Rebecca Long Bailey – 2016 Parliamentary Question to the HM Treasury

The below Parliamentary question was asked by Rebecca Long Bailey on 2016-02-25.

To ask Mr Chancellor of the Exchequer, with reference to paragraph 1.122 of the Spending Review and Autumn Statement 2015, what estimate his Department has made of the average change in tax credit award as a result of reducing the income rise disregard for tax credits.

Damian Hinds

As announced in the combined Autumn Statement and Spending Review, the amount by which a tax credit claimant’s income can increase within the year before their tax credit award is adjusted (the income rise disregard), will be reduced from £5,000 to £2,500. The reduction to the income rise disregard will stop one family receiving a higher tax credit award over another family with precisely the same income and the same circumstances, which makes the system fairer. The household income of families before it rises will inform how they might be effected by a reduction in the income rise disregard.

The only people who will be affected are those who will see an income increase of more than £2,500 in-year.

Due to the way that tax credits are calculated, the amount an award will be adjusted by – because of an increase in income – will depend upon a claimant’s individual circumstances, such as the household’s income before it rises. No one will be a cash loser because their income will have increased. As an example, for an individual with a wage of £12,000, an income increase of £2,501 would lead to an adjustment in their tax credit award of just 41 pence. An increase of less than £2,500 would see no change at all.