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Families with children to lose £511 per year, new IFS figures show

Families with children will lose an average of £511 a year from changes to tax, benefits and tax credits introduced in this years Budget, according to new figures from the Institute for Fiscal Studies being highlighted by Labour MP Bridget Phillipson.

The analysis follows last month's Budget and is on top of tax rises already introduced, like last year's VAT rise which is costing a family with children an average of £450 per year.

New government figures obtained by Labour also show that up to 1,925 families living in the Houghton and Sunderland South constituency are set to lose all of their Child Tax Credit or Working Tax Credit:

  • 1600 families on modest and middle incomes will lose all of their Child Tax Credit – worth around £545 per year.

  • And up to 325 working couples earning less than around £17,000 per year will lose all of their Working Tax Credit – worth up to £3,870 per year – if they cannot increase their working hours.


Figures also uncovered by Labour reveal that, following the governments changes to working tax credit, a couple with two children on the minimum wage will be better off quitting their jobs if they cannot work at least 19 hours per week.

The IFS figures also show that government policies mean pensioners will be an average of £315 a year worse off from April 2014 once cuts to their allowances announced in last month’s Budget – what has been dubbed the 'granny tax' – have kicked in.

Bridget Phillipson, Labour MP for Houghton and Sunderland South, said:

“Families on middle and low incomes living locally are facing a tax credits bombshell from David Cameron and George Osborne.

“For all the government’s talk about increasing the personal allowance, these independent figures show that while they may be giving one with one hand they are taking much more away with the other hand. That is why families with children will be an average of £511 a year worse off.

“There do need to be tough decisions on tax, spending and pay. But why are people earning over £150,000 soon to get a £3 billion tax cut from this out of touch government while parents on middle and modest incomes locally are being hit hard?

“It cannot be the right priority to make thousands of families and pensioners pay more so millionaires can pay less – over £40,000 less in the case of the 14,000 richest people in the country. And it cannot be right to leave working parents trying to do the right thing better off if they quit their jobs.

“It is no wonder that the Chancellor cannot bring himself to say the words 'we're all in this together' again. His empty slogan has been exposed by the reality of his policies which are hitting women harder than men and hitting families with children hardest of all. And these cuts to tax credits for parents on middle and low incomes are breaking yet another promise David Cameron made during the general election campaign.”

Ed Balls MP, Labour’s shadow chancellor, added:

“This government’s policies aren’t just unfair, they’re also not working on jobs, growth or the deficit. With the economy flatlining, unemployment soaring and £150 billion of extra borrowing to pay for this economy failure, raising taxes and cutting spending too far and too fast has backfired.

“Instead of cutting the top rate of tax for the richest and giving the highest earners a £1.6 billion tax cut on their pensions, the government could stop these unfair and perverse changes hitting parents across Tyne and Wear.

“We need a plan for job and growth, like Labour’s five point plan, to get our stalled economy moving again, get Britain back to work and get our deficit down.”

Further reading:

Figures from the independent Institute for Fiscal Studies can be found at: http://www.ifs.org.uk/budgets/budget2012/budget2012robjoyce.pdf. These tables have just been updated, at Labour’s request, to include for the first time cash figures of the net loss or gain from changes taking effect from April 2012 and April 2014.

The two main changes to tax credits being introduced in the Budget are a reduction in the income limit for Child Tax Credit from around £40,000 to around £26,000 for a family with one child and an increase in the number of hours couples with children have to work to be eligible for Working Tax Credit from 16 to 24 hours per week. Details of the changes can be found on HMRC’s website here: http://www.hmrc.gov.uk/taxcreditsbudget/index.htm.

Government figures, revealed in answers to parliamentary questions from Labour MPs, show 852,900 families will no longer be eligible to any tax credits from next month: http://www.publications.parliament.uk/pa/cm201212/cmhansrd/cm120327/text/120327w0003.htm#1203281002117.

Figures by constituency can be found here:
http://www.parliament.uk/deposits/depositedpapers/2012/DEP2012-0328.pdf

In addition, 212,000 families will lose all their Working Tax Credit if they cannot increase their working hours to the new minimum of 24 hours per week. Figures by constituency can be found here: http://www.parliament.uk/deposits/depositedpapers/2012/DEP2012-0031.doc

HMRC has confirmed to the House of Commons Library that there is “no overlap between losers” in these two groups.

A table showing these figures in each region can be found here:

































































































No of households no longer
entitled to tax credits
from April 2012
No of households working currently entitled to Working Tax Credit and working between 16 and 24 hours per week Total set to lose all their Child Tax Credit or all their Working Tax Credit if they cannot increase working hours
Region/Nation
North East

38,800



9,310



48,110


North West

97,700



26,845



124,545


Yorkshire & Humber

76,100



20,225



96,235


East Midlands

68,700



14,080



82,780


West Midlands

79,200



22,675



101,875


East of England

84,800



14,215



99,015


London

72,600



46,205



118,805


South East

114,600



17,260



131,860


South West

78,800



12,915



91,715


Wales

43,500



9,380



52,880


Scotland

73,300



11,370



84,670


Northern Ireland

22,500



4,805



27,305


Foreign / Unknown

2,300



0



2,300


Total

852,900



212,000



1,064,900



 

Answers to parliamentary questions from Labour MP Ann Coffey show that, following changes to working tax credit, a couple with two children on the minimum wage will be:

  • £14 per week better off on benefits if they work 16 hours per week

  • £8 per week better off on benefits if they work 17 hours per week

  • £2 per week better off on benefits if they work 18 hours per week


They will only be better off in work if they can work 19 hours per week. Links to the relevant parliamentary answers can be found below:

http://www.publications.parliament.uk/pa/cm201212/cmhansrd/cm120229/text/120229w0004.htm#12022982001826

http://www.publications.parliament.uk/pa/cm201212/cmhansrd/cm120321/text/120321w0001.htm#12032182001187

http://www.publications.parliament.uk/pa/cm201212/cmhansrd/cm120320/text/120320w0003.htm#12032089001473

Before the 2010 general election, David Cameron and the Conservatives repeatedly promised that only families earning over £50,000 lose their tax credits. But despite these promises families on much lower incomes will lose their Child Tax Credit and thousands of working couples only earning the minimum wage will lose their Working Tax Credit under changes coming into effect tomorrow:

"They [Labour] say our policy will take away tax credits from families with incomes of £31,000 or more. That is a lie, and it is irresponsible for Labour to be scaremongering in this way and worrying families needlessly… No families with a combined household income of £40,000 or less will be affected by our policy."
Theresa May, The Blue Blog, 11 February 2010, http://blog.conservatives.com/index.php/2010/02/11/labour-lies-on-child-tax-credits/

"On this issue of tax credits, we are saying, we like tax credits, we'll keep tax credits. But for families earning over £50,000, we think we can't afford the Child Tax Credit. That's one of the savings that we're being upfront and frank about. But for Gordon Brown to say that actually the changes we're making would hit low income families is simply not true."
David Cameron, Leaders debate, 29 April 2010

DavidCameron: Shineoncrazydiamond and others who asked about tax credits, here's a straight, non-waffle answer. As a part time worker and a lone parent, you should not lose out. We recognise that tax credits help families, that's why we introduced the first one way back in the 1990s. We would stop the payment of tested tax credits to families of incomes of more than £50,000. We've got a massive debt crisis in this country, and so I think that those payments aren't really affordable any more.
David Cameron, Mumsnet Live Webchat, 19 November 2009, http://www.mumsnet.com/onlinechats/david-cameron-nov-09

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