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Thursday, 05 April 2012 11:10

Millions affected as tax and benefit changes come in...

Tax and benefit changes announced over the past 18 months will come into force on Friday, affecting millions.
The amount of income that is tax free is to rise by £630 to £8,105. The value of some benefits will rise by 5.2%, linked to inflation last September.
But the time couples with children will have to work to qualify for working tax credits will rise from 16 to 24 hours.
Labour said it would "clobber" families but the government said there would be 15 times as many winners as losers. 
The beginning of the tax year on 6 April will see a significant number of changes to tax and benefits - affecting personal and family finances.
Measures which were announced by the government in the 2011 Budget, as well as last year's autumn statement, are only now taking effect.
They range from increasing the first chunk of income that is tax free - known as the personal allowance - to the annual upgrading of benefits, as well as specific spending cuts.
Among the most important changes are:
Benefits such as jobseeker's allowance, income support, disability benefits, maternity benefits and incapacity benefit are rising by 5.2% - in line with the CPI measure of inflation last September (announced in November 2011)
Other than a few exceptions, couples with children will have to work for 24 hours a week between them, not 16, in order to qualify for working tax credit. One member of the couple will have to work for at least 16 hours a week (announced in November 2011.
The child element of child tax credits is to rise by £135 but the couple and lone-parent elements of working tax credit are being frozen (announced in November 2011)
The tax-free personal allowance for those under 65 will rise by £630 to £8,105 (announced in March 2011)
For 65- to 74-year-olds, the personal allowance rises from £9,940 to £10,500 (announced in March 2011)
Tax experts have urged Revenue and Customs to write to all those affected to alert them about the changes.
Labour said updated figures obtained from the Institute of Fiscal Studies (IFS) showed families with children would, on average, be £511 a year worse off as a result.
 'Broken promise'
The opposition's own figures suggest 212,000 families earning less than £17,000 a year will lose their working tax credits if they cannot increase their total hours to 24 a week while 850,000 households will lose their child tax credit as a result in a reduction in the income limit for one-child families.
“Families on middle and low incomes are facing a tax credits bombshell ” Ed Balls, Shadow chancellor
 The changes in full
Shadow chancellor Ed Balls said: "For all the government's talk about increasing the personal allowance, these independent figures show that while they may be giving one with one hand, they are taking much more away with the other hand."
These changes plus announcements in last month's Budget, such as the cut in the top rate of tax on earnings over £150,000 from 50p to 45p in 2013 and the freezing of personal allowances for the over-65s next year, show the government have the wrong priorities, Labour argue.
"There do need to be tough decisions on tax, spending and pay," Mr Balls added. "But why are people earning £150,000 soon to get a £3bn tax cut from this out-of-touch government while parents on middle and modest incomes are being clobbered?"
Chief Secretary to the Treasury Danny Alexander blamed the previous Labour government for leaving the country's finances in a "catastrophic mess".
He said overall the richest 20% of the population were bearing the heaviest burden of tax and spending changes but it would still be difficult for people on lower incomes.
But he added: "I think it is right to say, in a situation where you ask a single parent, for example, to work 16 hours a week before they can receive working tax credits, that you ask more of two people.
"If you are going to ask a single parent to work two days a week before they can receive working tax credit, I think asking a couple to work three days a week between them is a reasonable position."
The government says 24 million people will be £6.50 a week better off from Friday, something Mr Alexander described as "a fair position which encourages and incentivises work".
Ministers also point to the fact that the basic state pension is to rise by £5.30 to £107.45 a week on Monday.
According to the IFS, pensioner households will be £119 a year better off as a result of the changes this month while working age households without children will be £156 worse off - figures which exclude measures targeting the "very rich".