Low-income working families face significant reductions in income as a result of planned cuts to benefits, according to the Institute for Fiscal Studies (IFS).
The thinktank says the freeze in benefit rates and cuts to child tax credit, coupled with the rollout of universal credit, which has become less generous as a result of changes to work allowances, signal “large losses” for low-income households.
If the cuts announced in 2015 were fully in place now, nearly 3m working households with children on tax credits would be an average of £2,500 a year worse off, with larger families losing more.
The scheduled cuts for lower-income families come alongside tax breaks worth £5bn a year that predominantly benefit middle- and higher-income households.
The shadow chancellor, John McDonnell, said the IFS analysis showed the Conservatives posed a “clear threat” to working people’s living standards, while the Liberal Democrats claimed the “savage cuts” would leave millions of households worse off.
McDonnell said it revealed the “stark choice” facing voters between a Labour party that would stand up for the many and a Tory party that only looked after the privileged few: “The Tories pose a clear threat to working people’s living standards. Under Tory proposals cuts to in-work support will leave working families with children an average of £2,500 a year worse off.”
Although the average impact of tax and benefit changes since 2015 has been relatively small so far, planned benefit cuts will reduce government spending by about £15bn a year in the long run, with the poorest working-age households facing losses of between 4% and 10% of income a year, the IFS says.
The impact of the planned cuts on the poorest working-age families over the next five years will be much greater than those imposed during the 2010-15 coalition government. Pensioner households are mostly protected from future benefit cuts.
Tom Waters, a research economist at the IFS, said: “As suggested by the 2015 Conservative manifesto, the government have announced income tax cuts that mostly benefit middle- and higher-income households and working-age benefit cuts that mostly hit lower-income households. But while the tax cuts have largely already been delivered, most of the benefit cuts are yet to take effect.”
The Lib Dem spokeswoman Susan Kramer said: “Theresa May’s plans for a divisive hard Brexit and savage cuts to benefits will leave millions of working families worse off. Three million households will be hit to the tune of £2,500 a year as a result of cuts to tax credits, rising prices and the falling pound.
“The Brexit squeeze will hit people in the pocket across the country, with the poorest families hit hardest.”
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