Labour warns of tax credit 'bombshell'

More than 200,000 families will lose tax credits worth almost £4,000 a year unless they significantly increase their working hours, according to figures highlighted by Labour today.

Under changes due to come into effect on April 6, couples with children will have to work a total of 24 hours a week to qualify for Working Tax Credit, rather than 16 hours as at present.

Official figures obtained by Labour's Treasury spokeswoman Cathy Jamieson showed that 212,000 households, including 470,000 children, could lose the £3,870-a-year credit as a result of the change.

In a speech to shopworkers' union Usdaw today, shadow chief secretary to the Treasury Rachel Reeves will describe it as a "tax credits bombshell" which will hit "parents in the squeezed middle who are working and trying to do the right thing".

Ms Reeves is expected to say: "This is a deeply unfair change from a Government that is increasingly out of touch with parents feeling the squeeze and struggling to juggle work and family life.

"Raising taxes and cutting spending too far and too fast has seen unemployment rise and the economy go into reverse, and many employers are cutting people's hours. In this climate, very few people in part-time work will be able to increase their hours by up to 50% at the moment.

"And for a couple with children losing around £4,000 a year, or £75 a week, from this change could mean going out to work makes no sense."

She added: "This tax credits bombshell is now just a few weeks away. For thousands of families it means going out to work won't pay and they'll be better off on benefits. That makes no economic sense at all. The Government urgently needs to think again."

At present, anyone responsible for at least one child and working at least 16 hours a week can get Working Tax Credit.

But from April, couples will be eligible for the credit only if their combined working week amounts to more than 24 hours, with one partner working 16 hours or more. The change will not apply to over-60s, the disabled or couples where one partner is ill, in hospital or in prison.

Figures compiled by the House of Commons Library show that the region with the most households likely to be affected is London (46,205, including 111,190 children) followed by the North West (26,845), West Midlands (22,675) and Yorkshire and the Humber (20,225).

Imran Hussain, from Child Poverty Action Group, said many families would struggle to meet the new requirement of hours.

He told the BBC: "A lot of families who are doing the right thing, who are working, are going to suddenly be faced with losing quite a significant amount of money, nearly £4,000, unless they can get their hours increased and we know the state of the economy, for many people that's very, very hard.

"The crazy thing, the bizarre thing about this, is the Government's fundamental policies around welfare reform are about abolishing this kind of qualifying period of hours."

He said the new system of Universal Credit - set to start next year - was all about making "work pay".

"I would say actually we don't need these qualifying hours, whatever hours you work you should get some kind of in-work support if you are on low wages.

"So that's the crazy thing about what's happening. It's going to hit families really, really hard, it's going to throw a lot of people into poverty if they can't get those extra hours and we know from the state of the economy a lot of people aren't going to be in that position."

John O'Connell, from the TaxPayers' Alliance, said the tax system was "too complicated and too burdensome".

"There is a culture of dependency on those out of work... but there is a culture of dependency for working families too and I think that comes through taking too much money in taxes, churning it through bureaucracy which can cost billions of pounds a year and then giving some back as tax credits," he told the BBC.

He said the TaxPayers' Alliance suggested having a lower tax burden and lifting the personal allowance to £10,000 and it was crucial to "engender a culture of responsibility".

"I don't think it's fair that tweaking tax credits makes or breaks whether a family can fill their car with petrol, pay their electricity bills or do their shopping at the end of the week.

"We need to leave more money in the pockets of people who earn the money in the first place."

PA