David and Josie

David works 35 hours a week, earning £45,000 a year. His wife Josie looks after their three year-old and their two school-age children. Table 1 sets out their position.

• Because inflation is set to outstrip pay growth, David’s earnings will fall by £1848 in 2011-12 and by a further £210 in 2012-13 in real terms.

• On top of this drop, tax and benefit changes taking place in the next two years will reduce their household income in real terms by £370 in 2011-12 and by a further £721 in 2012-13.

• This decline comes about for two main reasons. First, the couple are no longer eligible for the family element of the Child Tax Credit (worth £545) because the threshold at which this award begins to be withdrawn has been reduced from £50,000 to £40,000. Secondly, David’s status as a higher rate taxpayer means that they will lose Child Benefit from January 2013 (making them £814 poorer in financial year 2012-13).

• David’s tax bill will be relatively unchanged, and Budget 2011 increases the family’s income by just £39 a year in 2012-13.

Taking the changes in earnings, prices and tax and benefits together, David and Josie will be £2,218 (-6.2% per cent) poorer in 2011-12 than in 2010-11 in real terms, and £3,150 (-8.8% per cent) worse-off in 2012-13.

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