New tax year brings misery to millions of Brits
Millions of Brits face tax rises and benefit cuts today as the new tax year begins.
Dubbed 'Black Wednesday', shadow chancellor Ed Balls claims that working families will be badly hit, losing up to £1,560 a year due to the coalition government's childcare policies alone.
Alison Garnham, chief executive for Child Poverty Action Group, agrees with Balls, calling babies born today from low–income families "austerity babies".
"We warned that the cuts failed the fairness test and now families will be feeling it. Child poverty will rise as a result of these unfair cuts and the health and wellbeing of these children will be at greater risk."
Child benefit, which used to rise in line with inflation, have been frozen while higher–rate taxpayers will miss out on higher rate tax savings of childcare vouchers. That means they will receive £124 a month tax–free instead of £243.
In addition, the basic and 30–hour working tax credit has also been frozen and Balls argues this could cost families an additional £391.
The income threshold at which higher rate tax (40%) is paid has dropped from £43,875 to £42,475. This change is likely to affect 750,000 more people.
Changes will impact all
The Treasury argues the changes will only impact the well–off. However, the income tax move will see nurses and teachers among those workers suddenly finding themselves pay more tax.
But Garnham claims low–income families will also be hurt.
She adds: "The government must look at the fairer options available for dealing with the deficit, like stopping tax dodgers and taxing high earners more fairly. Families on a low income with a new baby should be last in line and should not face any cuts."
In contrast Treasury analysis shows only the top 20% will be worse off and 21 million people who earn up to £30,000 a year could see gains. On top of this, 800,000 people will now pay no tax due to the increased personal allowance from £6,475 to £7,475.
Mike Warburton, senior tax partner at accountants Grant Thornton, agrees that those on the lowest incomes will see the biggest gains.
"Those on the lowest incomes will benefit most from the tax changes with those on middle incomes being squeezed."
However, Warburton adds that the current difficult economic environment is having an effect on everybody: "The hard fact is that we are all having to tighten our belts this year as we cope with the increase in VAT together with rising fuel and most other costs."
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
A special government scheme operated through employers that allows you to pay for childcare from your PRE-tax salary. The vouchers cover childcare up to 1 September after your child’s 15th birthday (16th if they are disabled) and can be used at any registered and regulated nursery, playgroup and for nannies, childminders or au pairs.