Around 212,000 working couples with children will lose £4,000 a year through changes that don't even simplify the system
Thousands of the poorest working families in Britain will see their household incomes fall by up to £4,000 a year through changes to tax credits introduced on Friday.
While the Institute of Fiscal Studies calculated that up to 850,000 families – including many from the "squeezed middle" – will lose all their child tax credit, worth at least £545, those on the lowest incomes will be hit much harder. An estimated 212,000 working couples with children who earn less than £17,000 a year will lose all their working tax credit – worth up to £3,870 – unless they can work up to eight hours extra a week. From Friday, couples with children will be required to work at least 24 hours between them, with one person working at least 16 hours a week to continue to qualify for WTC. The limit before was 16 hours between them.
The losses, if they are unable to increase their hours, will dwarf the comparatively small gains of a few hundred pounds from increases to personal tax allowances also implemented on Friday.
Since the changes were announced in 2010, charities have been warning that parents on the lowest incomes – already disproportionately affected by rising fuel, energy and food bills – could face a stark choice between housing and feeding their children. The Resolution Foundation cites a young couple working 23 hours a week between them with a household income of £15,500. They would have received nearly £6,000 in tax credits in the last 12 months, but under the new rules their annual income will fall by £2,961.
Sally Copley, of Save the Children, said: "Far too many children are already hungry, cold, or poorly clothed because their parents can't earn enough, and this will make their situation even worse.
"The poorest families could lose nearly a quarter of their incomes unless they can find extra work. This is not easy when employers are cutting back and record numbers of people are trying to go full time."
Although the government has claimed that changes to the welfare system are intended to encourage the unemployed back into work, the cuts that come into force will only affect those already working.
Barnado's points out that six out of 10 children who live below the poverty line are in households where someone works.
The Scottish National party says more than 100,000 children in Scotland face poverty. Jamie Hepburn MSP, deputy convener of the Scottish Parliament's welfare reform committee, said: "This is not only the wrong policy, but it comes at worst possible time when couples affected cannot find the extra work that they need to keep their heads above water. This change will leave many families facing the prospect of losing their homes, getting into debt, and actually having to give up their job as they will be better off on benefits."
The changes do not even simplify the system. Only one person needs to work at least 16 hours if their partner is incapacitated, a hospital inpatient, in prison or entitled to carer's allowance. However Revenue and Customs has failed to tell these claimants that they must contact them by Friday if they are covered by one of these exceptions because HMRC does not know who qualifies.
"HMRC are relying on people contacting them when their payments decrease, but the cuts to tax credits have been well publicised, therefore most people are expecting their awards to fall and may not contact HMRC," said Victoria Todd, technical officer at the Low Incomes Tax Reform Group.
The cut to working tax credit is another blow for families hit by the freezing of child benefit for three years until 2014 and the scrapping of the educational maintenance allowance last year. A couple with one child would have received £88 a year more in child benefit or £145 a year for two children in 2012/13 if it had been raised in line with inflation.