Who loses what from tax credit cuts?
Today the Lords vote on government policies to cut tax credits, the extra support people on low wages receive to ‘top up’ their incomes. With over two thirds of children growing up in poverty living in a working family, tax credits are a vital tool to help families make ends meet. Many independent experts have already pointed out the impact these cuts will have on families: £4.4 billion will be taken from low-paid families next year alone, an average of £1350 per family.
Many families will lose far more: a full-time security guard with two children who is the sole earner in the family will lose £2,304. A nursery nurse working full-time and a cleaner working part-time will lose £2,245. You can find out more in our Briefing for the Lords.
These figures are based on a full-time worker with two children, who is the sole earner in the family.
While the government promises families will be compensated for these cuts by other changes, including the new higher minimum wage, for many families this is not the case. Working families eligible for benefits or tax credits will gain an average of £200 from the new National Living Wage, but will lose £750 per year on average from changes to benefits and tax credits, according to the Institute for Fiscal Studies.
The changes also undermine the government’s policy of supporting work. Some low-income families will now keep just 3p in every extra £1 they earn following the changes (losing 32p in income tax and national insurance, 17p from entitlements to other benefits, and 48p in tax credit entitlements) – an effective tax rate of 97%.
As opposition grows to these cuts, we believe the government should rethink this policy. Low-income working families simply cannot afford to bear the brunt of the government’s cuts to public spending.