Tories fail families - tax credit changes put low income families at risk

Saturday, 07 April 2012 23:00

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By a Newsnet reporter 

Prime Minister David Cameron has been accused of spectacularly failing on his pledge to make the UK the most "family-friendly" place in Europe. 

Opponents have claimed that changes to working tax credit which came into force on Friday are the latest attack on low income families.  The result of the changes could see couples financially better off if they split up.

Speaking to delegates at the Welsh Conservative party conference in March, Mr Cameron pledged to do all he could to strengthen families saying: "Families are the most important institution in our society.  We have to do everything in our power to strengthen them."

Yet because of the changes to the tax credit system, the Prime Minister now finds himself accused of condemning thousands of families to poverty and creating conditions which could lead to family break up, or prevent lone parents from settling down with a partner.

Couples affected by the changes will have to find an additional 8 hours work per week to qualify for working tax credit, as the threshold has risen from 16 to 24 hours, while that for lone parents remains at 16 hours.  Some households could now find themselves worse off by £3,870 annually, a huge cut to already tight family budgets amongst families who already live on the margins of poverty.  

The results of the changes risk plunging over 212,000 couples with 470,000 children into poverty across the UK.  In Scotland, 11,000 working couples earning less than £17,000 per year will lose all of their Working Tax Credit if they cannot increase their working hours.

The UK Government ignored calls from child poverty campaigners to delay the change until Universal Benefits came into force in 2013.

In a report into the effects of the changes, the Resolution Foundation, a thinktank campaigning for people on low incomes, said that thousands of working families could lose up to a quarter of their household income.

The Resolution Foundation cited the example of a young couple with one child who have a household income of £15,500 and where one of the couple works 23 hours a week.  Under the previous tax credit system, the family would receive almost £6,000 a year extra.  However under the new rules the family loses entitlement to working tax credits.  Even taking into account the increase to personal tax allowances and a small increase in child tax credits, the family will lose £2,961 a year, 19% of the total household income.

The impact of the changes is proportionally greatest on the lowest earning households as they have more working tax credits to lose.  The report cites the example of a single earner earning the minimum wage and working 20 hours a week who will lose £3,910 annually, 27% of their income.

The attack on low earning couples comes as family budgets are already under immense pressure from soaring food and fuel prices, high childcare costs and caps to other benefits.  As the cuts to the tax credit system bite, the highest paid earners benefit from a tax-cut to the top rate of income tax.

Chief Secretary to the Treasury Danny Alexander defended the cut to tax credits, saying the UK Government had taken some "very difficult decisions" on tax and benefits which Mr Alexander insisted had been "fair".

Speaking to BBC Radio Scotland, Mr Alexander said:

"We're making changes to the system to focus the resources more on people who need them.  Tax credits were going to people who had an income of up to £60,000 a year.  Nine out of 10 families were getting tax credits.  We're reducing that over time to about six out of 10 families, focusing more on those on the lowest incomes."

The SNP Work and Pensions spokesperson, Dr Eilidh Whiteford MP, condemned the changes to the tax credit system, and said:

"When David Cameron was campaigning he claimed he would do everything he could to strengthen and support families.

"Yet at the flick of a pen the Tory-Lib Dem coalition have condemned thousands of families into poverty with this savage cut.

"The loss of working tax credit could make people financially better off as single parents.  The changes could not only break up families, but prevent lone parents from getting together.

"These ill-thought out reforms are the latest of a series of attacks on the pockets of the poorest in society.

"From a pasty tax to soaring fuel costs, the Conservatives and their Lib-Dem sidekicks are making life tougher for lower earners while giving tax breaks to millionaires.

"Scottish Labour may carp from the sidelines but they still prefer to see Scottish families ground down by Tory-Lib Dem rule than create a fairer society in Scotland."