Below inflation rise in some tax credits

Only the disability and child element of tax credits are to rise in line with inflation next year, with other elements of working families tax credits rising below inflation, the Chancellor announced in today's autumn statement.

The statement saw the announcement of a revision in economic growth estimates for 2011 and 2012, a rise of 5.2% for benefits next year - in line with inflation, and a 1% cap on public sector pay rises after the end of the current freeze on pay rises next year. It also included plans for a credit easing programme to help underwrite up to £40bn in low-interest loans to small and medium-sized firms.

On tax credits, the statement says that the Government will "uprate the child element of the Child Tax Credit and disability elements of tax credits in line with the Consumer Prices Index in 2012–13" and adds that it will "not go ahead with the planned £110 above inflation increase to the child element of the Child Tax Credit and will not uprate the couple and lone parent elements of the Working Tax Credit in 2012–13, to ensure the welfare system remains affordable".

The move on tax credits comes after cuts introduced in April, which have meant some women have decided to leave their jobs because it no longer makes financial sense for them to work. The childcare element of tax credits was reduced so that parents could claim back only 70% of childcare costs instead of 80% and some elements of working families tax credits were frozen for three years. Research from Save the Children and the Daycare Trust found that the average family had lost around £500 a year in tax credits as a result of tax credit changes earlier this year.

Also announced in the statement are plans to "invest a further £380 million a year by 2014–15 to extend its new offer of 15 hours free education and care a week for disadvantaged two year olds to cover an extra 130,000 children".

Sarah Jackson, Chief Executive of Working Families, said: ”This is bad news for working parents. The Chancellor has reneged on last year’s promise to fund “significant above indexation increases to the Child Tax Credit” which he said would protect against child poverty – that’s £110.00 out of family budgets. What he gives with more free childcare for two year olds on one hand, he removes with the other by failing to address the rising cost of childcare for working parents. Working Tax Credits have been frozen and childcare is becoming unaffordable. Making work pay is vital to the recovery – we need to invest in Britain’s social infrastructure as well as its roads and bridges. Today’s measure will lead to higher levels of in-work poverty, or to more parents being priced out of work. “

The Institute for Fiscal Studies published an analysis on Wednesday which suggests the average family income will drop by 7.4% between 2009 and 2013. It says a couple with two children will see their weekly income fall from 612 pounds in 2002 to 606 pounds in 2015. However, since 2002 inflation has risen by 30%.