5.3 million families will lose out from the abolition of the 10p tax rate!

According to the Institute for Fiscal Studies, 5.3m families in total will lose out from abolition of the 10p rate, even after the tax credit changes.

We do not know exactly what the government proposes as compensation, but we can make an estimate of the people who will benefit by looking at the various options available.

Using numbers supplied by the IFS, we estimate that of the 5.3m families who lose out, the maximum reduction in the number of losers, based on what the government have said about the compensation package, is 2m. Alistair Darling has indicated he will look at the following ways of compensation (a regional analysis is included below):

• Only the Winter Fuel Payment element has so far been confirmed as being backdated. IFS figures show that, of the 5.3m families who lose out, 300,000 are women between the ages of 60 and 64 who do not get tax credits and are too young to be compensated by the rise in the pensioner tax allowance. At the moment it appears that these are the only group who will benefit from a backdated additional winter fuel payment

• A best estimate of the maximum reduction in the number of losers using tax credits is 1.5m. For other losers, the Chancellor said in his letter that “our focus is on potential changes to the tax credits system”. The IFS have produced the following estimates for the impact of the main tax credit options on the total number of losers:

(a) Cut age limit for Working Tax Credit from 25 to 16:  Number of losers falls by 700,000

(b) Cut hours worked needed to qualify for Working Tax Credit from 30 to 16:   Number of losers falls by 200,000

(c) Cut age limit to 16 and hours needed to 16: (i.e. combine (a) and (b)) Number of losers falls by 1.2

(d) Increase Working Tax Credit for single people without children by 50%:  Number of losers falls by 300,000

These estimates are upper limits as they assume 100% take up of working tax credit by people without children. In fact the most recent figures show that take up is only 22%. (http://www.hmrc.gov.uk/stats/personal-tax-credits/cwtc-take-up2005-06.pdf, Table 10)

• Less than 5% of the 5.3m losers are on the minimum wage. The Chancellor also says he will look at the minimum wage regime, but Government figures show that fewer than 172,000 (or fewer than 5%) of the 5.3m losers are on the minimum wage.

Impact on the North West:

Before any concessions, approximately 565,607 families in the North West will lose out, even after tax credit changes.

After concessions: Furthermore, only a limited amount can be compensated using the measures Alistair Darling has indicated:

• The maximum reduction in the number of losers is 32,016 from any changes to the Winter Fuel Allowance for women aged 60 – 64.

• The maximum reduction in the number of losers is 18,356 from an increase in the minimum wage.

• The maximum reduction in the number of losers is 128,062 from changes to the eligibility requirements (cut the age limit to 16 and the required number of hours to 16) for the Working Tax Credit.

• The maximum reduction in the number of losers is 32,016 from an increase in the Working Tax Credit

Total: This means that based on what the Government have said so far about their strategy for compensating the losers, a best estimate of the maximum total reduction in the number of losers as a result of the package is 210,450 out of 565,607.

Use your vote wisely on the 1^st May and tell the Labour Government what you think of their proposals!