|Happy Chancellor of Exchequer|
Shadow Chancellor Ed Balls will this weekend call on the Conservative-led government to cancel changes coming into force in April that will see up to 200,000 working parents lose almost £4,000 in working tax credits.
He will say this could be funded by closing a stamp duty tax avoidance loophole on properties over £1 million which is costing the Treasury hundreds of millions of pounds.
Labour will also use the Opposition Day debate on Monday to demand the Chancellor announces in the Budget an urgent review of the government’s changes to child benefit before they come into effect in January 2013.
In an article for PoliticsHome Ed Balls MP, Labour’s Shadow Chancellor, writes about the tests for next month’s Budget:
“With our economy stalled, unemployment soaring, and £158 billion extra borrowing to pay for this economic failure, the case for a change of course and a real plan for jobs and growth in next month’s Budget is growing by the day.
“But as well as a plan for jobs and growth to get our economy moving and so help get the deficit down, there are different choices the government should be making in these tough times to help families in the squeezed middle.
“Far from being all in this together, David Cameron and George Osborne have chosen to give the banks a tax cut this year while their Budget measures are hitting women harder than men and pushing up child poverty. And families with children will lose an average of £580 per year from policies coming into effect this April alone.
“So next month’s Budget needs to pass two tests – on jobs and growth to boost our economy and put in place the long-term reforms we need; and on fairness so that families on low and middle incomes do not bear the heaviest burden.
On tax credits, Ed Balls writes:
“Their changes to eligibility for working tax credits are set to clobber hundreds of thousands of parents in part-time work by up to £74 per week. This will penalise parents who are working and trying to do the right thing, but cannot increase their working hours at a time when the economy is flatlining and unemployment rising.
“This unfair and damaging change could and should 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.
On child benefit, Ed Balls writes:
“David Cameron and George Osborne also need to urgently review their planned changes to child benefit which are unfair, unworkable and ill thought through. It cannot be right that a two-earner family each earning £42,000, a total of £84,000, would keep all their child benefit, but a single-earner family on £43,000 would lose it all at a stroke.
“Labour supports the principle of universal child benefit, but if the government is determined to make changes it would be better to do so in a fair and workable way. They should put implementation of their child benefit cuts on hold and conduct an urgent review to report before the changes come into effect next January.
On the hit to families from these two changes Ed Balls concludes:
“Both these changes were rashly announced back in October 2010, but Ministers have clearly not thought through the consequences. Thousands of parents on low and middle incomes face losing a huge proportion of their income overnight. And far from making work pay, many parents could find they are better off on benefit. This makes no economic sense at all.
“It’s not too late for David Cameron and George Osborne to change course. They should take action on jobs and growth in the Budget and put a stop to these two bombshells for thousands of parents on low and middle incomes. If they fail to act, they cannot say they weren’t warned.
1. Text of Labour’s motion to be debated in the House of Commons on the evening of Monday 5 March 2012:
“That this House believes that next month’s Budget should include a real plan for jobs and growth in order to boost the stalled economy, help hard-pressed families, pensioners and small businesses, bring down unemployment, and so ensure that the deficit is brought down and done so in a fair way; notes that while the banks are receiving a tax cut this year, Institute for Fiscal Studies analysis shows that families with children will lose an average of £580 per year from tax and benefit changes coming into effect in 2012-13; further notes that up to 200,000 couples with children who are working part-time face losing all their working tax credit of up to £3,870 per year from April 2012 if they cannot increase their working hours to 24 hours per week, further squeezing family living standards; recognises that, in addition to ending the principle of universal child benefit, the Government’s unfair and ill-thought through changes to child benefit will mean that a two-earner family each earning £40,000 would keep all their child benefit, but a single-earner family on £43,000 would lose it all, at a cost of £2450 per year for a family with three children; and calls on the Chancellor to use extra revenue from tackling tax avoidance to cancel his changes to eligibility rules for working tax credits and announce in the Budget an immediate and urgent review of his changes to child benefit to report before they come into effect in January 2013.�
2. Tax credits
· Change to working tax credits from 6 April 2012 means that 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. The changes were first announced in the 2010 spending review.
· Government figures revealed in parliamentary answers to shadow Treasury minister Cathy Jamieson MP show 212,000 households could lose out. Those households include 470,000 children which means nearly 1 million people could be affected by the changes. The Treasury estimated in the 2011 Budget that the change will raise £515 million in 2012/13.
· A recent survey by the Chartered Institute for Personnel and Development found that one in five organisations have cut back on the number of hours that people work as a result of the economic downturn, with just 6 per cent increasing them. http://www.cipd.co.uk/binaries/5756%20Employee%20Outlook%20SR%20(WEB).pdf
· Figures showing the number of couples with children benefiting from Working Tax Credit and working between 16 and 24 hours as of December 2011, and who will be affected by these changes, can be found in this parliamentary answer to Cathy Jamieson MP: http://www.parliament.uk/deposits/depositedpapers/2012/DEP2012-0031.doc#
· HMRC’s website explaining the changes says:
o At the moment, if you're responsible for at least one child and working at least 16 hours a week, you can get Working Tax Credit.
o From 6 April 2012, the rules for couples with at least one child are changing. In most cases, to qualify for Working Tax Credit your joint working hours will need to be at least 24 a week.
o This will mean:
o if you both work your joint weekly hours must be at least 24, with one of you working at least 16 hours a week
o if only one of you works, that person must be working at least 24 hours a week
o If neither of these apply, your Working Tax Credit will stop from 6 April 2012.
3. Child benefit:
· In February the IFS said the following about the government’s proposed changes to child benefit:
“From January 2013, the government plans effectively to withdraw all Child Benefit from any family containing a higher-rate income taxpayer. The Treasury expects this to save it about £2.4 billion in 2013---14. Around 1.5 million families will effectively lose their Child Benefit as a result: about 600,000 one-child families will lose £1,056 per year; about 700,000 two-child families will lose £1,752 per year; and about 200,000 families with three or more children will lose at least £2,449 per year.
“The ‘cliff-edge’ feature of this policy, whereby all of a family’s Child Benefit is removed completely as soon as pre-tax income passes a certain threshold (rather than being tapered away gradually as income rises), will create a bizarre and economically damaging set of incentives for people within certain income bands. About 170,000 families could increase their net income if an individual in that family managed to lower their pre-tax income to just below the higher-rate tax threshold, and about 200,000 families slightly below the higher-rate tax threshold could find themselves with a lower net income if their pre-tax income were to rise slightly.
“The Treasury has estimated that the resulting distortions to people’s behaviour will reduce the revenue raised by the reform by about £280 million per year due to ‘tax planning’ and another £60 million per year due to ‘non-compliance’. A further £90 million per year will go uncollected due to difficulties in correctly identifying the families who should be affected by this reform. The total economic costs of the distortions to people’s behaviour (such as reduced labour supply) are likely to be greater still; and one can clearly also question the fairness of effectively rewarding people for working less or arranging a pay cut with their employer.
“The fact that Child Benefit withdrawal would be based on individual income, rather than family income, will mean that Child Benefit will be removed from some couples whose joint pre-tax income is £43,000 per year but not removed from other couples whose joint pre-tax income is £84,000 per year.
4. Stamp duty avoidance loophole
· Labour introduced a rate of 5 per cent stamp duty on properties worth over £1 million to ensure that everyone is paying their fair share in bringing down the deficit. But evidence has emerged of properties being put in offshore companies to avoid tax.
· When properties are held in offshore companies, shares in the companies can be sold instead of the property itself. This means that they are subject to a much lower stamp duty rate of 0.5 per cent, instead of 5 per cent.
· Labour is calling on the government to act immediately to clamp down on this loop hole, and to show they are serious about preventing such abuse in the future should bring Stamp Duty within any new General Anti-Avoidance Rule.
· The 2010 Liberal Democrat manifesto said that “a law to ensure properties can’t avoid stamp duty if they are put into an offshore trust would raise £750m, while the Financial Times recently reported that it was “a ruse estimated to cost the Treasury up to £1 billion a year (27 February 2012, http://www.ft.com/cms/s/0/3f3de262-60a0-11e1-84dd-00144feabdc0.html#axzz1nnsazHqc)
· On a cautious estimate revenues from closing this tax avoidance loophole would be sufficient to fund the cancellation of changes to working tax credit eligibility rules which the Treasury has estimated will raise £515m in 2012/13.
· The Government is expected to confirm in the Budget their response to proposals to introduce a General Anti-Avoidance Rule (GAAR) which would prohibit aggressive tax planning, but the draft proposals published for the Treasury currently do not include Stamp Duty Land Tax. This will add to concerns that the GAAR will be ineffective and only act as a smoke-screen obscuring the severe cut backs at HMRC and the loss of momentum on tax avoidance under this government.