Tax reforms will leave average family £974 worse off by 2015, says Institute for Fiscal Studies
Shadow Chancellor Ed Balls had cranked up the pressure on the coalition government as they prepare to officially implement their latest increase of the personal tax allowance to £10,000, by highlightinh analytical data that has indicated that the average household will actually be £974 worse off by election time next year.
Addressing the recent changes in tax policy and the raise in the personal allowance, Mr Balls accused the government of actually increasing the financial burden on individuals by ìgiving with one hand but taking away much more with the otherî.
Mr Balls remarks were mirrored by opposition leader Ed Miliband, who argued that the upcoming election was in Labourís hands as the Conservatives have fundamentally underestimated and failed to address the ongoing cost of living crisis that households are experiencing in the UK, which has been promulgated by wages consistently rising at a rate lower than inflation.
Mr Miliband was thought to be addressing Prime Minister David Cameronís recent praise of his governmentís success in bringing about the economic recovery of the country, and his identification of consistent personal allowance rises that he argued have improved the financial standing of households all over the UK.
The Labour leader said: "This is going to be a close election. I have always known this is going to be a close election. It is our election to win because I don't believe people think this government is on their side or is going to address some profound questions that people have in their lives."
Mr Miliband argued that the Prime Minister and his party have alienated themselves from a large body of the electorate by doing little to nothing to improve the real spending power of consumers, who have been subjected to years of wage rises at a rate lower rather than inflation, and have been left relatively unprotected from price hikes in vital areas of compulsory expenditure such as with energy and travel prices.
He also highlighted recent data released by the neutral Institute for Fiscal Studies that estimated that the effect of the governmentís tax reforms from 2010 when they took over, to April next year, would have left the average family £974 worse off by election time.
The forecasts were even worse for householdís that had children living with them, with the IFS estimating that a family with one child and one parent in employment would actually be a staggering £3,720 worse off by April next year. Families with one child and are both in employment have been predicted to be £2,073 worse off due to the governmentís tax changes.
ëHard working people worse offí
Mr Balls argued that the governmentís neglect of the overarching effects of their tax reforms has resulted in ëhardworking peopleí being left worse off by an average of £1,000 each year, citing their VAT increase from 17.5% to 20%, their benefit cuts for tax and child benefits and their rise in personal tax allowance as inconclusively tested measures that were rashly implemented before the long term effects were fully identified and gauged.
The shadow chancellor said: "David Cameron is trying to tell working people they are better off, but he's not fooling anybody. Taking into account all the changes to tax and benefits since 2010, families will be almost £1,000 a year worse off on average by the time of the next election In other words, the Tories are giving with one hand but taking away much more with the other. So whatever out of touch claims David Cameron and George Osborne try to make, these independent figures are clear: hard-working people are worse off under the Tories."
Though a great deal of motivation behind Labourís criticisms will be to take the gloss off Chancellor George Osborne popular announcement that the personal allowance would rise to £10,000 from this month, and £10,500 a month before the election next year, leader Ed Miliband has argued that the issue of a ëcost of living crisisí in the country is nevertheless a serious theme that must be addressed for the sake of hardworking families across the UK.
He argued that the party which indicates that they have the best plan to address the cost of living crisis will reign supreme at the 2015 election, and pledged to try and tackle the issue of stagnant wage rises, which have promulgated the crisis by reducing consumer spending power at a time when the rate of inflation is exceeding the growth in the average wage package.
"This cost of living crisis is not some just some kind of Westminster slogan. It is what people feel in their daily lives, it is about people working 60 hours a week, it is about people on zero hours contracts and insecure jobs, it is about people thinking their kids are going to have a worse life than themî, he said.
"There'll be two different views about this. One set of people will say: 'Ah well, that is just inevitable, there are global trends that mean that is going to happen. People are fated to that kind of more and more difficult life.' There is another view which says politics can change that. By reforming our economy, changing the way our economy works, having a government that is on people's side you can lean against these big forces of inequality that are there in our country Ö That is more relevant to this time than perhaps to any other time in recent generations."
ëNot going back to the bad old daysí
Prime Minister David Cameron conceded that the average household is yet to feel the effects of the countryís recovering economy, but pointed out that their policies have resulted in the unemployment rate in the country falling monumentally and over 1.3 million people finding work.
He argued that the government was achieving the targets it set out in its ëlong term economic planí, and argued that Labourís criticisms of their recent benefit cuts and tax reforms were unfounded as they have simply been acting responsibly to avoid ëgoing back to the bad old days of more borrowing, more spending and more debtí.
He urged people to be patient as the country continues to recover from a ëdifficult recessioní, identifying that as the upward trend in the countryís growth continues, wages will begin to pick up as well.
"But we are recovering from a long, deep and difficult recession, and it does take time before people really feel the effects of an economic recovery. We have seen this recovery so far come in jobs and more people getting into work, rather than in an increase in wages. I think over time wages will increase. We are helping people by cutting their taxes, so this week you can earn £10,000 a year before you start paying income tax.
"But if your question is, 'Does it take time for people to really feel a recovery?', yes, of course it does. All the more reason for sticking to our long-term economic plan and not going back to the bad old days of more borrowing, more spending and more debt."
The Treasury have also rejected Labourís remarks and analysis of the IFSís study, citing that they selectively identified elements of the IFSís report, without bringing to light other more positive aspects of the report.
"The figures actually show the poorest households gain from the tax and benefit changes. It is the richest who pay the most. To use an average figure is disingenuous which is probably why Labour didn't release the full factî.
The issue of the ëcost of living crisisí within the UK has dominated political and personal discussion for a number of months now, and the reality is that a majority of middle and low income workers have yet to feel the effects of the countryís recent economic upturn.
Official data indicated on the Consumer Prices Index did give consumers positive news as it showed that the rate in inflation matched that of the rate in the growth of wages for the first time in years, with both currently standing at 1.7%.
However, much more will be needed to be done in order for consumer spending power to pick up in real terms, and vital areas of small and medium business expansion and labour productivity will have to be addressed before people can start acquiring the sort of employment that truly does make ëwork payí in the UK.