The Chancellor, George Osborne, set out his plans today to reduce the country’s budget deficit in his first emergency budget. He has announced big changes to the VAT and benefits systems. A higher 20% VAT rate will hit the poorest families hardest.
Tuesday 22 June 2010
Tax credits will be cut for families earning more than £40,000 next year, instead of the current £50,000 limit: “This means that support will be better targeted at low income families with children”, Osborne said.
The child element of the Child Tax Credit will rise by £150 above the consumer price index in April 2011. "The £2bn extra cash to help the poorest families via child tax credit was the rabbit that Osborne pulled out of the hat”, said Sally Copley, head of policy at Save the Children UK. “It's a welcome move – and we're glad it's targeted at those who need it most. But we fear this benefit will be wiped out by Osborne's other tough measures.”
Osborne announced that the amount of child benefit – one of the few remaining non-means-tested benefits mothers receive – will be frozen at its current level for the next three years. “Freezing child benefit for three years will also hurt the poorest families most, rather than their richer peers.” Copley continued. “And while raising the personal allowance lifts a million out of income tax, it doesn't affect the three million who fall below the threshold already.”
Rise in VAT
VAT on goods and services is going up from 17.5% to 20% from 4 January 2011. Food, children’s clothes, newspaper and books will continue to be exempt from the tax.
"A 20% VAT rate means the poorest parents will see their VAT bill rise to at least £1,600 a year — affecting already overstretched budgets — and driving some into the arms of loan sharks," Copley said. "We mustn't forget that 3.9 million children are still living in poverty in this country — and that's just not good enough. The very poorest didn't create the financial crisis — so the most vulnerable in society should not be asked to pay the price for clearing it up."
VAT - The facts
- A 20% rate on VAT means those on the lowest income could spend more than £1,600 a year on VAT - or £31 a week
- Poor families currently spend more of their disposable income on VAT than richer families with the poorest 10% spending 14% versus 5% for the richest
- An increase to 20% would see the average cost of telephone bills rise £11.96 a year, while adult clothing would be an extra £19.76
Find out more
Find out more about child poverty in the UK
Read actress Amanda Mealing's blog: "Say No to VAT rise"