At least half a million working families will be £1000 a year worse off due to changes in tax credit allowances announced in the Emergency Budget, analysis by the TUC has revealed.
Changes announced in the June Budget mean that from 2012-13 households receiving tax credits whose 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 expects this change to save the Government around £550 million a year. According to the TUC, this represents a significant cut in families’ income and many of the UK’s lowest earning families will be hard hit – although all families receiving tax credits who experience a fall in earnings will be affected.
Tax credit entitlements are currently 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.
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. But the 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:
“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.”
