Regulation and policy in credits

Credit unions in the United Kingdom have been regulated by the Prudential Regulation Authority for prudential purposes and the Financial Conduct Authority for conduct purposes since 1 April 2013, previously regulated by the Financial Services Authority from July 2002.[14] Before the Credit Union Act 1979 was passed, there was no special legal structure for credit unions in the UK. Some of the early credit unions chose to register under the Companies Act and some under the Industrial and Provident Societies Act. They are classified in two types: type 1 are the smaller credit unions while type 2 are larger.[vague] From November 2006, many type 2 credit unions began offering their members debit card accounts so that they could withdraw cash from any Link ATM

In June 2008, the Treasury announced plans to encourage the growth of credit unions by broadening the common bond and removing outdated restrictions, with the intention of significantly reducing the influence of door step lenders and loan sharks.[15] Amendments to the Credit Union Act 1979 were made by the Legislative Reform (Industrial and Provident Societies and Credit Unions) Order 2011 (SI 2011/2687),[16] which came into force on 8 January 2012. The main changes were the removal of restrictions of membership to reach out to new groups by serving more than one group of people, provide services to community groups, businesses and social enterprises with specific business loans and to offer interest on savings, instead of a dividend, in line with mainstream banking. Regulations for Credit Unions place a maximum interest rate on loans of 3% per month

Security of savings

Since October 2008 UK credit unions are covered by the Financial Services Compensation Scheme (FSCS), which protects savings in banks and similar institutions up to £75,000, covering about 98% of people; most members get their money back within a week.[18] Credit unions offer savers considerably more protection than commercial "savings clubs", as was demonstrated by the 2006 collapse of the Christmas hamper club Farepak

Recent changes in credit unions

In Britain the number of active credit unions fell from 565 in 2004 to 390 in 2012; some merged, but others became insolvent. Six ceased trading in 2012, and at least eight had ceased in 2013 by the end of July.[13] Many credit unions are actively engaged in battling high interest payday loan organisations and loan sharks, offering an affordable credit alternative.[20] In 2013 the Archbishop of Canterbury Justin Welby launched a Church of England plan to support credit unions, to combat the rise of UK payday lenders charging extremely high interest rates, which gave rise to much publicity.

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How are tax credits changing?

At present, people receive the maximum level of tax credits if their annual household income is below a threshold of £6,420. From April, that income threshold will go down to £3,850. So, when household income goes over £3,850, tax credits start to be withdrawn for every extra pound earned. Tax credit entitlement for those with an income of above £3,850 will be taken away quicker as their income rises. In technical terms, the taper rate will change from 41% to 48%. In addition, claimants whose household income increases by up to £5,000 during the tax year currently have that rise ignored when entitlement is calculated for that year. From April, this will be reduced so that any increase in income of more than £2,500 will be taken into account. In a year there will be further changes. Any family which has a third or subsequent child born after April 2017 will not qualify for more child tax credit.

How do I know if I am affected?

Letters are being sent out to claimants in a few weeks' time to explain the changes to their entitlement. That, according to benefit advisers, will be the moment of reality for many people - especially those who are not following the news particularly closely. In the meantime, there is a tax credit calculator available for claimants, run by HM Revenue and Customs, which administers tax credits.

What should claimants do now?

The reality for many people is that there will be a "black hole in their budget" in April, according to Lee Healey, managing director of benefits adviser IncomeMAX. "People have six months, so now is the time to prepare," he says. He suggests that people bear in mind that the calculation of their tax credits is likely to change, so they need to alter the calculations in their household budget. With some recipients potentially receiving hundreds of pounds less than now, they should also start exploring ways to save such as reviewing and switching energy and telecoms providers, he says.

Another good way to prepare is by ensuring the annual tax credit renewal pack - which checks all income and personal details are correct - is returned as quickly as possible, Mr Healey says.

Anyone receiving tax credits with a household income above the new threshold of £3,850 will receive less in tax credits from April than they do now. Whether they will actually be worse off is at the heart of the current debate. Mr Osborne says that the rising minimum wage, tax changes, the introduction of the National Living Wage and entitlement to free childcare will actually mean the vast majority of families will be better off. That is not a view shared by Frank Field, the Labour chairman of the Commons Work and Pensions Committee. He says: "Even if his [Mr Osborne's] calculations are correct, he is still launching a dive-bomb attack on Britain's strivers from April until 2020."