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Tax credit cuts pose bigger risk to households than rate rise

Samantha Partington
Written By:
Samantha Partington
Posted:
Updated:
11/11/2015

George Osborne’s proposals to cut tax credits pose a greater threat to households’ ability to pay their debts than a rise in interest rates, said the chief executive of debt charity Stepchange.

Speaking at a conference in London, Mike O’Connor said about one in four of its clients would be affected by the proposed changes which would result, on average, in a drop in monthly income of £130.00.

This would plunge around 78% of consumers registered with the charity into a household budget deficit.

The Chancellor proposes to make a cut of £4.4bn to tax credits, including Working Tax Credits (WTC) and Child Tax Credits (CTC).

To achieve this saving, he plans to lower the income thresholds which will make fewer families eligible.

For WTCs, Osborne proposes to drop the threshold from £6,420 to £3,850 a year meaning households earning over that amount will no longer receive the credits. For CTCs this will be lowered from £16,105 to £12,125.

Some 60% of StepChange’s clients have someone in their household who works; 45% of these working households receive some form of benefit or tax credits. O’Connor said CTCs were the most common.

The debt charity’s initial analysis pointed to a severe impact on its clients if tax credits were reduced, more so than a small increase in the Bank of England Base Rate.

“Cuts to welfare support could significantly redraw the debt landscape,” said O’Connor.

Osborne’s proposals have been delayed by the House of Lords to allow Baroness Meacher, a cross-bench peer, to carry out independent analysis into the cuts. The Chancellor plans to announce the modifications in the Autumn Statement on 25 November.

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