Tax credit changes leave families more than £500 a year worse off

The IFS examined two of the coalition government’s key tax and benefit changes at the request of the Labour Party; the reduction in the income limit to be eligible for child tax credit from £40,000 to £26,000 for a family with one child, and the increase in hours that couples with children will have to work to qualify for working tax credits, from 16 to 24 hours.

Shadow chancellor Ed Balls said: “Families on middle and low incomes are this weekend facing a tax credit bombshell from David Cameron and George Osborne.

“For all the government’s talk about increasing the personal allowance, these independent figures show that while they may be giving one with one hand they are taking much more away with the other hand. That is why families with children will be an average of £511 a year worse from tomorrow.”

Barnardo's is calling for working tax credit changes to be postponed until the government’s streamlined benefit the universal credit is introduced.

Anne Marie Carrie, Barnardo's chief executive, said: “We must not forget that six out of 10 children who live below the poverty line are in households where someone goes to work.
 
“Barnardo’s wants to see the changes to working tax credit postponed, so that families are not unfairly penalised, nor incentivised to give up work altogether prior to universal credit coming into force.”

Economic secretary to the Treasury Chloe Smith defended the benefit changes.

She 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.”

A Treasury spokeswoman added that the tax and benefit changes will leave around 24 million households better off, but conceded that 1.4 million households are set to lose out.