Family incomes to fall by average of £1,250
A new study forecasts that families will see their incomes drop significantly by 2015-16 due to benefit cut and tax increases.
A new study produced by the Institute for Fiscal Studies (IFS) for the Family and Parenting Institute (FPI) predicts a big drop in family incomes as a result of the Government’s spending cuts and tax rises.
The study says that the average family faces a drop in their household income of 4.2% by 2015-16. Families with two children will lose an average of £1,250 a year. This compares to a loss of income of 0.9%, or £215, for households without children.
And families with three children will lose 6.8% of their income by 2015-16.
The biggest losses for most families will occur during this tax year as cuts in benefits and increases in tax kick in. The cuts include the three-year freeze in the basic and 30-hour elements of the Working Tax Credit, an increase in the rate at which tax credits are withdrawn as income rises and the withdrawal of the family element of the Child Tax Credit from £40,000 rather than £50,000.
The tax rises include an increase in National Insurance contributions and the increase in VAT to 20%.
Young families hard hit
The study says these will particularly affect families with younger children, due to the restriction of the Sure Start Maternity Grant to the first child and the abolition of the baby element of the Child Tax Credit. There is also the more obvious point that families with older children are less likely to use childcare and so will not lose out from the reduction of the childcare element of the Working Tax Credit.
These measures, the study argues, provide less of an incentive for people with children to work.
But it forecasts that smaller families with two children or less, particularly those who own their own home, will see their incomes rise from 2013-14. They claim this is due to these families being on the whole richer and the effect of interest rates rising growing the value of this group’s savings.
Conversely, larger families are likely to face a continued drop in income, as the amount of benefits a family can receive will be capped.
However, the study acknowledges the introduction of the Universal Credit system of benefits from April 2014 will help many poorer families.
The Government responded to the study by saying: "The Prime Minister acknowledged that families are facing difficult times so the Government has taken practical steps to help them - cutting fuel duty, freezing council tax and cutting income tax for millions."
More: Save £2,012 in 2012 | How to stop overspending in 2012
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@nickpike Presumably you are too young to remember the Thatcher years, when all the phenomena you mention were around in far greater degree than under Blair/Brown. Mrs T also did far more to deregulate the financial markets and banking system. I agree that Brown should have tightened regulation but I have yet to see any evidence of Conservatives demanding that he do so. Regarding the gold, I've done some research on this. Brown sold gold and invested in securities, on Treasury advice, to diversify the government's asset base. It's bad luck that he did so at the start of a gold boom, but the net loss is estimated at around £4bn, which is equal to approximately ten days' worth of the current deficit. So not that big of a deal, really. As for "The Yanks were in London fermenting the credit crunch as we were allowing immoral stuff that the Yanks would not allow", again you spiral off into a fantasy world. I refer you to the Wikipedia entry on the crisis. Key quote: "The financial crisis was triggered by a complex interplay of valuation and liquidity problems in the United States banking system in 2008." No mention of Gordon Brown whatsoever. No serious financial commentator has blamed him for the crisis. He may or may not have ameliorated its effect by bailing out the banks and persuading Bush to do the same, but opinions differ on that. Brown was certainly not my ideal PM, and I didn't vote for him or for Blair, but you seem to have a personal hatred for him that's positively irrational. Perhaps you had a bad experience with a Scotsman in your formative years?
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If you thought 2011 was tough, 2012 will be twice as bad... Eurozone, Inflation, Redundancies etc. People need to save money on outgoings AND increase income to offset the coming perfect storm scenario. This company is endorsed by WHICH?, is a FTSE 250 Company and can help in both respects: http://lowercosta.com I recommend you check it out.
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Bravo! Nickpike. However, I must agree with Krustallos on his/her comment about the Daily mail but that is just my own opinion and I must add that I have similar views on what is written in all newspapers. There is good and bad in all but some are worse than others. Just my opinion again but I hope we can avoid a return to labour for a long time because we need a stable government for a few years and must hope that they eventually get things right. I am old enough to remember long periods of both in power and the cycle just keeps repeating. Labour destroys the economy and the Conservatives eventually get it better and then the craving for an easy life takes over and around we go again. Unfortunately, the belief that we can go on improving living standards and working less is the driving factor and the peaks and troughs just keep getting further apart. Unfortunately, even if we ignore the fact that politicians have personal interest in some issues we have to accept that no individual has the insight and power to set us on a path which will be fair to everyone so how are we, the humble voters, expected to select the right government. The good part is that the constant swapping does serve to protect us from extremism. Just in case anyone wants to pick me up on the many inequalities in the current situation, I agree, but unless we can find a team of super beings to run the country we can only continue to argue our case and be prepared to listen without hurling insults.
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07 February 2012