Budget U-turn on tax credits and working families

Published on: 
08 July 2015

Responding to today’s budget Child Poverty Action Group Alison Garnham said:

“The welcome move on a higher minimum wage cannot disguise the truth that this is a budget that damages the economic security of working families, and takes us further down the road to being a two-nation economy, with higher child poverty for millions and lower taxes for the better off. 

“We have long called for a genuine living wage, but no single wage level can take account of family size, so families which appear to gain under this proposal may end up worse off overall if cuts to child benefit, child tax credits and working tax credits go ahead.  It’s vital that any savings the Government makes through higher wages are re-invested to help families with children.

“Last week, the Government declared it would invent its own measure of child poverty; today’s Budget announces cuts that will increase child poverty on the measures everyone else uses. Contrary to what the Chancellor said, absolute child poverty has risen by half a million since 2010 – and the fall in child poverty happened in the coalition’s first year in office, before key benefits were cut.

“It’s really disappointing that today’s Budget threatens to do precisely what the Prime Minister promised his Government would not do – cut child tax credits and harm working families.”    

“Hard up families want and need a fair chance.  They need the Chancellor to strengthen family budgets, tackle high housing costs and bring down soaring childcare prices.  Instead, the Chancellor’s cuts have made life harder for low-income parents trying to do the right thing for their children.”

Tax Credit cuts and Tax Allowances

“Two thirds of poor children now live in working families but incredibly the Chancellor has removed tax credits targeted to help them.

“The suggestion that higher tax allowances will offset tax credit cuts is sheer fallacy: 44% of adults earn too little to pay income tax and those on slightly higher wages gain little because tax credits are withdrawn as incomes rises. As the Resolution Foundation says, only about 1 per cent of the billions spent on raising the personal tax allowance will actually be spent on lifting the low paid out of tax. It’s much more a tax cut for the better off, than it is help for the low paid.”

  • In the BBC Question Time Leaders debate, the Prime Minister pledged: ‘Child tax credit we increased by £450. That's not going to fall.’
  • IFS analysis says limiting payment of the child element of universal credit (currently the child element of child tax credit) to the first two children in a family would in the long term reduce spending by around £3 billion. Affected families would lose an average of over £3,500 a year.
  • IFS analysis shows that increasing the higher-rate threshold will benefit those who are currently paying the higher or additional rates of income tax – the richest 9% of adults – so not by any reasonable definition middle income households. See  page 16 https://www.ifs.org.uk/uploads/publications/bns/BN172.pdf

Benefit cap:

“The move to lower the benefit cap is founded on a false argument since families in work are already better off than families out of work - but the impact will be dramatic: as Supreme Court judges have noted, the current cap deprives children of the basic necessities of life, in breach of international law.”

Notes to editors:

  • 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 coalition, which has members from across civil society including children’s charities, faith groups, unions and other civic sector organisation, united in their campaigning for public and political commitment to ensure the goal of ending child poverty by 2020 is met.