A Black Wednesday for millions of families – my Labour Uncut article

Today will be a black Wednesday for millions of families across Britain.

David Cameron promised to lead the most family-friendly government ever. George Osborne said we’re all in this together. So why are their changes to tax and benefits, which come into force today, hitting women harder than men? And why are they taking so much support from children: with families on low and middle incomes being hit the hardest of all?

We’ve been through a global financial crisis – not a recession made in Britain. And, like every major economy in the world, we now have a big challenge to get the deficit down. So there have to be tough decisions. They will include some spending cuts, fair tax rises, like the 50p top rate of tax for the richest, and the national insurance rise we proposed last year.

But as we have consistently argued, by making a political choice to cut the deficit further and faster than any other major country, George Osborne is going too deep and too fast. He is putting jobs and growth at risk. And he is doing so in an unfair way, giving the banks a tax cut this year while low and middle income families are hit hard.

This month families aren’t just seeing their national insurance contributions go up. David Cameron and George Osborne have gone further and faster: with a big hike in VAT, cuts to tax credits, cuts to childcare support and a three year child benefit freeze as well.

For many families, the first time they realise just how hard these changes will hit them will be in their pay packets in the coming weeks. And these are not the only big changes in store. In 2013, the 1.5 million families with a higher rate taxpayer will lose all their child benefit, worth £2,500 for a family with three children.

Analysis by the House of Commons library, for Fiona O’Donnell MP, has found that the changes coming in today, combined with the government’s VAT rise, will cost a family with three children and each parent earning £26,000 over £1,700 a year. This is equivalent to around 5p extra on the basic rate of income tax.

The government is cutting childcare support through the working tax credit. The resolution foundation says this will cost 450,000 people, which includes almost 290,000 lone parents, an average of £436 a year. For some families with two or more children it could be up to £1560 lost. This little-noticed change will have a huge impact on hundreds of thousands of families, but particularly mothers who work part time for low pay. Cuts to childcare support make no sense if it simply makes it harder for parents to work – as the office for budget responsibility has warned – and so ends up costing the taxpayer more.

Once again we can expect Nick Clegg to spend this week trumpeting an income tax cut for some on lower incomes as a key achievement of the coalition. But the truth is that the increase in the personal allowance is a fig leaf for what’s really happening to families. As the institute for fiscal studies has said: the government is giving a little with one hand, but taking away much more with lots of other hands.

So we should remind Nick Clegg that it is more than offset by the Tory VAT rise that he campaigned against a year ago – which the treasury says will cost a family with children an average of £450 a year – and all the other changes coming into effect today.

We should also remind him that the increase in the personal allowance doesn’t apply to pensioners, who will see lower winter fuel payments this year. And the stealthy switch to raising the personal allowance by the lower CPI index of inflation rather than RPI – a trick the government is doing this month on benefits too – will net the government £1 billion a year by 2015.

I don’t think that George Osborne, David Cameron and Nick Clegg understand just how difficult many families, particularly working parents with young children, will find it to get by from this week. Ed Miliband has rightly made the cost of living crisis facing the squeezed middle a key theme of his leadership. The Labour party will continue to stand up for families on low and middle incomes

Of course, after the global financial crisis every major economy in the world, including Britain, has a huge challenge to get their deficits down. But this Conservative-led government has made a political choice to rip up Labour’s plan to halve the deficit steadily over four years. And they have made a political choice to not only go further and faster than any other major country but also to make ordinary families bear the burden; while the banks who caused that crisis actually pay less tax than last year.

All this pain, all in one go, aimed at families with children, is not just deeply unfair but it will hamper our economy too. By going too deep and too fast, George Osborne is damaging consumer confidence, which is now at a near 20 year low. He is holding back an economy that should be growing strongly this year. The government is now set to spend over £12 billion more on benefits than it planned to in the autumn. This creates a vicious circle. The higher unemployment and slower growth now forecast mean that the government is actually set to borrow £46 billion more over the coming years.

The government’s own watchdog, the office for budget responsibility (OBR), believes that families will get deeper and deeper into debt in the next few years, following the austerity measures. Some economists say that a rise in household borrowing is the only way the OBR can explain its forecasts for economic growth. I fear it is the only way some families will be able to get by.

To make things harder still, George Osborne’s VAT rise is looking like an own goal as it pushes up inflation, which threatens higher interest rates for mortgages and household borrowing.

That is why Labour says that this reckless plan to cut too deep and too fast is not only hurting; it also isn’t working.

There is an alternative. Putting jobs and growth first. Cutting the deficit in a steadier and fairer way. And repeating the bank bonus tax this year to build affordable homes, boost business investment and create thousands of real jobs for the future.

So in the run up to the elections on 5 May, we are saying to millions of families and pensioners that Labour is your voice in tough times.

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Posted April 6th, 2011 by Ed

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