Politicians battle over benefits of tax changes
As a raft of changes to the tax system come into effect, the government and opposition clash over the winners and losers.
Overall, Labour claims UK households will be £891 a year worse off on average in the new tax year as a result of cumulative benefits cuts and tax rises.
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 the party’s analysis of figures published by the independent Institute for Fiscal Studies (IFS).
Prime Minister David Cameron took to Twitter to highlight the increase in the personal tax allowance. He wrote: “From today 24 million people will be paying £600 less income tax than in 2010.”
Mr Cameron also included 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.
New tax year changes
Among a raft of changes coming into effect on Saturday 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 the government’s controversial 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 £1m an average of £100,000, the party added.
Hardest hit
Shadow chancellor Ed Balls said: “David Cameron and George Osborne are today giving millionaires an average tax cut of £100,000 while they make millions of pensioners and working people on middle and low incomes worse off.
“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.
But in response the government’s claim that the 50p top rate of tax was not raising revenue, Mr Balls conceded that he would not support this rate if it was proved to be ineffective.
He told Radio 4’s Today programme: “I’m not a high tax person, I’d rather get taxes low.
“I wouldn’t support a 50p tax rate if it wasn’t raising revenue but the reason why it’s important to have it, the reason why it was introduced first in 2008 and then 2009 was at a time when families are paying a big price for the global financial crisis it is important that we share the burden fairly.”
Tax cuts
But the Treasury Chief Secretary Danny Alexander defended the changes, insisting that the government was delivering big tax cuts for 25 million people.
He told Today: “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.”