BLOG: How tax credit cuts will impact on working families

Councillor bigpicBarry Kushner, Chair of Employment, Enterprise and Skills Select Committee, looks at the impact of cuts to tax credits will have on working families in the city.

Figures produced by Unison show the true impact that cuts to tax credits will have on working families. It raises the genuine concern that thousands of workers who face losing up to £40 per week in tax credits, do not know how it will affect them. The cuts to working tax credits not only mean they will lose up to £2,500 per year, but they may also find that they lose the Child Tax Credit support to keep their children in nursery, so that they can go to work. While the Government is saying that it wants to encourage parents with children into work, this has been a budget that is costing working families pay.

The Government’s budget has had two effects on working families in Liverpool. Firstly for those over 25 the minimum wage will raise from £6.5 per hour to £7.2 per hour from April 2016, and you will be able to earn £11,000 before paying tax. But what people in the city do not realise that despite  these changes, they will still have less money to live on per week, as a result of the draconian cuts to Working Tax Credits and Child Tax Credits.

A household aged 25 or over with 2 children earning the minimum wage for 16 hours per week will earn an extra £11.20 per week, due to the increase in minimum wage. But because of the cuts to tax credits he or she will lose overall, taking account of the higher income, a massive £19.75 per week. 48,000 workers in Liverpool earn below the Living Wage (£7.85 per hour), and if they work full time  they stand to lose a massive £1,150 per year. However most of our low earners are on part-time hours and unbelievably although they will earn less, they will lose more in tax credits – £1,250. Households with two children that earn the UK average salary of £26,000, will lose out by £1,927 per year or £37 per week. They will face decisions about whether they can afford childcare and it puts further pressure on household budgets.

The Institute of Fiscal Studies calculates that the average loss for these families is £1000, which means that another £48 million will be sucked out of the Liverpool economy.

 

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