Debt worries may arise as tax and benefit changes approach

While the Budget on March 23rd will be the focus of much attention, many decisions already taken by the coalition government will be impacting next month, it has been noted.

Debt charity Credit Action observed that 45 different alterations to the tax and benefit systems will be introduced, which according to the Institute for Fiscal Studies will make the typical family £200 a year worse off.

Middle income earners will be among those affected as the threshold for the top rate of tax will drop to £42,475 – meaning 750,000 more people will have to pay at that level.

And a switch from the Retail Price Index to the Consumer Price Index of inflation when calculating benefits, tax credits and public sector pensions will mean lower increases in the years ahead, the body warned.

Such developments could leave some who are worse off more likely to face problems with debt as the squeeze on their incomes increases, making it harder to pay off debts and balance the domestic books.

Associate director of Credit Action Joanna Parlsey said: “Although not every change will have a detrimental impact, changes to tax and welfare benefits coupled with rising energy and food prices, and fears over potential interest rate rises and further job losses, mean that household budgets in 2011 will continue to be squeezed.”

One anticipated increase in costs may be axed on March 23rd, as chancellor of the exchequer George Osborne has said he is considering the issue of the fuel duty rise in view of the recent increase in fuel prices due to political unrest in oil producing countries in north Africa and the Middle East.

By Joe White