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Tory tax rise means thousands more families to lose their child benefit

Up to an extra 750,000 people will become higher rate taxpayers tomorrow (Wednesday), meaning that thousands more families will lose their child benefit in 2013 Labour will warn today. 

Following changes announced in last June’s Budget by George Osborne the point at which the 40p rate becomes payable will fall from £43,875 to £42,475 – hitting many families on middle incomes hard. 

The changes mean that even more families will lose out in 2013 when the Conservative-led Government scraps child benefit for families with a higher rate taxpayer. For a single income family currently on £43,000 and with three children, George Osborne’s changes mean that not only will they find themselves in the higher rate tax bracket tomorrow but in 2013 they will lose almost £2,500. 

The Tory-led Government has confirmed that from tomorrow (Wednesday): 

· 160,000 households currently eligible for child benefit will enter the higher rate threshold 

· 20,000 additional single-income families will enter the higher rate threshold 

In 2013 all of these families will lose their child benefit. In total the Treasury estimates that 1.5 million families will lose child benefit in 2013. 

Child benefit is also being frozen for all families for three years from tomorrow. New figures from the House of Commons Library show that, compared to the annual uprating in line with RPI, the freeze in child benefit will cost a family with one child £33.80 and a family with three children £75.40 this year.   

By 2013 a family with one child will be at least £130 a year worse off, compared to if child benefit had been uprated each year in the normal way, and a family with three children will lose £301 a year – almost £6 a week. This applies to all families, regardless of earnings.

Figures from the Institute for Fiscal Studies suggest 750,000 people will enter the 40p income tax bracket tomorrow while the Treasury estimates a slightly lower figure of 600,000. A regional breakdown of these figures – obtained from the Treasury by Labour’s shadow Treasury team – can be found in the table below. 

David Hanson MP, Labour’s Shadow Treasury Minister, said:

“Tens of thousands of families on middle incomes face a double-whammy from the Conservative-led Government’s stealthy tax rise. 

“Not only do George Osborne’s Budget changes mean up to 750,000 people will this week start paying tax at the 40p higher rate, but if they’ve got children they’re also set to lose all their child benefit in 2013 too. For a family with three children that’s almost £2,500 lost in child benefit alone. 

“George Osborne says we’re all in this together, but he’s giving the banks a tax cut this year while families with children on low and middle incomes are being hit hard. 

“Ministers claim they’re reducing income tax a little for those on lower incomes, but they’re actually just giving with one hand while taking lots more away with the other. The Treasury’s own figures show that a family with children will pay an extra £450 more on average each year because of the Tory VAT rise. And that’s before their cuts to tax credits, cuts to childcare support and a three-year child benefit freeze. 

“There have to be tough choices to get the deficit down, but by going too far and too fast with spending cuts and tax rises George Osborne is hitting families hard and holding back an economy which should be growing strongly this year. 

“But that creates a vicious circle because higher unemployment and slower growth means the government is now set to borrow £46 billion more over the coming years. It’s increasingly clear that George Osborne’s reckless policies are not only hurting, they’re also not working.” 

The IFS has also said that if the Government was to continue to fund increases in the personal allowance by reducing the higher-rate threshold – which the Government did not do in its latest Budget but may choose to do in future – then a further 850,000 people would become higher rate taxpayers and so face losing their child benefit too.  

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