The big Budget losers? Working families

IFS analysis finds that a million working families will lose £500 a year as new tax changes come in – Published on New Statesman, by Samira Shackle, April 5, 2012.

Amidst the clamour over pasties, jerry cans, and email surveillance, the Budget seems like a distant memory. But with the new financial year starting tomorrow, certain changes will come into force – and it is not looking good for middle-income families. Despite the raft of negative headlines about George Osborne’s so-called “granny tax”, analysis published today by the Institute for Fiscal Studies IFS has found that pensioners stand to suffer the least.   

In fact, it is families with children who will bear the brunt. Up to a million families with children stand to lose £511 a year under new tax and benefit changes.

More than 850,000 families on middle incomes – with an average income of £38,000 – will lose their entire child tax credit, which is worth around £545 a year. The picture is bleaker lower down the income scale. Up to 212,000 working couples with children, earning less than £17,000 a year, will lose all their working tax credit – worth up to £3,870 a year – unless they increase their working hours.

This is because of two changes to tax credits. The first is a cut in the income limit for child tax credit from about £40,000 to about £26,000 for a family with one child. The second is an increase in the number of hours that families with children must work to qualify for working tax credit from 16 to 24 hours a week … //

… But in conjunction with the cut in the top rate of tax for those earning over £150,000 a year, this squeeze on ordinary families is difficult to defend. Indeed, reducing the 50p rate of tax presented a gift for Labour: tax cuts for millionaires as the rest of the population continues to suffer is a clear, media-friendly message. Polls already show that a majority of people think the cabinet is out of touch with ordinary voters; this will do nothing to help. So far, a loss of support for the coalition’s austerity has not been matched by an upsurge of trust in Labour on the economy. The question is whether these real cuts to the incomes of working families – the very demographic the coalition claims to defend – will lead to a shift in public opinion. It is certainly clear – once again – that the government cannot truthfully claim that its cuts are fairly distributed. (full text).

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