Labour: Tax reforms hit poor while rich cash in

Ed Balls: tax gains outweighed by cuts to tax credits and child benefit. Picture: Getty
Ed Balls: tax gains outweighed by cuts to tax credits and child benefit. Picture: Getty
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STRUGGLING families will lose thousands of pounds a year while government tax reforms save 13,000 millionaires an average of £100,000, Labour claimed after the biggest overhaul of the tax system in a generation came into effect yesterday.

• Labour claim that coalition government proposals will see housholds £891 worse off anually

• Opposition’s fiscal study also claims millionaires set to be given average tax cut of £100,000

• One earner families with children to be £4,000 worse off according to report

• Raft of changes to tax and welfare will see people not pay tax until earnings of £9,400

• Government has scrapped 50p tax rate, reducing it to 45p

However, the coalition government insisted the changes would “make work pay”, while the increase in the personal allowance would help people on low incomes.

Among a raft of changes are the largest rise in the personal allowance, which means that no-one pays any tax until they earn more than £9,440, and a fall in the higher rate threshold to £41,450.

But a one-earner family with children will be £4,000 worse off on average in the next 12 months under changes introduced since the coalition took power, according to Labour analysis of Institute for Fiscal Studies (IFS) figures.

On average, Labour claims that UK households will lose £891 a year as a result of cumulative benefits cuts and tax rises.

It also estimates that the decision to reduce the top rate of income tax from 50p to 45p will benefit 267,000 people on more than £150,000, including saving 13,000 earning £1 million or more, an average of £100,000.

Shadow chancellor Ed Balls said Prime Minister David Cameron and Chancellor George Osborne were making “millions of pensioners and working people on middle and low incomes worse off”.

He said: “Families with children are being hit hardest of all. For example, a one-earner family with children will be a staggering £4,000 worse off on average this year because of tax and benefit changes since 2010.

“And this is on top of the income squeeze we have seen over the last three years as a flatlining economy has seen prices rise faster than wages.

“These figures show the full picture David Cameron and George Osborne do not want you to see. They reveal that any gains ministers boast about from the rise in the personal allowance are swamped by higher VAT, cuts to tax credits and child benefit.

“People in work, people looking for work, stay at home mums and pensioners hit by the granny tax are all being squeezed like never before. Millions are paying more while millionaires pay less.”

The union Unite accused Osborne of conducting “class war” on the poor while giving handouts to the rich, saying this month was “black April”.

The Unison general secretary, Len McCluskey, who is on a salary of £92,000-a-year plus benefits, said: “Millionaires will be raising a glass of champagne to George Osborne this weekend as he slashes the incomes of people struggling to get by to give handouts to the rich.

“But ordinary people – taxpayers – will be furious that George Osborne has chosen to give away £1 billion to the super-rich while their fuel and food costs rise and wages are falling.

“His party knows no shame. They are trying to claim that their tax cuts benefit ordinary people but this is another lie – the truth is that while those earning over £1m per year will be an average £100,000 better off, low-income families will be around £900 worse off.

“This is not the way to recover our failing economy. Instead of getting on with the job he ought to be doing, like sorting out the problems he has caused to our economy, Osborne prefers to encourage hatred and demonise the poor, both in and out of work, in an ideological attack on our welfare state.”

The UK government insists it is trying to get long-term claimants back into work, by making it more attractive than benefits. The coalition has tried to position itself as being on the side of “strivers” rather than skivers.

Treasury Chief Secretary Danny Alexander said the government was delivering tax cuts for 25 million people. “My priority as the Liberal Democrat in the Treasury has been to deliver, as fast as possible, the big income tax cuts for working people and, overall, to ask the wealthiest to pay more.

“The wealthy are paying more in every year of this government than they did during the entire period Labour was in office.”

Cameron took to Twitter to announce: “From today 24 million people will be paying £600 less income tax than in 2010.” He also tweeted a link to a new Conservative poster outlining the change with the headline@ “Help for Hardworking People.”

Labour launched its own poster – with the tag “Who Wants to Bung a Millionaire? Dave Does” – setting out claims that high earners are benefiting while millions are worse off under coalition reforms.