David Cameron defends incoming tax and benefit changes

David Cameron David Cameron says 24 million taxpayers will be better off

David Cameron has defended tax and benefit changes which begin on Friday, saying 24m taxpayers will benefit from changes in personal allowances.

The amount of income that is tax free is rising by £630 to £8,105. The value of some benefits will rise by 5.2%.

But the time couples with children will have to work to qualify for working tax credits will rise from 16 to 24 hours.

Labour quoted research showing such couples would on average be £511 a year worse off.

The 6 April beginning of the tax year sees a significant number of changes to tax and benefits - affecting personal and family finances.

Measures which were announced by the government in the 2011 Budget, as well as last year's autumn statement, are now taking effect.

They range from increasing the first chunk of income that is tax free - known as the personal allowance - to the annual upgrading of benefits, as well as specific spending cuts.

Among the most important changes are:

  • Benefits such as jobseeker's allowance, income support, disability benefits, maternity benefits and incapacity benefit are rising by 5.2% - in line with the CPI measure of inflation last September (announced in November 2011)
  • Other than a few exceptions, couples with children will have to work for 24 hours a week between them, not 16, in order to qualify for working tax credit. One member of the couple will have to work for at least 16 hours a week (announced in November 2011)
  • The child element of child tax credits is to rise by £135 but the couple and lone-parent elements of working tax credit are being frozen (announced in November 2011)
  • The tax-free personal allowance for those under 65 will rise by £630 to £8,105 (announced in March 2011)
  • For 65- to 74-year-olds with an income of up to £24,000, the personal allowance rises from £9,940 to £10,500 (announced in March 2011)

Tax experts have urged Revenue and Customs to write to all those affected to alert them about the changes.

Labour said updated figures from the Institute for Fiscal Studies (IFS) showed families with children would, on average, be £511 a year worse off as a result. The IFS had previously published the impact in terms of percentages, but have updated it to show it in cash terms.

Start Quote

If you are going to ask a single parent to work two days a week before they can receive working tax credit, I think asking a couple to work three days a week between them is a reasonable position”

End Quote Danny Alexander Chief Secretary to the Treasury

The government says that, between 2003 and 2010, spending on tax credits rose from £18bn to £30bn a year. Mr Alexander told the BBC the "huge expansion" meant "we had reached a position where nine out of ten families were in receipt of those means-tested benefits".

"We will still be spending, this year, £31.6bn on tax credits, so we are effectively holding the amount of spending constant."

But he added: "I think it is right to say, in a situation where you ask a single parent, for example, to work 16 hours a week before they can receive working tax credits, that you ask more of two people.

"If you are going to ask a single parent to work two days a week before they can receive working tax credit, I think asking a couple to work three days a week between them is a reasonable position."

By the time the government met its pledge to increase the personal tax allowance to £10,000 a year, Mr Alexander added, it would amount to an extra £700 a year for working people overall, compared to what they were paying in 2010.

Ministers also point to the fact that the basic state pension is to rise by £5.30 to £107.45 a week on Monday.

But 1.7 million over-65s are likely to lose some of the money, because of cuts to the means-tested Pension Credit. The savings element of the credit, which rewards those with modest savings, is being cut from a maximum of £20.52 a week to £18.54.

According to the IFS, pensioner households will be £119 a year better off as a result of the changes this month, while working age households without children will be £156 worse off - figures which exclude measures targeting the "very rich".

Labour's own figures suggest 212,000 two-parent households earning less than £17,000 a year will lose their working tax credits if they cannot increase their total hours to 24 a week while 850,000 households with one child will lose child tax credit, because the income limit to qualify is being cut.

Shadow chancellor Ed Balls told the BBC that while the government "trumpeted" its increase in the tax-free personal allowance, it only applied to those on "middle and upper incomes" - as the poorest did not pay tax - and was "small money".

For those who did benefit, the amounts were small - in real terms £42 this year per basic rate taxpayer - and would be "immediately outweighed" for parents with one child by a freeze in child benefit.

Two-parent households on the minimum wage in receipt of working tax credits would lose £73 a week, if they could not increase their collective hours from 16 to 24 a week, at a time of high unemployment, he said.

"For these families, they will actually be worse off staying in work than going onto benefit - where is the sense in that? It reflects a deeper point, unemployment is rising, the economy is failing and families are paying the price for the government's mismanagement of the economy."

During an election campaign visit to Barry, in south Wales, Mr Cameron said: "If you are looking at what we are doing with the personal allowance we are actually raising it in this tax year, so 24m taxpayers will benefit to the tune of £6.50 per week," he said.

"We are actually taking difficult decisions on public spending and on tax credits - but we are taking two million out of income tax."

'Catastrophic mess'

Chief Secretary to the Treasury Danny Alexander said tax credit changes were part of measures the government had to take due to the "catastrophic mess" in which the previous Labour government had left the country's finances.

Start Quote

If you are going to ask a single parent to work two days a week before they can receive working tax credit, I think asking a couple to work three days a week between them is a reasonable position”

End Quote Danny Alexander Chief Secretary to the Treasury

The government says that, between 2003 and 2010, spending on tax credits rose from £18bn to £30bn a year. Mr Alexander told the BBC the "huge expansion" meant "we had reached a position where nine out of ten families were in receipt of those means-tested benefits".

"We will still be spending, this year, £31.6bn on tax credits, so we are effectively holding the amount of spending constant."

But he added: "I think it is right to say, in a situation where you ask a single parent, for example, to work 16 hours a week before they can receive working tax credits, that you ask more of two people.

"If you are going to ask a single parent to work two days a week before they can receive working tax credit, I think asking a couple to work three days a week between them is a reasonable position."

The government says 24 million people will be £6.50 a week better off from Friday.

By the time the government met its pledge to increase the personal tax allowance to £10,000 a year, Mr Alexander added, it would amount to an extra £700 a year for working people overall, compared to what they were paying in 2010.

Ministers also point to the fact that the basic state pension is to rise by £5.30 to £107.45 a week on Monday.

But 1.7 million over-65s are likely to lose some of the money, because of cuts to the means-tested Pension Credit. The savings element of the credit, which rewards those with modest savings, is being cut from a maximum of £20.52 a week to £18.54.

According to the IFS, pensioner households will be £119 a year better off as a result of the changes this month, while working age households without children will be £156 worse off - figures which exclude measures targeting the "very rich".

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