Families Could Lose Out With Tax Credit Change

8 Apr 2011

Families could lose out with tax credit change

In the wake of tax credit changes that could leave families thousands of pounds out of pocket taking effect from 6 April 2011, the TUC has launched a tax
credit calculator to help parents find out how they will be affected.

The tax credit calculator — available on the TUC touchstone blog and parenting forum mumsnet — allows working parents currently in receipt of tax credits to add their household details, such as income level and number of children. It then estimates how they will be affected by the tax changes taking place from now and from April next year.

Many parents could be in for a shock when they realise how much they stand to lose, said the TUC. For example, a dual-earner family with incomes of £25,000 and £15,000, two children (a baby and a toddler), paying £400 a week in childcare for 45 weeks of the year, could lose around £2,600 a year by April 2012, according to the TUC tax credit calculator.

The tax credit changes featured in the calculator
 above inflation increases in child tax credits for
this year and next;
 a freeze in the basic element of working tax
credit for three years (from April 2011);
 a freeze in the 30-hour element of working tax
credit for three years (from April 2011);
 a reduction in the amount of eligible childcare
costs met by working tax credit from 80% to 70%
(from April 2011);
 a reduction in the second income threshold to
£40,000 (from April 2011);
 a reversal of the plan to introduce a toddler tax
credit (from April 2012); and
 a reduction in line with earnings (tapering) of
the family element immediately after the child element
(from April 2012).

The tax credit changes come on top of the switch to uprating many benefits by the CPI measure of inflation instead of the RPI measure which will further reduce the real value of tax credits and benefits. The combination of tax credit cuts, the rise in VAT, the three-year freeze in child benefit rates (as well as the cut for households with a higher rate taxpayer) and deep spending cuts could result in working families being hit hardest by the cuts, the TUC warned.

TUC general secretary Brendan Barber said: “Working families are bearing the brunt of government austerity measures, from cuts to vital public services
such as sure start centres, libraries and youth clubs, to the freezing, cutting and scrapping of tax credits that are hitting household incomes.”