The big Budget losers? Working families

IFS analysis finds that a million working families will lose £500 a year as new tax changes come in.

Amidst the clamour over pasties, jerry cans, and email surveillance, the Budget seems like a distant memory. But with the new financial year starting tomorrow, certain changes will come into force – and it is not looking good for middle-income families.

Despite the raft of negative headlines about George Osborne’s so-called “granny tax”, analysis published today by the Institute for Fiscal Studies (IFS) has found that pensioners stand to suffer the least.

In fact, it is families with children who will bear the brunt. Up to a million families with children stand to lose £511 a year under new tax and benefit changes.

More than 850,000 families on middle incomes – with an average income of £38,000 – will lose their entire child tax credit, which is worth around £545 a year. The picture is bleaker lower down the income scale. Up to 212,000 working couples with children, earning less than £17,000 a year, will lose all their working tax credit – worth up to £3,870 a year – unless they increase their working hours.

This is because of two changes to tax credits. The first is a cut in the income limit for child tax credit from about £40,000 to about £26,000 for a family with one child. The second is an increase in the number of hours that families with children must work to qualify for working tax credit from 16 to 24 hours a week.

Despite the increase in the personal allowance – which is incorporated into the IFS figures –these families will still see a net loss. Separate analysis by the Resolution Foundation suggests that the changes to working tax credit mean that a single earner on the minimum wage (£6.08 per hour) who works 20 hours a week will lose £3,910 – more than a quarter of their income.

It is a political tight spot for the coalition, which purports to be a family friendly government. The “squeezed middle” is set to be a potent battleground, both in upcoming local elections and in the next general election.

The Treasury highlighted the rise in personal tax allowance, and stressed that the analysis was commissioned by the Labour shadow chancellor, Ed Balls.

But in conjunction with the cut in the top rate of tax for those earning over £150,000 a year, this squeeze on ordinary families is difficult to defend. Indeed, reducing the 50p rate of tax presented a gift for Labour: tax cuts for millionaires as the rest of the population continues to suffer is a clear, media-friendly message. Polls already show that a majority of people think the cabinet is out of touch with ordinary voters; this will do nothing to help. So far, a loss of support for the coalition’s austerity has not been matched by an upsurge of trust in Labour on the economy. The question is whether these real cuts to the incomes of working families – the very demographic the coalition claims to defend – will lead to a shift in public opinion. It is certainly clear – once again – that the government cannot truthfully claim that its cuts are fairly distributed.
 

Ed Balls commissioned the IFS analysis. Photograph: Getty Images

Samira Shackle is a freelance journalist, who tweets @samirashackle. She was formerly a staff writer for the New Statesman.

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Iain Duncan Smith says what most Brexiters think: economic harm is a price worth paying

The former cabinet minister demonstrated rare candour by dismissing the "risks" of leaving the EU.

Most economists differ only on whether the consequences of Brexit would be terrible or merely bad. For the Leave campaign this presents a problem. Every referendum and general election in recent times has been won by the side most trusted to protect economic growth (a status Remain currently enjoys).

Understandably, then, the Brexiters have either dismissed the forecasters as wrong or impugned their integrity. On Tuesday it was the turn of the Institute for Fiscal Studies (IFS), one of the most revered bodies in Westminster. In response to its warning that Brexit would mean a further two years of austerity (with the hit to GDP wiping out George Osborne's forecast surplus), the Leave campaign derided it as a "paid-up propaganda arm of the European commission" (the IFS has received £5.6m from Brussels since 2009). 

The suggestion that the organisation is corrupt rightly provoked outrage. "The IFS - for whom I used to work - is not a paid up propaganda arm of the EU. I hope that clears that up," tweeted Brexit-supporting economist Andrew Lilico. "Over-simplified messaging, fear-mongering & controversialism are hard-minded campaigning. Accusing folk of corruption & ill intent isn't." The Remain campaign was swift to compile an array of past quotes from EU opponents hailing the IFS. 

But this contretemps distracted from the larger argument. Rather than contesting the claim that Brexit would harm the economy, the Leave campaign increasingly seeks to change the subject: to immigration (which it has vowed to reduce) or the NHS (which it has pledged to spend more on). But at an event last night, Iain Duncan Smith demonstrated rare candour. The former work and pensions secretary, who resigned from the cabinet in protest at welfare cuts, all but conceded that further austerity was a price worth paying for Brexit. 

"Of course there's going to be risks if you leave. There's risks if you get up in the morning ...There are risks in everything you do in life," he said when questioned on the subject. "I would rather have those risks that we are likely to face, headed off by a government elected by the British people [and] governing for the British people, than having a government that is one of 27 others where the decisions you want to take - that you believe are best for the United Kingdom - cannot be taken because the others don't agree with you."

For Duncan Smith, another recession is of nothing compared to the prize of freedom from the Brussels yoke. Voters still reeling from the longest fall in living standards in recent history (and who lack a safe parliamentary seat) may disagree. But Duncan Smith has offered an insight into the mindset of a true ideologue. Remain will hope that many more emulate his honesty. 

George Eaton is political editor of the New Statesman.