Millions of cash-strapped families will be hit today by a toxic mix of tax rises and benefit cuts which will cost them up to £600 a year.
Experts have dubbed today ‘Worse Off Wednesday’ as the first day of the new tax year brings with it a long list of painful changes.
The timing could not be worse, with many households already feeling close to financial breakdown reports the Daily Mail.
Inflation has ballooned to a 20-year high, the cost of fuel has reached record levels, the bill from the weekly food shop has never been bigger and VAT has gone up from 17.5 per cent to 20 per cent.
Yesterday the Treasury insisted the changes will only hurt the well-off, and the ‘overwhelming majority of households’ will be winners, not losers.
Around 21million people earning up to £35,000 will gain, and 800,000 people will pay no tax as the personal allowance is increased from £6,475 to £7,475.
Justine Greening, Economic Secretary to the Treasury, said: ‘Labour left behind a complete mess with no plan to deal with it, apart from to run up more debts for the next generation to pay off.
‘They want to hand over their financial mess to our children when what we need to do is start sorting out the problem.’
But the situation for many other families, who are already feeling broke despite above-average earnings, is about to get even worse.
One of the biggest changes is the decision to lower the salary at which workers start paying the higher rate tax of 40 per cent from £43,875 to £42,475.
Around 750,000 more people will be caught by the tax trap, including workers, such as nurses and teachers, who do not consider themselves rich. To make matters worse, this is not the only tax rise, because National Insurance is also being increased, a move initiated by Labour.
Mike Warburton, senior tax partner at accountants Grant Thornton, said: ‘Those on the lowest incomes will benefit most from the tax changes with those on middle incomes being squeezed. The hard fact is that we are all having to tighten our belts this year as we cope with the increase in VAT together with rising fuel and most other costs.’
A couple with one earner on £43,000 and two young children, aged four and six, will be £590 a year worse off, according to Grant Thornton.
They may gain £95 from the income tax changes – but this will be wiped out by an extra £140 in National Insurance and a loss of £545 in tax credits.
For families with young children, child benefit is frozen for the next three years before it disappears entirely for higher- rate taxpayers in 2013.
Traditionally, the payment, worth £20.30 a week for the eldest or only child, and £13.40 for each subsequent child, was increased with inflation each year.
Labour calculates that a family with one child will be ‘at least £130 a year worse off’ by 2013 as a result of the benefit freeze.
Shadow Chancellor Ed Balls said it was a ‘black Wednesday for millions of families across Britain’, adding: ‘All this pain all in one go is deeply unfair.’
Another big blow for families is a decision to scale back tax-free childcare vouchers for higher-rate taxpayers, unless they are already receiving them.
From today, new parents signing up to the scheme will only get £124 a month tax-free, rather than £243. A long list of tax credits is also taking a hit. The baby element, worth £545, is being scrapped for anybody with children under one.
Other tax credits are also being scaled back after they were criticised for paying out to families earning up to £58,000.