Families could lose over £2,500 in tax credit cuts from today

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date: 5 April 2011

embargo: 00.01hrs Wednesday 6 April 2011

With tax credit changes that could leave families thousands of pounds out of pocket taking effect from today (Wednesday), the TUC has launched a tax credit calculator to help parents find out how they will be affected.

The tax credit calculator - available on the TUC touchstone blog and parenting forum mumsnet www.mumsnet.com/jobs/changes-to-tax-credits - allows working parents currently in receipt of tax credits to add their household details, such as income level and number of children, and then estimate how they will be affected by the tax changes taking place from today and from April next year.

Many parents will not have spotted the impact of the technical changes to working tax credits announced in last year's Emergency budget - particularly as George Osborne made no reference to them in last month's budget - and could be in for a shock when they realise how much they stand to lose from today, says the TUC.

For example, a dual earner family with incomes of £25,000 and £15,000, two children (a baby and a toddler), paying £400 a week in childcare for 45 weeks of the year, could lose around £2,600 a year by April 2012, according to the TUC tax credit calculator.

The tax credit changes featured in the calculator include:

  • above inflation increases in child tax credits for this year and next
  • a freeze in the basic element of working tax credit for three years (from April 2011)
  • a freeze in the 30 hour element of working tax credit for three years (from April 2011)
  • a reduction in the amount of eligible childcare costs met by working tax credit from 80 per cent to 70 per cent (from April 2011)
  • a reduction in the second income threshold to £40,000 (from April 2011)
  • a reversal of the plan to introduce a toddler tax credit (from April 2012), and
  • a reduction in line with earnings (tapering) of the family element immediately after child element (from April 2012).

The tax credit changes come on top of changes to the way in which many benefits are uprated each year (from the RPI measure of inflation to CPI), which will further reduce the real value of tax credits and benefits.

The combination of tax credit cuts, the rise in VAT, the three year freeze in child benefit rates (as well as the cut for households with a higher rate taxpayer) and deep spending cuts could result in working families being hit hardest by the cuts, warns the TUC.

TUC General Secretary Brendan Barber said: 'With wages failing to keep up with the cost of living and the VAT rise biting into household budgets, these tax credit cuts could not have come at a worse time for families.

'Working families are bearing the brunt of government austerity measures, from cuts to vital public services such as sure start centres, libraries and youth clubs, to the freezing, cutting and scrapping of tax credits that are hitting household incomes.

'The government must do more to help hard pressed families by protecting the public services they rely on and ensuring that a greater share of the tax burden is placed on the banks that helped create the deficit, rather than the working families who are being made to pay for it.'

Founder and CEO of Mumsnet Justine Roberts said: 'Many Mumsnetters are making changes to their family budgets as they find their wages aren't going as far as they used to and tax credit changes are leaving them worse off.

'This calculator can help parents see what changes will affect them and help them plan to try to reduce the impact.'

NOTES TO EDITORS:

Further examples of how families will be affected by tax credit changes

- Dual earner family earning £20,000 (working 16 hours per week and 4 hours per week), two children (one baby) and not paying for childcare could lose around £4,300 a year.

- Dual earner family earning £50,000 (£40,000 and £10,000), three children (including a baby and a toddler) and paying £300 a week in childcare for 45 weeks a year could lose around £2,400 a year.

- Lone parent family earning £15,000 and working 20 hours a week, two children (one in receipt of disability living allowance) and paying £150 a week in childcare for 40 weeks a year could lose around £800 a year.

- The calculator provides a rough estimate of how the government's tax credit changes will affect different types of families. It shows approximate tax credit awards for different types of households in 2012/13 both before and after the changes. However, it does not provide a fully accurate assessment of actual household entitlements, as it only asks for basic information about family circumstances.

- Further analysis of welfare changes and their impact on families is available at www.touchstoneblog.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

Contacts:

Media enquiries:
Liz Chinchen T: 020 7467 1248 M: 07778 158175 E: [email protected]
Rob Holdsworth T: 020 7467 1372 M: 07717 531150 E: [email protected]
Elly Gibson T: 020 7467 1337 M: 07900 910624 E: [email protected]

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