Britain’s poorest hit by £2.5bn ‘stealth tax’

Posted on December 27, 2011

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Tax cuts for low and middle-income families in April will be dwarfed by hidden reductions in tax credits, according to a study for The Independent.

The analysis found that the £1bn of tax cuts in April will be outweighed by reductions of more than £2.5bn in the complex tax-credit scheme.

Most of the cuts to credits, which top up the wages of low-income families in work, will take effect from April and could catch families unaware.

The Government’s flagship policy of raising income-tax thresholds has been trumpeted by the Liberal Democrats as their main achievement since the Coalition was formed last year – and a major boost for the low-paid.

But the Resolution Foundation think tank, which undertook the study, questions the fairness of the changes.

George Osborne, the Chancellor, increased the personal tax allowance from £6,475 last year to £7,475 in the current financial year, and it will rise to £8,105 in April. Nick Clegg hopes it will reach £10,000 by the next election to fulfil a key pledge in last year’s Liberal Democrat manifesto.

But basic-rate taxpayers will gain by a “very small” £41-a-year after the April rise in tax thresholds, according to the think tank – which describes it as “a relatively inefficient way of targeting the low to middle-income group because those on higher incomes also benefit”. Most higher-rate taxpayers will also gain £41 a year – although not those on more than £100,000 a year.

Independent

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