CPAG: Osborne’s £3bn tax credit cuts “may have deepened the recession”

George Osborne's swingeing tax credit cuts of £3 billion may have contributed to the dire Q2 downturn, the Child Poverty Action Group said today.

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George Osborne’s swingeing tax credit cuts of £3 billion may have contributed to the dire Q2 downturn, the Child Poverty Action Group said today.

Gideon-Osborne-Heydon-Prowse-black-and-whiteIt was announced this morning that the UK economy shrank 0.7 per cent in the second quarter of this year, the third consecutive quarterly contraction, the worst double-dip recession for 50 years.

Commenting on the impact of Osborne’s tax credit cuts, CPAG head of policy Imran Hussain said:

“An international study looking at which countries recovered fastest from recession in 2009 found it was those giving the biggest stimulus to the incomes of the poorest households.

“This is because low income families spend their money straight away in their local shops and services, helping struggling businesses to survive.

“The size of the contraction is perhaps less surprising when you take account of the £3 billion of cuts to tax credits that hit the poorest working families this April.

Ministers must urgently reconsider welfare cuts, not just because of the social damage we know they are causing, but because they may be deepening the current recession and impeding economic recovery.”

Left Foot Forward has long reported on the false economy of the coalition’s cuts to tax credits.


See also:

Latest GDP numbers mean Britain’s economy has shrunk since general election 25 Jul 2012

A US perspective on tax credits and the politics of reform 30 Jun 2012

Busting the means testing myth 26 Jan 2012

Tax credit cuts mean working families are worse off 6 Apr 2011

Cable is wrong: Working families will be worse off after tax credit changes 25 Oct 2010


As Nicola Smith explained last year, working families will be worse off as a result of the cuts:

To allow households to gain a better understanding of what the changes mean for them the TUC has launched a tax credit calculator, which shows how changes to tax credits will affect household entitlements over the years ahead – and exposes the reality behind today’s rhetoric about winners and losers.

For example:

• A single parent earning £15,000 with two children (one in receipt of disability living allowance) who pays £150 a week in childcare for 40 weeks a year could lose around £800 annually;

• A couple family with a household income of £20,000 with two children (including a baby and a toddler) could lose around £687 a year;

• A couple family where one adult is disabled, with earnings of £13,000 a year and with three children paying £300 a week for 35 weeks of childcare could lose £557 annually;

• A single parent earning £30,000 with an 18 month old child who pays £150 a week for childcare 45 weeks of the year will lose £1,277.

Particular types of families set to experience significant losses are:

• Those claiming help with childcare (who lose 10 per cent of the childcare part of their award, a maximum loss of £1,560 in childcare costs);

• Households with a new baby (who lose all entitlement to the baby element of tax credits, worth a maximum of £545);

• Households with a one year old child (who will not receive a toddler tax credit, worth a maximum of £210)

Couple households where one adult currently works for 16 hours but between them both adults in the household work for fewer than 24 hours (who are set to lose all entitlement to the basic and couple elements of Working Tax Credit, a maximum loss of £4,070);

Families on middle incomes who will lose the entire family element of their award (worth £545).

Even after gains from the raised income tax threshold (which has already been countered by VAT and NICs rises) are taken into account, many low and middle income households with children will be significantly worse off.

The coalition’s policies carry on hurting – but they still aren’t working.


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