Only four months since George Osborne claimed to have abandoned his proposed cuts to tax credits in the Spending Review, he is sneaking through proposals to cut tax credit repayment thresholds. This could cause many local families to be over a thousand pounds a year worse of in certain circumstances.
The changes, which the Government is attempting to bring in to force without debate in the House of Commons, will affect working families who have only experienced a small increase in income, usually through working more hours, which requires them to repay any such increases the following year. The proposed repayment terms as they stand could mean that despite earning more money families are in fact worse off for a certain period.
There are also question marks over HMRC’s ability to deal with the increase in repayments at a time when it is already under significant strain due to overstretched staffing levels and proposed office closures nationally.
“The Chancellor wanted us to believe that he had reversed his plan to cut tax credits, but today is he trying to sneak through cuts to tax credits to many low-paid working families in Newport East without even allowing MPs to debate it. These cuts will have a serious impact, especially on those in low paid insecure jobs such as zero hours contracts, those who take on more work to help pay the bills, or those people who simply earn a promotion with a small pay rise. The regulations are not just a disincentive to work harder and earn more, but a punishment for those who do so. It’s the same old Tories, giving with one hand but taking a lot more with the other”.
Note on issue
The Tax Credits (Income Thresholds and Determinations of Rates) (Amendment) Regulations 2016 will reduce what is known as the ‘income rise disregard’ from £5000 to £2500. These were introduced as a ‘statutory instrument’ – a form of legislation that can be passed without debate on the floor of the Commons. The Regulations were debated in a Committee stacked with Tory MPs last week, and Labour is seeking a vote of all MPs this week.
The ‘income rise disregard’ is effectively ‘the buffer zone’ which protects families from incurring financial hardship as a result of repaying tax credits in the event that they may earn slightly more in any given year than previously anticipated.
The government has refused to say how much individual claimants could lose out but admitted to the House of Lords that around 800,000 families would lose out, and that the cut would amount to over £825m by the next general election, and up to £250m per year.
House of Commons Library Research showed that a lone parent with two children on the minimum wage who increased their working hours from 16 to 35 over successive tax years could end up over a thousand pounds worse off than under a current system, and actually see their net income decrease as the government ‘clawed back’ tax credits.