Tax credit cuts on the cards for 800,000 people

Around 800,000 people will lose tax credits this year due to a change which means their credits will decrease as they earn more.

Despite the u-turn on tax credit cuts in last year’s Autumn Statement, the Treasury is continuing with a reduction in the income rise disregard which means people will see their tax credits cut when their employment income is more than £2,500 in a year than their estimated earnings. Previously the level was set at £5,000.

The Government says no-one will be worse off in cash terms because their increase in earnings will cover the cuts, but critics say this reduces any incentive to work more hours or get promoted.

Income tax disregard was introduced to avoid overpayments in tax credits if people’s actual earnings outstripped their estimated earnings for a year, meaning they would be in debt to HMRC.

Labour has called for the change to be reversed in the Budget. It is thought the cuts could mean a reduction of credits by £200 to £300 a year.

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