Forget the 2012 Budget - the 2010 Budget is just about to hit home

This week's Budget has had all of the attention, but it's changes that were first announced two years ago that are about to make a difference.

While the 2012 Budget may be dominating the news this week, it is the decisions announced as part of the post-election ‘emergency budget’ in June 2010 that are about to hit home.

An issue that’s largely fallen under the radar, the changes to Working and Child Tax Credit, will cause further debt worry for a large number of UK families in the next few weeks.

Alongside such measures as VAT rising to 20% and the freeze on public sector workers’ pay, George Osborne also revealed in his June 2010 budget that the Tax Credits system of benefits would be overhauled.

While some of the key points of this new legislation were introduced at the start of the tax year just ending, some further measures will be rolled out with the dawning of the new tax year on Good Friday, 6th April.

The changes to the Tax Credit system

The changes are quite complex, but basically affect the following groups:

• Those receiving the 50+ element in Working Tax Credit (WTC)
• Couples working fewer than 24 hours per week
• Those in a working household with one child with an annual income more than £26,000 per year
• Those who experience a drop in household income
• Those who need to make a new claim or declare a change in circumstances

Within reason, most of the people within these groups will find that the amount they receive in Tax Credits will fall or disappear from next month onwards. Those already in debt may be affected more disproportionately. For example, we’ve found that 31% of our debt management plan clients receive one or both of these benefits.

The HMRC should have written to all affected claimants by now. However some may still be unaware of the changes if the letter has got lost in the post, or if the recipient doesn’t open their bills.

It’s pretty much certain that there’ll be many people out there unaware that their monthly incomings could fall by hundreds of pounds next month.

Stung by the Budget? Do your own!

If you’ve been stung by the Budget (whether today’s or a previous year’s) then you need to compile your own budget now. You don’t need a beat-up red briefcase and a door to stand in front of, only a pen, some paper and the resolve to look through your current financial status, warts and all.

To start with, find a budgeting tool. lovemoney.com has an online spending tracker called MoneyTrack that uses your bank statements to automatically fill in a budget and categorise your spending. If you want something a little more ‘old school’ then Credit Action has a downloadable personal budget sheet that can be used each week or month.

Find some time and a quiet place, grab a cuppa and do the following:

• Gather as much information about your regular income as possible: Wage slips, benefit statements, pensions, any board you receive, and child maintenance. Remember that overtime is handy but is unlikely to be regular.

• Make a list of all your priority outgoings: Rent or mortgage payments, council tax, utilities (gas, electricity and telephone), hire purchases. Don't forget annual costs such as car tax, MOT and insurance.

• Check your direct debits and standing orders. Log into your online banking service, or pop into your bank. Are there any regular payments that you can cancel?

• What's your essential expenditure? Check your recent bank statements to see how often you’re spending and what you’re buying. Again, is there anything you can stop spending money on?

• Write down your non-priority outgoings: This includes the loan and store card repayments, and the credit card bills.

• If you’re unsure whether you’re affected by the changes to Tax Credits contact HMRC immediately. There’s more on how to contact them here.

The changes in Tax Credits happen in two weeks, and it’s important that if you’re affected that you work how your family’s finances will change now. If you think that it’ll tip you into debt, use our online counselling service CCCS Debt Remedy or call us.

The key points of the 2012 Budget will be in the newspapers for a while yet, but for a lot of people the real news will be the continuing aftershocks of the 2010 Budget.

Budget 2012: what it means for you

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Read George Osborne's 2012 Budget speech in full