Shadow chancellor says today's tax and benefit changes will hurt working families, but Treasury insists only richest will lose
Working families face losing up to £1,560 a year from Wednesday under the coalition's new tax and benefit regime, the shadow chancellor, Ed Balls, has claimed, triggering a row with the Treasury, which said that only the richest 20% will lose out.
A raft of tax and benefit measures kick in on Wednesday, the first day of the new tax year. Tax threshold increases, child benefit and working tax credits are frozen and the rate of childcare element of the working tax credit is reduced from 80% to 70% of the total costs.
Balls said the reforms amounted to a "black Wednesday" for families but the Treasury insisted the increase in the personal tax allowance in particular meant only the richest would be significantly worse off.
The official Treasury analysis – which it said included all tax and benefit changes bar the increase in VAT from earlier this year – showed that the majority of households will be better off, with the bottom 80% gaining on average small amounts over the year and only the top 20% losing significantly.
Balls's figures suggested that the childcare cuts alone would cost families with two or more children up to £1,560 a year while the freezing of the basic and 30-hour element of the working tax credit would cost some families £391. Writing for the Labour Uncut website, he said: "David Cameron promised to lead the most family-friendly government ever and George Osborne said we're all in this together. So why are their changes to tax and benefits coming into force today hitting women harder than men and taking so much support from children?"
The treasury minister Justine Greening said: "This government has come up with a credible plan to reduce the deficit which is keeping interest rates lower and managing to ensure that the burden falls on those with the broadest shoulders. Our package to support motorists shows that we are determined to help families across the country with the cost of living."
The independent Institute for Fiscal Studies said the poorest 10% of households would lose 2% of their income as a result of changes coming into force on Wednesday, the increase in VAT in January and the budget decisions made by George Osborne last month.
It said that within 90% of households the amount lost as a result of the tax and benefit changes decreased as income rose. The richest 10% of households are the biggest losers from the changes overall, seeing their incomes fall by more than 3.5% on average.