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Cuts to childcare support alone will leave families up to £1500 a year worse off.

Families up and down the country will today (Wednesday) start to feel the real impact of this Tory-led Government’s decision to cut too deep and too fast as cuts to tax credits, childcare support and child benefit start to take hold.

With family budgets already squeezed by January’s VAT increase and rising inflation Labour is warning that today’s measures will add to the growing squeeze on millions of families on low and middle incomes – with women and families with children being hardest hit. 

In what Shadow Chancellor Ed Balls is calling a “Black Wednesday for millions of families across Britain” a raft of changes will take effect today:  

  • Cuts to the amount parents can claim on childcare – worth up to £1560 per year for families with two or more children 
  • Child benefit frozen for three years – a real terms cut of £75.40 this year for a family with three children 
  • Baby element of the child tax credit scrapped – worth £545 per year 
  • Benefits set on a permanently lower path of inflation – a real terms cut which means less generous benefits this year and every year going forward 
  • Basic and 30 hour elements of the Working Tax Credit frozen – an overall loss of £391 a year by 2013 for some families 
  • Second income threshold for family element of Child Tax Credit cut – fewer families eligible for tax credits 
  • Withdrawal rates for tax credits increased to 41% – a loss of £400 a year for someone earning £26,420 and in receipt of tax credits

In an article for the Labour Uncut website today Ed Balls MP, Labour’s Shadow Chancellor, says: 

“Today will be a Black Wednesday for millions of families across Britain. 

“David Cameron promised to lead the most family-friendly government ever and George Osborne said we’re all in this together. So why are their changes to tax and benefits coming into force today hitting women harder than men and taking so much support from children, with families on low and middle incomes being hit the hardest of all? 

“We’ve been through a global financial crisis – not a recession made in Britain. And like every major economy in the world we now have a big challenge to get the deficit down. So there have to be tough decisions including some spending cuts and fair tax rises like the 50p top rate of tax for the richest and the national insurance rise we proposed last year. 

“But as we have consistently argued, by making a political choice to cut the deficit further and faster than any other major country George Osborne is going too deep and too fast and putting jobs and growth at risk. And he is doing so in an unfair way, giving the banks a tax cut this year while low and middle income families are hit hard.”  

“All this pain, all in one go, aimed at families with children, is not just deeply unfair it will hamper our economy too. By going too deep and too fast George Osborne is damaging consumer confidence – which is now at a near 20 year low – and holding back an economy which should be growing strongly this year. The government is now set to spend over £12 billion more on benefits than it planned in the autumn. This creates a vicious circle because the higher unemployment and slower growth now forecast means the government is actually set to borrow £46 billion more over the coming years.” 

Analysis by the House of Commons Library for Fiona O’Donnell MP has found that the changes coming in today, combined with the Government's VAT rise, will cost a family with three children – and each parent earning £26,000 – over £1,700 a year. This is equivalent to around 5p extra on the basic rate of income tax.

Amongst these changes is the decision – announced in last October’s Spending Review – to reduce the amount of childcare costs paid through the Working Tax Credit.  Independent research by the Resolution Foundation has found that this benefit is claimed by 450,000 households – most of which are on incomes of £30,000 or lower. Almost two thirds of those who claim the support are lone parents. 

They will lose on average £436 a year as a result of this change alone. In London, families will lose over £600 a year on average. For some families with two or more children it could be up to £1560 lost.

On the cuts to childcare support Ed Balls MP added:

“This little noticed change will have a huge impact on hundreds of thousands of families, but particularly women with children who work part time and on low pay. But cuts to childcare support make no sense at all if it simply makes it harder for parents to go out to work – as the Office for Budget Responsibility has warned – and so ends up costing the taxpayer more. 

“Once again we can expect Nick Clegg to this week trumpet an income tax cut for some on lower incomes as a key achievement of the coalition. But the truth is that the increase in the personal allowance is a fig-leaf for what’s really happening to families. As the Institute for Fiscal Studies has said the government is giving a little with one hand, but taking much more away with lots of other hands. 

“So we should remind Nick Clegg that it’s more than offset by the Tory VAT rise he himself campaigned against a year ago – which the Treasury says will cost a family with children an average of £450 a year – and all the other changes coming into effect today.” 

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