Blog & Articles

Tax credit cuts: a false economy

Date: 16. March 2012
Giselle Cory

This blog originally appeared on Public Finance

If the Chancellor wants to help low to middle income households, he would be wise not to sacrifice tax credits, by far the most progressive way to help poor families

Seventy per cent of April’s new cuts to tax credits will fall on households in the bottom half of the income distribution band if the government goes ahead with proposed changes to working tax credits.

The cuts, announced at various points over the last two years and accounting for over £2.4bn in 2012/13 alone, are by far the biggest cuts to tax credits yet.  Of the 2 million people on low to middle incomes currently claiming Working Tax Credits, all will be affected in some way. For some families, individual losses will run to several thousand pounds. Moreover, these cuts will disproportionately impact on households with children, as recently reported on by the IFS.

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Is Osborne really about to give people on £100k a tax cut?

Date: 14. March 2012
Gavin Kelly

This post originally appeared on Gavin's New Statesman blog

As we close in on the budget most eyes are still fixed on the fate of the 50p tax rate. Ignore for a moment some of the squeals from Labour on this issue (more in excited anticipation that it will be axed than horror) and spare a thought for the dwindling band of true Tory modernisers. Their two central ambitions over recent years have been to demonstrate an unswerving commitment to the NHS, and to show that they could govern the economy -- and tax policy in particular -- in the interests of the broad majority rather than the affluent elite. They are struggling to believe that having watched the coalition conspicuously squander the first of these strategic objectives that it could be planning to deliver the last rites to the second too.

Yet whatever the decision on the 50p tax rate, the heated debate over it risks obscuring another more nuanced, but still highly revealing choice facing Osborne. Who should benefit from the widely expected and costly increase in personal tax allowances: the vast majority of all tax payers, including individuals to over £100,000 a year (and indeed households on £200,000), or just basic rate tax-payers? An important issue in its own right -- and one which has been given new impetus by the coalition's travails over Child Benefit.

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Autumn statement blog

So who pays?

Date: 29. November 2011
Gavin Kelly and

This post first appeared on Gavin's New Statesman blog.

Just in case you were under any doubt about where the burden of today's widely expected cuts to tax credits will fall, the chart below should make it clear. Over 75 per cent of the pain of today's changes to tax credits is felt by the bottom half of the income distribution. The vast majority of these from families with children.

The decision to scrap the planned increases in Child Tax Credit (hitherto the coalition's one emblem of its commitment to tackle child poverty), together with other cuts to Working Tax Credit, will mean more than £1.2bn of cuts in 2012.

 

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Family debt

Working families feel more pain

Date: 24. November 2011
Gavin Kelly and

This post first appeared on Gavin's New Statesman blog.

If today’s report proves correct then tomorrow Nick Clegg will announce a further blow for low-to-middle income families in order to pay for a new programme for the young unemployed.

Let’s start with the better, latter, half of that sentence. The new programme will, according to insiders, walk and talk like Labour's 'Future Jobs Fund' which offered incentives to employers to take on 18-24 year olds who had been out of work for more than 6 months.

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childcare slider

Universal Credit: winners and losers

Date: 17. November 2011
Vidhya Alakeson and

This post originally appeared on the Public Finance blog

Iain Duncan Smith has found an extra £300m for childcare in his Universal Credit, but women who want to work longer hours will lose out. The result is only going to make households worse off

Earlier this month, the government announced the level of support that would be available for childcare under Universal Credit when it is introduced in 2013. This is equivalent to the support currently available to low-to-middle income families through the childcare element of the Working Tax Credit.

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childcare slider

U-turn on childcare cuts: is the coalition waking up to its women problem?

Date: 7. October 2011
Gavin Kelly and

This post originally appeared on Gavin's New Statesman blog

Sooner or later something had to give. And today it has. Following much speculation the government has finally announced a change in its planned cuts to childcare, a key area of concern for many working mothers (and fathers). The recent heat about fast falling support for the coalition among key groups of women voters is starting to take its toll.

So £300m has been found to ensure that more part-time workers can claim tax-credit support for childcare without necessitating a further cut in provision for existing claimants. Up until now there had been widespread fear that any extension in support for part-timers would mean yet another cut in childcare support for everyone else.

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Pencils large

Tories dodge a bullet on childcare

Date: 7. October 2011
James Plunkett and

This post originally appeared on the Spectator blog

In the past year the government has proven good at cauterising self-inflicted wounds. This morning’s announcement from Iain Duncan Smith on childcare stems another potential bleeder. His department have found an extra £300m to prevent further cuts to childcare support. It’s a welcome reversal of an ill-advised plan and a narrowly averted political foul-up.

The extra money is needed because of IDS’s big welfare reform project, the Universal Credit. One of the big advantages of the UC is that it will smooth out all those ugly ‘cliff-edges’ in the benefit system, particularly rules that say you don’t get help if you work fewer than 16 hours a week. In the case of childcare the UC will mean 80,000 parents working ‘mini-jobs’ will become eligible for support. Previously, IDS had been trying to make this move on the cheap, by spreading out existing spend more thinly. Today he’s found an extra £300m from the departments ‘Universal Credit implementation fund’ so that he can avoid this Scrooge approach. We should of course ask what else this money might have been spent on. But on childcare at least, it means he can extend support while protecting existing claimants.

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family

Childcare double whammy: help is cut as costs soar

Date: 9. September 2011
Felicity Dennistoun and

This post originally appeared on Left Foot Forward.

The survey (pdf) published yesterday by the Daycare Trust and Save the Children was a stark reminder of the soaring costs of childcare and the impact they are having on family budgets. Fifty eight per cent of parents in severe poverty said they were no better off working once they’d paid for childcare; 41% said they were considering giving up work due to the reduction of the childcare element of the Working Tax Credit.

 

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family

Wake-up call on childcare

Date: 17. March 2011
Vidhya Alakeson and

This blog first appeared on Public Finance.

Speaking at the Liberal Democrat’s Spring Conference, Nick Clegg once again took up the cause of hard working families in Britain – his ‘alarm clock Britain’, the people who want to get up and get on.

But changes to the childcare tax credit announced in the Comprehensive Spending Review and due to come in this April will leave these very families worse off. This at time when families are already struggling to cope with the high costs of food and fuel and wage freezes.

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