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Families with kids '£500 a year worse off' from Friday

By the Press Association

The Press Assocation

The Press Association is a news wire with a large reporting team. We use it for additional stories on mainstream issues. Views represented do not necessarily reflect those of MoneySavingExpert.com.


5 April 2012

Families with children stand to lose £511 a year on average under tax and benefit changes coming into force from tomorrow, an analysis by a think-tank shows.

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

Key Points

  • Families with kids '£500/yr worse off'
  • Benefit and tax credit changes come in tomorrow
  • Treasury claims households 'better off'

Shadow chancellor Ed Balls says the impact, calculated by the Institute for Fiscal Studies, was proof of a "tax credits bombshell" with up to a million households losing all their eligibility.

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

"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.

'Unfair changes'

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

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"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 points to Government figures suggesting more than 850,000 families stand to lose their child tax credits – 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 says.

Labour also says 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.

£2 billion worth of cuts

Child Poverty Action Group chief executive Alison Garnham says: "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."

Treasury response

The Treasury however claims that from Friday, 24 million households will be £6.50 a week better off, with the average household gaining around £5.50 a week in cash terms.

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

It also points to a rise in the the basic state pension by its largest-ever cash sum.

More than 15 times as many will see an improvement to their finances than would be worse off thanks to an increase in income tax allowances, economic secretary Chloe Smith says.

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