The effect of tax and benefit measures imposed by the Labour Government over more than a decade was laid bare last night with new figures showing that working couples with children will be £1,500 a year worse off by 2012.

They are among a range of people hit by the tax and national insurance changes introduced by Labour since they came to power in 1997.

A report from the Institute for Fiscal Studies (IFS) shows that hardest hit will be single people and working couples with or without children. Working couples with no children will pay £2,208 more in tax than they would have if Labour had not changed the tax system, while a working couple with children will be £1,466 worse off because of higher tax bills and lower benefit payments.

Single workers will see tax eat up an extra £1,281 of their income and the average person will be £385 a year out of pocket by 2012. Lone parents and pensioners will be better off, although the change in national insurance and the end of the temporary 2.5 percentage point cut in VAT will curb these gains.

A retired couple will be £685 better off next year, but two years later more than £330 of the gain will have been wiped out.

Philip Hammond, the Shadow Chief Secretary to the Treasury, said: “This report exposes the scale of Gordon Brown’s stealth tax raids on Britain’s families.”

Mike Warburton, of Grant Thornton, the accountant, said that the tax burden had more than doubled since 1997. “While the economy was booming and living standards were rising, the changes were less noticeable,” he said, “but now that that is no longer the case, it will bring the tax impact on families into stark reality.”

The IFS criticised the Government for disguising its introduction of two 60 per cent income tax bands in last month’s PreBudget Report.

Under government plans to phase out the personal allowance in 2010, those with incomes betwen £100,000 and £106,475 and between £140,000 and £146,475 will pay 60 per cent tax, while everyone else with an income of more than about £45,000 will pay 40 per cent.

The IFS report says: “There is a wider concern that the Government has deliberately chosen a confusing way of presenting the reform. As the reform is equivalent to paying 60 per cent rate of income tax over two short ranges, it would have aided public understanding of the measures in the PreBudget Report substantially if it had presented it in this way.”

There was more pressure on the Government over its benefits regime this week as an influential group of MPs highlighted how some of the poorest people were missing out on tax credit payments because the system was so complicated.

Speaking to the Commons Treasury Select Committee, Teresa Pritchard, of Citizens Advice, the consumer group, said that 1.8 million pensioners did not claim pension credits to which they were entitled. She said that if they did claim the credit, they would receive an extra £1,400 a year on average.

She added that billions of pounds worth of working tax credits and child tax credits went unclaimed each year.

The Government has already come under fire for the tax credits system it introduced in 2002. Last year the Parliamentary Ombudsman criticised the scheme after HM Revenue and Customs tried to claw back more than £1 billion in overpayments.

The IFS also said that the Government would need to spend an extra £2.8 billion a year on child tax credits and an extra supplement for children in large families to “have a 50:50 chance of meeting its target” of halving the level of child poverty to 2.2 million in 2010. The PreBudget Report contained no measures to help to lessen child poverty.

For Better or Worse

Effects of Labour's tax and benefit changes, 1997-2012

Worse off

Both earning, no children £2,208

Single earning couple, no

children £1,684

Both earning, plus children £1,466

Single, employed £1,281

Multiple benefit households,

no children £976

No earning couple, no

children £543

Single, unemployed £297

Better off

No earning couple, children £2,901

Lone parent, unemployed £2,491

Lone parent, employed £2,066

Single pensioner £1,148

Couple pensioner £350

Multiple benefit households, children £220

Single-earner couple, children £180

Source: IFS

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