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Britons Wake Up To 'Worse-Off Wednesday' Share Comments (4)
7:17am UK, Wednesday April 06, 2011
Tadhg Enright, business reporter
Tax and welfare changes that come into effect today will cost British households £2.3bn this year, according to estimates by Capital Economics.
Although lower earning taxpayers will be better off in the 2011/12 tax year, today is being dubbed "Worse-off Wednesday" for higher earners who will see their incomes reduced by £500m at a time of rising inflation.
Low earners will enjoy an increase of £1,000 to the personal allowance so taxpayers can earn £7,475 before paying income tax.
About 1.7m people earning below £21,000 a year will be £250 better off.
However the benefits are offset for higher earners because the threshold at which they start paying tax at 40% is reduced from £37,400 to £35,000.
National Insurance contributions are also going up by 1% although there will be an increase the number of exempted low earners because of a rise in the threshold.
Capital Economics' UK Economist Vicky Redwood told Sky News: "I think it's pretty unambiguously bad for economic growth because these people (higher earners) spend a lot of their income.
"Therefore consumer demand is going to weaken and economic growth is going to weaken because consumer demand makes up two thirds of the economy."
These tax credit cuts could not have come at a worse time for families.
TUC General Secretary Brendan Barber
Linking increases in benefits to CPI inflation rather than RPI inflation - which includes housing costs - will also reduce social welfare payments by £1.8bn.
The budget cuts are forecast to reduce household incomes by 0.25% but the impact is compounded by above target inflation which last year caused the first decline in spending power since 1981.
The Bank of England has forecast that inflation will peak at 5% in 2011 and that will contribute to a reduction in the spending power of household incomes.
The Institute of Fiscal Studies expects that real household income will have fallen by 1.6% between 2008 and 2011.
Trade unions are also warning low income families to prepare for a shock as a three year freeze and other changes to Working Tax Credits come into effect.
The TUC has calculated that a couple earning £40,000 that pays £400 a week in childcare for two children will be £2,500 worse off over the next year.
And more cuts already planned for April 2012 will make matters even worse.
TUC General Secretary Brendan Barber said: "With wages failing to keep up with the cost of living and the VAT rise biting into household budgets, these tax credit cuts could not have come at a worse time for families."
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Posted by: natty333 on April 6, 2011 7:43 AMwhat a miserable country we live in I think the politicians must really despise us I can't explain it they seem to be hitting the poorest and most vulnerable yet wander round the world giving millions trying to help their poor and vulnerable it makes no sense in any wayRecommend (3)Report this commentPermalinkPosted by: Doomdark on April 6, 2011 7:39 AMwhat a load of rubbish, if you cant live on 700 quid a week theres something the matter with you and getting a few quid taken off you because you earn more IS NOT going to make you destitute.
Try scraping by on minimum wage before twisting your bloody face about paying more tax.Recommend (5)Report this commentPermalinkPosted by: Not-Impressed on April 6, 2011 7:37 AMThat £650m Cameron gave away to Pakistan could of helped here.Recommend (5)Report this commentPermalinkPosted by: I-am-English-not-british on April 6, 2011 7:37 AMit all started with Thatchers by now pay later policy that was built to boost the banking sector.
Stop borrowing and they crumble. buy what you can afford not what you wantRecommend (2)Report this commentPermalink Add your comments
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