Tax Credit Cuts Expected Among Budget Announcements

July 13, 2015

Significant cuts to tax credits are expected to feature among chancellor George Osborne’s announcements at this week’s Budget.

The move could come as bad news for many families and working men and women around the UK but the newly-formed Conservative government has made clear its commitment to cutting welfare spending by £12 billion.

Faced with the challenge of finding scope for such sizable spending scale-backs, the chancellor is believed to be focussed squarely on tax credits, which were first introduced by Gordon Brown when he was chancellor around the turn of the century.

Millions of people around the country now claim tax credits as top ups to their incomes either as working parents or as low-earners, with roughly £30 billion paid out as tax credits on an annual basis.

According to the Institute for Fiscal Studies (IFS), taking the scale of tax credit payments back to the levels of 2003-04 would result in £5 billion worth of annual savings to the Treasury.

However, for 3.7 million families who claim child tax credits, the result would be a reduction in their annual earnings of around £1,400, according to the IFS.

“For the poorest families it would mean a takeaway of £845 per child per year,” the IFS said in a recent report on the subject of tax credits.

For his part, prime minister David Cameron has said that he wants to see an end to what he recently called the “ridiculous merry-go-round” of taxing people on low incomes only to pay them money back as tax credits.

Many prominent Conservative politicians are backing Osborne’s stance on tax credits and his strategy for cutting the UK’s welfare bills, with a common assertion being that low earners should expect more money from their employers, rather than top-up payments from the government.

A recent report from the Financial Times suggested that cutting tax credits will disproportionately impact ethnic minorities around the UK.

That assessment was made on the basis of analysis of existing government data on income patterns and reliance on tax credits among different ethnic minority households around the country.

John Baird

Insolvency Adviser

Tel: 0800 063 9250

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