Search

date: 20 July 2010

embargo: 00.01hrs Wednesday 21July 2010

Half a million working families a year set to lose £1,000

New TUC analysis published today (Wednesday) reveals that at least half a million working families a year will lose more than £1,000 as a result of technical changes to tax credit allowances set out in last month's Emergency Budget.

Currently tax credit entitlements are calculated on a household's previous year's income. If a family's earnings fall during the course of a year - for example due to unemployment, illness, a family break up, retirement, bereavement or a household member losing working hours - their annual tax credit calculation is adjusted to take account of their new income.

However, changes announced in the June Budget mean that from 2012-13 households receiving tax credits who see their wages fall during the year will have the first £2,500 of income they lose disregarded when their new in-year tax credit entitlement is calculated.

The Treasury is expecting this change to save the Government around £550 million a year. The TUC believes this represents a significant cut in families' income and that many of the UK's lowest earning families will be particularly hard hit - although all families receiving tax credits who experience a fall in earnings will be affected.

The Government has been keen to point out that the Budget will mean low earners are £200 a year better off as a result of the increase in the threshold at which income tax is payable. However, this TUC analysis shows low-earning families whose incomes fall during the tax year will be much worse off - with most losing over five times more than they gain.

TUC General Secretary Brendan Barber said: 'In his Emergency Budget speech the Chancellor promised 'not to hide any hard choices from the British people or bury them in the small print of the Budget documents'.

'But this cut in tax credit entitlements was hidden in the detail and will make a real difference to some of our poorest and most vulnerable families, costing at least half a million households a year more than £1,000.

'This is another reminder that we are very definitely not all in this together. While the rich have been let off the hook, those on middle and low incomes are being left to pick up the cost of the recession.'

To coincide with the publication of this new research, the TUC is running a Fairness Test seminar today (Wednesday) to consider what the Budget means for fairness. The briefing will consider the impact of Budget announcements on groups including disabled people, women and families and people claiming housing benefit, as well as considering the overall 'fairness' impact of the Budget.

Research Director at the Fabian Society Tim Horton will make a presentation on how spending cuts in services will affect the poorest and look at the overall distributional impact of the Budget, and Professor Ruth Lister will speak about the impact of the Budget for women and families.

Director of Policy and Practice at the Chartered Institute of Housing Richard Capie, will speak on the impacts of the Budget for housing and homelessness, and the event will be chaired by Director of Employment Relations and Union Services at the CSP, Lesley Mercer.

NOTES TO EDITORS:

Household Tax Credit entitlements 2012-13 before and after the disregarded income rule change (all other changes announced in the Budget are included) for families

- This model is as per the analysis provided in the June Budget (Table A2, page 64). It therefore assumes families are not entitled to the 30-hour element, that calculations are based on a family with one child over the age of one, with no entitlement to baby, childcare or disability elements.

- These figures include all other tax credit changes in the Budget - including the increase in child tax credit.

- Working families earning £8,920 or lower will lose less than £1,025 as the threshold for withdrawal of tax credits is £6,420. In the table above, the fall from 30,000 to 25,000 is also lower, as a result of Government plans to withdraw the second income taper for tax credits. This means that should a family in the scenario set out in the Budget table A2 earn £26,122 in 2012-13 they will no longer qualify for any tax credits (although in different scenarios they will be entitled to additional tax credit elements - and in these instances families with in-year income changes will lose the full £1,025 as a result of the disregard). But according to the scenario set out in the Budget table A2 families earning between £25,000 and £26,122 will therefore experience a smaller reduction as a result of the income disregard policy.

- The illustrative figure for families on £10,000 relates to families who experience a drop in income of more than £2,500 a year and still qualify for the 30 hour tax credit element.

- No statistics on the number of families experiencing an in-year change in their tax credit award are published by HMRC, and as yet the Treasury has been unable to provide the TUC with figures. It is however possible to estimate how the Budget has been costed. The maximum that a family will lose as a result of this change is £1,025. Dividing the estimated Budget savings for 2012-13 by this amount gives a total of 536,585 families. Given that some families will lose less than £1,025 (as set out above), the actual number will be larger - but 536,585 gives a lower estimate of the number of families that the Government expects be affected.

- HMRC statistics show that 50 per cent of working families in receipt of tax credits earn less than £20,000 (and by 2012-13 reductions the Government's proposed reductions in entitlements for higher earnings families will inevitably mean that this figure is higher). Presuming that the same distribution applies to families who see an in-year income fall in their tax credit award, this would mean that at least 250,000 families earning below £20,000 could be affected. It's also important to recognise that few families affected will be high earners - as the Budget sets out from 2012-13 basic tax credit entitlements will no longer be payable to families earning over £26,122 a year (although families in different circumstances from those set out in the Budget may continue to receive payments if they earn above this amount).

- The TUC Fairness Test session will take place at Congress House on Wednesday 21 July from 10am-12.30pm, and will be followed by a sandwich lunch. Registration is free - if you would like to attend please contact Anjum Klair on 020 7467 1204 or aklair@tuc.org.uk

- All TUC press releases can be found at www.tuc.org.uk

- Register for the TUC's press extranet: a service exclusive to journalists wanting to access pre-embargo releases and reports from the TUC. Visit www.tuc.org.uk/pressextranet

- Congress 2010 will be held at the Manchester Central Convention Complex from Monday
13 September to Thursday 16 September. Free media passes can be obtained by visiting www.tuc.org.uk/congress/tuc-18063-f0.cfm and returning a form. Applications must be in by noon on Monday 6 September. Any received later than that will be processed in Manchester and will cost £50.

Contacts:

Media enquiries:
Liz Chinchen T: 020 7467 1248 M: 07778 158175 E: media@tuc.org.uk
Rob Holdsworth T: 020 7467 1372 M: 07717 531150 E: rholdsworth@tuc.org.uk
Elly Gibson T: 020 7467 1337 M: 07900 910624 E: egibson@tuc.org.uk

Press release (1,400 words) issued 21 Jul 2010