Tax Credits: Ed Balls Slams Benefit Cuts As Think Tank Reveals Impact On Families

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tax credits coming into force today will affect families
tax credits coming into force today will affect families

Changes to tax credits and benefits that come into force on Thursday will cost families £511 a year on average an analysis by a respected think tank showed.

Anti-poverty campaigners have dubbed the start of the financial year Bad Friday, warning that cuts totalling more than £2 billion were taking effect over the Easter weekend.

Shadow chancellor Ed Balls described the impact calculated by the Institute for Fiscal Studies as a a "tax credits bombshell" with up to a million households losing eligibility entirely.

As political sniping continued over the effects of last month's Budget, the Treasury retorted by claiming the average household would be £5.50 a week better off.

More than 15 times as many would see an improvement to their finances than would be worse-off thanks to an increase in income tax allowances, Economic Secretary Chloe Smith said.

Mr Balls, who is visiting a children's centre in Leeds to highlight the issues, said the IFS figures revealed a "bombshell".

"Families on middle and low incomes are this weekend facing a tax credits bombshell from David Cameron and George Osborne," he said.

"For all the government's talk about increasing the personal allowance, these independent figures show that while they may be giving with one hand they are taking much more away with the other.

"That is why families with children will be an average of £511 a year worse from tomorrow," he said - contrasting that with the decision to cut the top rate of income tax from 50p to 45p.

"Instead of cutting the top rate of tax for the richest and giving the highest earners a £1.6 billion tax cut on their pensions, the Government could stop these unfair and perverse changes."

Labour pointed to government figures suggesting more than 850,000 families stood to lose their child tax credit - worth around £545 per year - from the start of the financial year.

Another 212,000 couples on less than £17,000 a year would lose working tax credit unless they were able to increase their hours of employment, the opposition said.

A minimum-wage earning couple with two children would end up better off quitting work altogether unless they could do at least 19 hours per week between them.

Child Poverty Action Group chief executive Alison Garnham, said: "This year's holiday will feel more like Bad Friday for millions of families as they come to terms with over £2 billion of cuts.

"Some of the poorest working families will lose thousands of pounds from their annual income, leaving them in a desperate struggle to pay for basics like groceries, clothes and household bills.

"It is astonishing that the people making the smallest contribution to deficit reduction are in the richest half of the population. Ordinary families and children are now carrying the greatest burden of deficit reduction.

"The Chancellor's own analysis shows he is failing the fairness test and that many of the wealthiest are let off lightly.

"Ministers should think again about the fairness of their deficit reduction plans and act quickly to prevent the most shocking rises in child poverty for a generation."

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.

The Resolution Foundation think tank, which focuses on the experiences of low and middle earners, said thousands faced losing a quarter of their income.

Chief executive Gavin Kelly said: "Friday's increase to the personal tax allowance provides a small boost to most people in work but millions of low to middle-income families will have their tax credits cut at the same time.

"Those working under 24 hours a week face the most brutal cuts of thousands of pounds if they cannot find extra hours - a real problem given rising under-employment.

"These huge losses in income will push some families back onto benefits - and are totally at odds with the message of making work pay."

Ms Smith said: "The government's actions mean that from the beginning of the new tax year on Friday, 24 million households will be £6.50 a week better off.

"We're taking millions out of tax altogether by raising the personal allowance, which will put up to £126 cash back in people's pockets.

"The basic state pension is also going up by its largest-ever cash sum and there are increases in most other benefits.

"The need to tackle the huge deficit means we have had to take tough decisions, such as on tax credits.

"But we've taken those decisions in the fairest way possible, meaning more than 15 times as many people gain rather than lose from this week's changes."