Average family £500 worse off through tax changes, warns IFS

Millions of families across the UK stand to lose more than £500 a year under changes to the tax system which start tomorrow, according to a leading think tank.

The Institute for Fiscal Studies has calculated that the reforms will leave the average family £511 a year worse off.

Under the shake-up, couples with children will have to work for a combined 24 hours a week, up from the previous 16-hour threshold, in order to receive working tax credits.

At the moment, households earning up to £40,000 a year can receive child tax credits but, from tomorrow, only families who collectively earn around a maximum £26,000 will be entitled to the benefit.

An estimated 850,000 families on low and middle incomes could lose all of their tax credit entitlement as a result of the changes.

Labour shadow chancellor, Ed Balls, said the changes meant that 212,000 couples would have to work longer hours or face losing their working tax credit completely.

“Families on middle and low incomes are this weekend facing a tax credits bombshell from David Cameron and George Osborne,” he said.

“For all the Government’s talk about increasing the personal allowance, these independent figures show that while they may be giving with one hand they are taking much more away with the other.”

But the Treasury claims that more people will gain than lose out as a result of the changes, which include an increase in the tax-free personal allowance from £7,475 to £8,105.

A Treasury spokesman said: “From this Friday, 24 million households will be £6.50 a week better off as a result of action taken by this Government – the increase in the personal allowance, the largest ever cash rise in the basic state pension and increases in other benefits.

“Even taking into account changes to tax credits the average household will be £5.50 a week better off in cash terms – with more than 15 times as many gaining than losing.”

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