Charities say much of the £5bn of extra capital investment expected in the autumn statement will come from cutting and freezing working tax credits
Plans to provide £5bn of public sector funding to stave off recession will hurt the poorest in society the most, charities for low-income families have warned.
Chancellor George Osborne is expected to announce the extra capital investment in his autumn statement, with much of the money being scraped together from the cutting and freezing of the working tax credit (WTC).
Universal child benefit and two parts of the WTC – the basic and 30 hours payments – were frozen for three years starting in April 2011. But Ian Mulheirn, director of the Social Market Foundation, said the government could still freeze the third part, which is paid to couples and lone parents with children. Freezing this payment, which is worth £1,950 a year, rather than increasing it in line with inflation would save the government £300m in the first year and £600m in the second.
Gavin Kelly, chief executive of the Resolution Foundation, an independent research and policy organisation, said: “Taking cash away from families on low- to middle-incomes would be iniquitous as this will hit precisely those households who have already been on the end of the most severe squeeze of their lives – but it’s also economically short-sighted as these are precisely the families who are most likely to spend it.
“Every pound taken out of their pockets is likely to be a pound taken out of consumption in the economy.”
Gingerbread, the charity for single parents, said 36% of all single parents are WTC claimants, compared to just 15% of couples with children, meaning single parents are twice as likely to be in the WTC group as couples with children.
Chief executive Fiona Weir said: “Stories of a freeze on tax credits or a raid on benefits have single-parent families nervous. With a flatlining jobs market and rocketing prices they cannot afford to take any more cuts.
“In last year’s spending review, the chancellor pledged his actions would not increase child poverty. Children should not be made to pay for the financial crisis.”
Families on low incomes already face a raft of reductions and freezes to their benefits announced in the 2011 budget. Parents will have to pay between £600 and £1,400 a year more for childcare by 2015 because of cuts to the WTC, a childcare voucher freeze and rising care charges, according to research by the Social Market Foundation.
Although those on high incomes (families with at least one parent who is a higher rate tax payer) face the biggest increase from £3,450 a year to £4,900, and while those on middle incomes (families not eligible for tax credits but with no parent who is a higher rate tax payer) will see their childcare contribution increase from £3,700 a year to £4,600, the increase experienced by low income families (no higher rate tax payer and qualifying for tax credits) from £900 a year to £1,550 will have the most impact.
“Our analysis shows that for the same amount of childcare a low-income family in 2015 can expect to pay 62% more in today’s money – almost £600 a year – from their own pockets compared to 2006,” said Mulheirn, who co-wrote a report on childcare costs called The Parent Trap.
“For a family on £20,000 a year with typical childcare costs, this will take the proportion of their income spent on childcare to almost 8%, up from just 4.8% in 2006. Put in context, this means the extra expenditure on childcare would wipe out the amount of money the average family currently spends on Christmas.”
The freezing of child benefit will cost families with two children about £255 a year by 2013, according to the shopworkers union Usdaw, while the decision to freeze the two elements of WTC will cost families between £88 and £124 a year.
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