Families could lose 20 times more than they gain from tax changes

Published on Wednesday, 04 April 2012 11:27
Posted by Scott Buckler

Families will have gained up to £381 by April 2013 as a result of the personal allowance threshold rising faster than inflation - but could have lost more than £4,000 from changes to working tax credits over the same period - the TUC says today (Wednesday) as it launches its new tax credit calculator for 2012

With new changes to tax credits taking place from Friday (6 April), the TUC has updated its tax credit calculator - available on the TUC touchstone blog and the online community for parents mumsnet www.mumsnet.com/jobs/changes-to-tax-credits - which allows working parents receiving tax credits to find out roughly how they are affected (compared to how they would have fared before the government's tax credit cuts) by inputting their household details, income level, number of children and childcare costs.

Ministers have been keen to highlight the hundreds of pounds that millions of families (and anyone else earning up to £100,000) will receive from the personal allowance threshold being raised to £8,105 on Friday.

The personal allowance would be £7,152 if it had just been uprated by RPI inflation (the policy prior to the Emergency Budget). For a basic rate taxpayer, £76 of the £126 gained from raising the personal allowance to £8,105 this year would have achieved simply by uprating the threshold by RPI inflation.

However, the government has been less keen to highlight the far greater losses that families will have incurred from changes to working tax credits and the freezing of child benefit. Families with high childcare costs and couples working from 16 and 24 hours a week between them are most affected.

The TUC tax credit calculator shows that a family with a stay-at-home mum and a dad working part-time on £19,000, a 12-month old child and a 4 year old will gain £191 from changes in the personal allowance by April 2013, but lose around £4,500 - 24 times as much - from tax credit changes.

A two-earner family (combined income £40,000) with two children and childcare costs of £300 a week will gain the maximum possible from the personal allowance increase (£381) but still lose six times as much (£2,312) from tax credit changes.

The various tax credit cuts far outweigh any gains families will get from raising the personal allowance, warns the TUC, and wants the government to do more to boost the incomes of working families, rather than prioritise tax cuts for those earning over £150,000.

TUC General Secretary Brendan Barber said: 'Millions of people will be getting a small boost from the personal allowance increase this Friday, but working families are likely to have lost far more from cuts to tax credits.

With unemployment at a 17-year high and full-time jobs being replaced with part-time ones, parents struggling to find 24 hours of work between them could lose thousands of pounds.

'Complicated changes to child benefit for higher rate taxpayers will provide further financial headaches for many parents this year.

'From tax credits to cuts in vital public services, families are bearing the brunt of the government's austerity measures. This approach is self-defeating as providing greater support towards the cost of raising children helps their development and boosts the economy, as parents tend to spend nearly every penny they earn.

'The government should prioritise support for working families over tax cuts for the very wealthiest in society.'

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