Millions affected as tax and benefit changes come in

Tax and benefit changes announced by Chancellor George Osborne over the past 18 months are set to come into force on Friday, affecting millions of people.

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 this was a “tax bombshell” which would “clobber” families.

Ministers have said their strategy for cutting the deficit involves tough decisions but they are targeting support at those who need it most and millions will benefit from the rise in income allowances this week as well as a further planned £1,000 increase next year.

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 an alteration to 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:

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 from David Cameron and George Osborne,” 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 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?”

“These cuts to tax credits for parents on middle and low incomes are breaking yet another promise David Cameron made during the general election campaign.”

Ministers say they have taken action to help people on low and middle incomes struggling with rising living costs, having frozen council tax two years in a row and cut fuel duty.

They also point to the fact that the basic state pension is to rise by £5.30 to £107.45 a week later this month.

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”.