Families Facing Huge Financial Shortfall Because Of Budget, Says TUC

PA  |  Posted: 4/04/2012 06:40 Updated: 4/04/2012 06:40   PA

Family Finances
Families face a hard time, according to the TUC

Some families could lose around 20 times more than they gain from tax changes by April next year, the TUC is warning.

The body said families will have gained up to £381 by April 2013 due to the personal allowance threshold rising faster than inflation, but they could lose out on more than £4,000 following changes to working tax credits over the same period.

The TUC has updated its tax credit calculator to allow families to work out roughly how they are affected by changes taking place from this Friday, with the start of the new tax year.

It said: "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.

"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 said that a family with a stay-at-home mother and a father working part-time on £19,000, a 12-month-old child and a four-year-old will gain £191 from changes in the personal allowance by next April, but they will lose around £4,500, or 24 times as much, from tax credit changes.

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

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."

The TUC also said that a single parent, working 28 hours and earning £25,000, with two school age children and childcare costs of £150 a week for 48 weeks of the year would gain £191 from the raised personal allowance but lose £1,000 from tax credit changes.

At present, households earning up to £41,300 a year tend to be eligible for child tax credits but the limit will go down for most people from Friday.

HM Revenue and Customs (HMRC) apologised last month after it sent out about a million letters inadvertently containing potentially misleading information about child tax credits.

The letters said the maximum household income for a family to be eligible for the benefit will be £26,000, a figure which is broadly correct for those with one child but rises for those with more.

HMRC has said that as a rough guide, households might not be able to get child tax credit from Friday if they have one child, and their annual income is more than around £26,000 or two children, with an annual income of more than around £32,200.

Under changes to working tax credits, a couple's joint working hours will usually need to be at least 24 a week for them to qualify, although there are exceptions to this and single parents are not affected.

The TUC's tax credit calculator can be found through the TUC Touchstone blog and the Mumsnet website.

A Treasury spokeswoman said: "From this Friday, 24 million households will be £6.50 a week better off as a result of action taken by this government - the increase in the personal allowance, the largest-ever cash rise in the basic state pension and increases in other benefits.

"Even taking into account changes to tax credits, the average household will be £5.50 a week better off in cash terms - with more than 15 times as many gaining than losing.

"Ultimately there is nothing fair about running huge budget deficits and burdening future generations with debts we cannot afford to pay.

"If the deficit is not tackled now, the impact on families will be worse in the long term with less money to deliver the public services that they rely on.

"This has meant tough decisions, but the Government has made them in the fairest way, taking real action to benefit families in all aspects of their lives."

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Filed by David Hobbs  |