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UK low-paid workers face 93% tax rate under tax credit cuts

Mon Oct 26, 2015 3:55PM

Critics say the tax credit cuts proposed by the British Chancellor of the Exchequer George Osborne are targeting hardworking families. (Photo by AFP)

Critics say the tax credit cuts proposed by the British Chancellor of the Exchequer George Osborne are targeting hardworking families. (Photo by AFP)

A new research study suggests that the planned tax credit cuts would leave British people in low-paid jobs facing tax rates of 93%.

According to the study by Policy in Practice, a group that works with local authorities on welfare changes, the cuts which have been proposed by the Tory government, would undermine work incentives drastically.

“Working Tax Credit recipients that choose to counter the loss by increasing their earnings will lose up to an additional 7p for each pound earned…Effective tax rates may increase up to 93p in the pound,” the analysis found.

Worse off

A research by the public sector workers union Unison, has already found that the Tory government’s tax credits cuts will leave British workers up to £12,000 poorer by 2020.

Teaching assistants, social workers and other key public sector workers will be affected by the cuts and are expected to lose over £1,500 a year as a result of controversial government cuts.

Some other workers, are estimated to lose more than £12,000 by 2020 as a result of the £4.4 billion cuts.

 

Meanwhile, the planned cuts will leave two-thirds of working tax credit recipients worse off in 2020, the Policy in Practice report suggests.

According to the study, the £4.4bn which the government seeks to save through tax credits package would be partly offset by higher housing benefit and council tax support payments.

The findings come against the backdrop of the government’s increasing pressure on the members of the House of Lords to approve the controversial plan.

Tories’ warning

Tories have already warned of a constitutional crisis unless the peers vote for the reforms.

Meanwhile, UK Chancellor of the Exchequer George Osborne has been accused of bullying peers over the controversial tax credit cuts.

“There has been enormous pressure coming from the Treasury, the Chancellor of the Exchequer, upon peers…The weight on me has been unspeakable really. I think it’s bullying tactics,” Crossbencher Baroness Meacher was quoted on Saturday as saying by the British media.

The British Prime Minister David Cameron has already undermined the threats by the peers to block the £4.4 billion cuts.

The prime minister has urged peers to obey the convention that the second chamber does not block financial policies approved by MPs.