How families will lose £1,250 a year

Tax and benefit blows, plus some gains, which the Family & Parenting Institute and IFS say will result in families with children suffering a £1,250 annual loss by 2015.

The key tax and benefit measures affecting families with children that have already been implemented are as follows:

*The income tax personal allowance increased by £1,000 in cash terms for the 2011–12 tax year;
*Increases in all National Insurance rates and increases in the thresholds at which employees’ and employers’ National Insurance start to be paid;
*An increase in the standard rate of VAT to 20%;
*Cuts to tax credits; in particular a three-year freeze in the basic and 30-hour elements of the Working Tax Credit, an increase in the rate at which tax credits are withdrawn as income rises, the abolition of the baby element of the Child Tax Credit and the withdrawal of the family element of the Child Tax Credit from £40,000 rather than £50,000. These are partly offset by an increase in the child element of the Child Tax Credit;
*Reductions in the maximum amounts of rent that can be claimed in Local Housing Allowance;
*A three-year freeze in Child Benefit rates;
*and The use of the Consumer Prices Index (CPI) to index benefit amounts each year rather than the Retail Price Index (RPI) or Rossi index.

Those to be introduced in 2012–13 include:

*A further increase in the income tax personal allowance above normal indexation;
*Reductions in contracted-out rebates in National Insurance;
*A further lowering of the point at which the family element of the Child Tax Credit starts to be withdrawn
*An increase in the number of hours couples with children need to work to be eligible for the Working Tax Credit from 16 to 24;
*Changes to the way in which tax credit awards are recalculated when a family’s income changes during the year which make the system less generous to such families;
*The withdrawal of child benefit from families containing a higher-rate taxpayer from January 2013;
and Time-limiting contributory Employment and Support Allowance for those in the Work-Related Activity Group.

The tax and benefit changes to be introduced in 2013–14 or 2014–15 that affect families with children include:

*The localisation of Council Tax Benefit accompanied by a 10% fall in expenditure.
*A medical reassessment of Disability Living Allowance claimants that is forecast to reduce the caseload by 20%.
*existing claimants of benefits and tax credits will start to be transferred to Universal Credit from April 2014.

It's happening again...more tax changes

What's happening to tax and tax credits from today?


1. Tax and National Insurance

National Insurance threshold rises to £139 a week from £110
Personal Allowance rises to £7,475, up £1,000

BUT
National Insurance rises from 11% to 12% for employees. Up to 2% (1% before) for earnings over £819 a week
Higher rate income tax threshold cut to £42,475

2. Tax credits

Child element increased to £2,555 from £2,300

BUT
Childcare cover reduced to 70% from 80%
Baby element of £545 withdrawn
Tax credits withdrawn more quickly as income rises
Family element of £545 withdrawn above £40,000

Brace! Brace! Tax impact coming

Whatever happens in the Budget in a fortnight's time, plenty of tax and benefit changes are already set to be implemented in April. Tick them off as they arrive...

National Insurance. Employees pay 12%, an extra 1%.

Threshold for 40% tax. Reduced from £43,875 to £42,475, dragging 750,000 onto the higher rate.

Duty on alcohol. Up by inflation plus 2%. Possible 5p on a pint.

Tax credits. Faster reduction as earnings rise.

Benefits and tax credits increased by CPI not the higher RPI.

Baby element of Child Tax Credit, worth £545, is removed.

£500 Sure Start maternity grant restricted to one child.

5% stamp duty on £1m homes.

Inheritance tax threshold frozen at £325,000.

Child benefit rates frozen.

Fuel duty, the one to watch in the Budget.
Rise of inflation +1% is pencilled in. But expect some or all of it to be postponed.