From the TUC

Counting the cost of the tax credit changes

22 Jul 2015, by Guest in Society & Welfare

In his speech the Chancellor said that “It’s because we’ve taken…difficult decisions….that Britain is able to afford a pay rise. Because let me be clear: Britain deserves a pay rise and Britain is getting a pay rise.” It sounds great but when you look at his plans it turns out that low-paid workers will see their incomes fall, many by thousands of pounds. Any union negotiator who told their members they were getting a pay rise and then delivered this would be lucky not to be lynched.

The Chancellor announced that the National Minimum Wage which is currently £6.50/hour and already due to rise to £6.70/hour in October will be enhanced to £7.20/hour in April 2016.

Assuming 35 hours a week and 52 weeks a year that means the National Minimum Wage will rise from £11,830/year to £12,184/year in October and then to £13,104/year next April.

He also announced that the personal tax allowance would rise next April from the planned £10,600 to £11,000 and that basic rate taxpayers would pay £80/year each less in income tax.

But the Chancellor also announced big changes to the system of tax credits. Tax credits have a threshold and for every £1 you earn above that threshold the tax credit is currently reduced by 41p.

This is how the threshold and taper system works today.

Challis 1

The Chancellor reduced the threshold that applies to tax credits from £6,420 to £3,850 and he increased the taper from 41p to 48p.

And those changes cost low-paid workers far more than they’ll gain from higher hourly pay and lower income tax.

These two tables below show the changes that take place for a couple with one earner earning the minimum wage with 1 child and 2 children.

In both cases their annual income is cut by £1,277.50.

 Challis 2

By contrast, on 22 May 2015 HMRC published their income tax liability statistics. They showed that the 5,000 taxpayers, who each earn more than £2m/year will, between them, earn (£23.8bn) £23,800m in 2015/16. They will, on average, each pay over £250,000 less in income tax as a result of the Chancellor’s earlier decision to cut the 50p tax rate to 45p.

One Response to Counting the cost of the tax credit changes

  1. sarsh
    Jul 23rd 2015, 6:32 pm

    Maybe stop the single mothers keeping all there maintenance,take it off there benefits ,an innocent man is paying for a life of luxury