Cuts to tax credits will leave families £1,690 worse off a month

25 June 2015

Cameron is planning savage cuts to tax credits which could lead working families to lose up to £1,690 a month.

Tax credits are mostly given to families raising children on low incomes (4 million out of 4.5 million claimants have children). The massive reduction in child poverty is in part due to their introduction, with child poverty falling from 35% to 19% between 1997 and 2012.

Child poverty has increased under the Tories, jumping from 2.3 million to 2.5 million. Responding to the latest Conservative plans, the Institute for Fiscal Studies has estimated that cutting child tax credit would mean an further increase in child poverty to 2.8 million.

The cuts come as part of the £12bn welfare spending slash. Cameron said he wanted to end the “ridiculous merry-go-round” of taxing low earners then handing the money back to them in benefits.

Instead of tackling the poverty pay epidemic that necessitates the existence of tax credits, effectively a wage subsidy, Cameron has once again chosen to attack those who are forced to rely on them, while corporations reap the profits.

The plans will be further outlined in next month’s budget, and finalised in the autumn.

Acting Labour leader Harriet Harman attacked the plans in Prime Ministers Questions. She said; “You said in your speech on Monday there is nothing progressive about robbing from our children – but isn’t it inevitable that cuts in tax credit for working families, unless employers raise their wages immediately, mean children will be worse off? I’m asking about robbing from children who are in families who are facing tax credit cuts”.

She pointed out that to compensate for the loss, the minimum wage would have to go up by 25 percent.

“You don’t get higher pay by cutting tax credits. You seem to be saying low-income families won’t lose out because somehow on the day he cuts tax credits every employer in the country will rush to immediately put up pay.

“To compensate for the loss of tax credits, that would mean employers putting up pay overnight by twice what the OBR has said they are going to do over a full year. That’s not going to happen, is it?”, she continued.

The Resolution Foundation estimates that two thirds of the savings will be borne by the poorest 30 percent of households. It has also shown that Cameron’s ostensible move to help the low paid – increasing the tax threshold to £12,500, helps the better off more than it helps those on low incomes, now a well documented fact.

Matthew Whittaker, its chief economist, said; “Any welcome efforts to boost pay – such as raising the minimum wage and encouraging take-up of the living wage – could be undermined by reducing child tax credits and focusing tax cuts on better-off households. Such a move will leave millions of low-income working families significantly worse off, and prolong the squeeze on living standards that has only just started to abate.”

Alison Garnham Chief Executive of Child Poverty Action Group, said; “Almost a decade ago, the Prime Minister spoke of poverty being a moral disgrace and an economic waste. That was right then and is right now. No road to opportunity starts with policies that may end leaving three million children in poverty. No moral mission involves taking away tax credits for our poorest children. No serious plan for the low paid begins with making them poorer by cutting their tax credits.”