Families with children ‘lost most’

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Published: Friday 23rd January 2015 by The News Editor

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Tax and benefit changes introduced by the coalition Government have cost the average household £1,127 a year and the poorest families with children have lost most, as a proportion of their income, according to a report by an independent economic thinktank.

While the very richest tenth in society have lost the most in cash terms, the lowest-income 10% of families with children are hardest hit in terms of percentage of household income, said the Institute for Fiscal Studies.

Meanwhile, middle and higher-income households of working age have escaped “remarkably unscathed” from the Government’s austerity programme, with those without children actually gaining financially from the changes, largely due to increases in the threshold for paying income tax, said the IFS.

Pensioners were “relatively unaffected” on average, as their gains from the “triple lock” on the state pension were largely offset by the hike in VAT.

Labour said the findings were proof of a “clear betrayal” by David Cameron of his promise to lead the most family-friendly Government ever.

The IFS said it was not possible to assign all of the tax rises and benefit cuts implemented since May 2010 to specific households. Those which could be apportioned amounted to an average loss of £489 per household a year, made up of an average gain of £321 a year from cuts to direct taxes like income tax, a loss of £333 a year from increases in indirect taxes such as VAT and a £477-a-year loss from benefit cuts.

Looking at these changes, the poorest households lost around 4% of their incomes, compared with around 3.5% for the next poorest tenth, between 2.5% and zero for middle-income households and a loss of about 2.5% for the richest.

The IFS found that families with four or more children lost 6.9% of their income as a result of the tax and benefit changes under study – an average £2,941 – compared with a loss of 4.5% for three-child families, 3.5% for those with two children, 2.6% for those with one and 0.4% for childless households.

Non-working lone parents were the worst-hit household type, losing about £1,837 a year from the changes under study, though the IFS said the average loss was skewed upwards by a small number of households affected by measures such as the benefits cap and national caps on local housing allowance rates.

Hardest-hit region was Greater London, where households lost an average £1,042, followed by the South East, West Midlands and North West.

James Browne, a senior research economist at IFS and co-author of the report said: “Whichever way you cut it, low-income households with children and the very richest households have lost out significantly from the changes as a percentage of their incomes.

“Increases in the tax-free personal allowance have played an important role in protecting middle-income working-age households meaning that those without children have actually gained overall.”

Labour Treasury spokeswoman Cathy Jamieson said: “This report shows that tax and benefit changes under this Government have left households £1,127 a year worse off on average. Families with children have been hit hardest of all by David Cameron’s choices – a clear betrayal of his promise to lead the most family-friendly government ever.

“For all the Government’s claims, this report shows that they have raised tax by over £13.5 billion a year. And for millions of working people the rise in VAT and cuts to things like tax credits have more than offset changes to the personal allowance.

“The Tories are now promising to cut tax credits again for millions of working families and refusing to rule out another VAT rise to pay for their unfunded promises. It’s clear working people can’t afford five more years of this Government.

“Labour’s economic plan will ensure we earn our way to rising living standards for all and balance the books in a fairer way. We will reverse this Government’s £3 billion-a-year tax cut for the top 1% of earners and help 24 million working people with a lower 10p starting rate of tax.”

A Treasury spokeswoman said: “Today’s report from the IFS confirms that the richest have lost the most from the Government’s changes to taxes and welfare.

“Treasury analysis has shown throughout the Parliament that the richest 10% of households have made the largest contribution to reducing the deficit.

“The Treasury presents the most complete, rigorous and detailed record of the impact of this Government’s policies on households. At the Autumn Statement this confirmed that the richest 20% of households will contribute more to reducing the deficit than the remaining 80% put together.

“Fairness is at the heart of our approach to reducing the deficit. Our analysis shows how our commitment to fairness is not a matter of rhetoric: it is reflected in the policy choices we have made.

“UK income inequality is now lower than when this Government came into office and the recovery is being felt across the country. But the only sustainable way to raise living standards for all is to keep working through the plan that is securing a better future across the country.”

Published: Friday 23rd January 2015 by The News Editor

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