Tax credits: changes threaten working families

5th Oct 2015 - James Mildred

When Gordon Brown was Chancellor he introduced Working Families Tax Credits to help low-paid families and to lift families out of welfare dependency. The broad idea was this: instead of seeing benefits disappear when returning to work, people with families would be allowed to keep some or all of their benefits. 

During his summer budget, the Chancellor George Osborne announced changes to tax credits. By reducing the level of earnings at which tax credits are withdrawn and by increasing the withdrawal rate from 41% to 48%, the Government hopes to save £4.4billion.

But the plans will also mean from April 2016 three million working households will lose on average £1,400 a year (£27 per week), many with children will lose more than £2,500. 50% of families will effectively have an 80% “tax” rate which means for every new pound earned in income, the Treasury will only allow them to keep 20p. So working longer hours will not compensate for any loss in earnings due to the changes.

CARE is deeply concerned that the changes will have a negative effect on working families. A number of prominent politicians have been urging the Chancellor to think again. CARE believes if tax credits are to be phased out; tax relief for families must be phased back in. As a minimum the transferable allowance for married couples needs to be significantly increased. But something also needs to be done for single parent families. 

The following article has been put together with CARE supporters in mind. We would invite you to read it in order to fully appreciate the nature of our concerns and why we are urging the Chancellor to think again. 

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