Overhyped Budget does little for families

April 27, 2012

Key points from Budget 2012:

  • £2.165 billion of cuts to support for working families to go ahead next month.
  • Child Poverty still expected to rise by an average of 100,000 children a year under Coalition’s spending plans.
  • Hundreds of thousands of low earners will gain just £33 from the tax threshold rise, not £220 as was claimed.
  • Everyone in the poorest half of the population to lose a larger proportion of their income from tax and benefit changes than 4 out of 5 of the richest half of the population (confirmed in HMT’s impact on households document, which is Annexe B to the Budget).

Responding to the Budget, the Chief Executive of Child Poverty Action Group, Alison Garnham, said:

“This budget has been massively oversold as a budget for working families. The help being given to hard-pressed families through the income tax system will be blown out of the water by the multiple raids on the tax credits the poorest families depend on.

“The £2 billion bombshell of cuts to support for the poorest working families is still set to strike next month. The Budget will do nothing to change the dire warnings from the Institute for Fiscal Studies that child poverty is set to rise from now on, with another 400,000 children in poverty by the end of the parliament.

“The Treasury has published analysis today showing that the poorest half of British people will be making a greater contribution to deficit reduction than 4 out of 5 people in the richest half. For all the spin about fairness, the Treasury’s own figures tell a radically different story of a reality in which it is the poorest who are being made to carry the greater burden.

“Hundreds of thousands of the poorest working families will gain just £33 a year, instead of £220 as claimed, from the tax threshold rise because of the withdrawal of housing benefit and council tax benefit at 85%. A rise in the earnings disregard for these benefits of just £4 a week would ensure they get the same gain as middle earners.”

On the changes to proposals for withdrawal of child benefit from higher earners, she added:

“The Chancellor has taken a step in the right direction, showing he has listened to our campaigning, but the new claw back will be complicated and costly to administer. In the end, we are still asking families with children to pay for tax breaks for the very richest. This does not pass the fairness test - it would be fairer to ask all high earners make a contribution than just to target families with children.”

ENDS

Notes to editors

  • Next month around £2 billion of new cuts to support for working families will be implemented. This includes removing all WTC entitlement from couples working between 16 and 24 hours.

Changes taking effect from April 2012

Measure

Announced

Savings (£million) 2012-13

C-ESA withdrawn for work related group after 1 year

CSR

330

WTC - hours rule change for couples from 16 to 24 hours

CSR

550

Backdating cut from 3 months to 1 month

budget 2010

345

Tax credits - introduce £2,500 disregard for in-year falls in income

budget 2010

445

WTC - 50-plus element scrapped

budget 2010

30

CTC - taper family element immediately after child element

budget 2010

465

 

 

 

Total saved

 

2165

     
  • In 2013/2014 every household in the bottom half of the income distribution will lose a larger proportion of their income from tax, tax credit and benefit changes than 4 out of 5 households in the top half. See Chart B.2 in the Annexe B to the Budget: Impact on Households (http://cdn.hm-treasury.gov.uk/budget2012_annexb.pdf)
  • The poorest households will only keep £33 from tax threshold rise, not £220 as claimed. Around 900,000 low-paid households receive housing benefit (HB) and just over 700,000 receive council tax benefit (CTB). These groups will mostly overlap. HB and CTB both apply tapers to net earnings. For HB this is at 65% and for CTB this is at 20%, resulting in combined withdrawal rate of 85%. This means that hundreds of thousands of the poorest working families will have 85% of the £220 gains from the tax threshold rise taken back through the taper. They will therefore only gain £33 a year, not £220 a year.
  • CPAG is the leading charity campaigning for the abolition of child poverty in the UK and for a better deal for low-income families and children.
  • CPAG is the host organisation for the Campaign to End Child Poverty, which has over 150 member organisations and is campaigning for public and political commitment to ensure the goal of ending child poverty by 2020 is met.