Universal credit is only available to parents with children in a very few areas - called full service areas. Until November 2018 anyone with a third or subsequent child born from 6 April 2017 who claims universal credit will be directed to claim tax credits instead. Those already on universal credit who have a third or subsequent child from April 2017 will get no extra for it.

Child benefit
These intrusive questions and complex rules will not apply to better off parents who claim child benefit where the means test starts much higher – at £50,000. Those parents will continue to get money for every child including those born from 6 April 2017.

Family premium
Another separate cut in the money given to families also begins on 6 April 2017. Parents making a new claim from this date will not get the extra payment of £545 a year previously paid for the first child. Nor will it be paid for a first child born after 6 April 2017. Family premiums were abolished for housing benefit from 1 May 2016 and for council tax support and reduction schemes from April 2016 in some areas.

Austerity bites. Particularly on families with children.

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6 April 2017