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Thousands of families will be better off quitting work after changes to tax credits coming into force next month, according to government figures uncovered by Labour.

In reply to a parliamentary question by Labour MP Ann Coffey, the Work and Pensions Minister Chris Grayling has revealed that some families with children could end being £728 per year better off out of work when they lose all their working tax credits after new rules come into force in April.

Under changes announced by George Osborne, couples with children earning less than around £17,700 will need to increase the number of hours they work from a minimum of 16 to 24 hours per week or they will lose all their working tax credit of £3,870 per year. 212,000 couples will be affected unless they can increase their working hours from 6 April 2012.

Labour will use an Opposition Day Debate in the House of Commons on Monday to call on the changes to be cancelled using the hundreds of millions of pounds the government itself has said could be raised by closing a stamp duty tax avoidance loophole on properties worth over £1 million. Labour will also call for an urgent review of the government’s changes to child benefit before they come into effect in January 2013.

According to the government’s own figures, a couple with two children working 16 hours per week on the minimum wage, entitled to working tax credit, currently has a weekly income of around £330 per week.

If they were out of work, the couple would have an income of around £271 per week – so are currently better off in work by £59 per week.

But after April, unless they can increase their working hours to 24 hours per week, they will lose all their working tax credit and earn just £257 per week. This is £14 per week less than if they were out of work and £73 per week less than before the changes to tax credits come into effect next month.

Ed Balls MP, Labour’s shadow chancellor, said:

“Tax credits were introduced to help make work pay. But this unfair and damaging change will mean thousands of families will lose £73 per week and will be better off if they quit work.

“That cannot be right. The Chancellor must act urgently in the Budget and stop this tax credits bombshell for thousands of working parents. And he can do so by closing the stamp duty avoidance loophole on properties worth over £1 million.”

Liam Byrne MP, Labour’s shadow work and pensions secretary, said:

“With unemployment through the roof and the benefits bill soaring, it is staggering that Ministers' plans will make many families better off if they leave their jobs and start claiming out of work benefits.

“This country is facing an unemployment emergency but with each passing day it looks more and more like this government doesn’t understand the first thing about getting people off benefits and into work.”

Ann Coffey, Labour MP for Stockport, who uncovered the information, said:

“I am really concerned for the thousands of families this will affect. It seems so unfair. The government needs to think again.”

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