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Balls goes on the attack over tax credits

5 April 2012

After all the commotion about various policies in last month’s
Budget, the focus this morning has shifted to measures announced back in 2010. Why? Because they take effect tomorrow. So Ed Balls is taking the opportunity to hit the government hard on what he
calls its ‘tax credit bombshell’ for those on middle and low incomes.

Labour are pointing to figures from the IFS, which show that changes to child and working tax credits will outweigh the rise in the £630 personal allowance. In their Budget briefing a fortnight ago, the IFS calculated that the net effect of all the changes coming into force tomorrow would be
an average loss of £511 for households with children. Households with no children will also lose out, but to a lesser extent, with an average £156 loss. Interestingly, despite the keen
focus on pensioners’ income in the last couple of weeks, you won’t see much mention this morning of the fact that they will actually be £119 better off as a result of tomorrow’s

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The government’s response is to emphasise the personal allowance increase, with Danny Alexander pointing out that it takes a further 250,000 people out of income tax altogether and that, as of tomorrow, ‘someone earning minimum wage can work 25 hrs a week without paying income tax’. They’re also claiming that the winners outnumber the losers, with economic secretary
Chloe Smith saying:

‘The need to tackle the huge deficit means we have had to take tough decisions, such as on tax credits. But we’ve taken those decisions in the fairest way possible, meaning more than 15
times as many people gain rather than lose from this week’s changes.’

There are a couple of warnings for George Osborne in this morning’s debate. Of course, a 1.3 per cent reduction in income won’t exactly be welcomed by families who’ve
already seen prices rise by 3.4 per cent in the last year. But there’s also a reminder that the
effects of Budget measures don’t just fuel the news agenda for the week or so after their announced. They make a return to the front pages when they actually come into force. In particular, the
government won’t exactly be relishing the prospect of a rerun of those ‘granny tax’ headlines when the freeze in the age-related allowances comes in next year.

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Show comments
  • ruth

    as a single, working (20hrs) parent of 2 under 3’s, these recent changes have seen me lose £150pm equal to £2000 per year in tax credits! I earn less than 5k a year, how do they expect me and others in the same situation survive? i’d be better off not working which is ridiculous

  • Cynic

    Tax credits are a way of employing lots of civil servants in HMRC to take the money off you and then decypher the labarynthine rules to give you a little bit back. Best not to take it away in the first place.

  • Danielle

    Yep, and just wait until the tax cuts for the richest 300,000 kick in. Osborne got it badly wrong and from here on in ‘we are all in this together’, ‘there is no money’, ‘we are clearing up Labour’s mess,’ arguments by that idiot Alexander will not wash. People ask why cut taxes for the richest people in society when everyone else is getting poorer. I genuinely believe, that calamity of a Budget by Osborne has lost the Tories the next election. It’s like a switch has been flicked in people’s minds.

  • Silverghost

    HJ, he means the £630 increase in the personal allowance (£8105 from £7475).

    The biggest problem with the tax credit scheme when first introduced, was that it brought many people into direct contact with HMRC for the first time. So you have a complicated system, with people either worried about claiming the credit or to spend it whilst being shit-scared of HMRC, and messed up from the outset due to HMRC not being able to service it properly.Then having to take loads of staff off other mainstream tax work to unravel all the errors.

    HMRC then further scare people by demanding back overpayments, and after a lot of grief writing off millions. Typical Labour bureaucratic screw-up.

  • tom jones

    The whole tax system needs reforming and everyone knows it. Luckily the Chancellor has ordered a tax review so maybe things will change next year. Ditch the working tax credits and massively slash income/National insurance tax. Simples!

  • HJ

    Jonathan Jones:

    “Labour are pointing to figures from the IFS, which show that changes to child and working tax credits will outweigh the rise in the £630 personal allowance.”

    What £630 personal allowance is this? Could we have an explanation please?

  • Chris lancashire

    And the flip side is that the government is making a start on reforming Brown’s (and Balls’) horrendously complex and wasteful tax credits, making it worthwhile to work and contributing – in ever such a small way – to reducing Labour’s defecit.

  • jebediah

    Tax credits are a nonsense. We tax you, then we administer it, and it give it back to you.

    Er why not just not it off me in the first place? Simpler and cheaper surely.

    Typical Labour client state, bribe people with their own money.

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