More than seven million children will be hit by the proposed cuts to tax credits to be announced in George Osborne’s post-election Budget on Wednesday, the Government’s advisers on child poverty have warned.
A new analysis by the Social Mobility and Child Poverty Commission found that any cut in tax credits would reduce the incomes of 45 per cent of working families. The vast majority – 72 per cent – of the losers earn less than £20,000 a year. Only 7 per cent of them have earnings of more than £30,000 a year.
Two thirds (4.9 million) of the 7.5 million families with children affected have someone in work, while 2.6 million are in workless households relying on state benefits. The figures will fuel criticism that the move will hit the “hard-working families” which the Conservatives champion.
Alan Milburn, the former Labour Cabinet minister who chairs the commission, told The Independent: “The Prime Minister is right to argue that a serious ‘one nation’ agenda requires far more to be done to help the poorest families share in the proceeds of economic growth.
What does five more years of the Tories mean for Britain?
What does five more years of the Tories mean for Britain?
1/8 Welfare payments will be slashed
One of the most controversial parts of the Conservative manifesto was to cut benefits for the working age poor by £12 bn over the next three years. But during the campaign they only said where £2 bn of these savings would come from. That leaves £10 bn still to find. Some experts think the only way they can close that gap is by means testing child benefit – with millions of families losing out
2/8 There will be tax cuts for those in work and those who die
The Tories will increase the threshold at which the 40p rate of tax becomes payable to £50,000 by 2020. They haven’t said so but it is also likely that at some point in the next five years they will abolish that 45p rate of tax altogether for the highest earners. They also want to increase the effective inheritance tax threshold for married couples and civil partners to £1m
3/8 There will be an in/out EU referendum in 2017
The next two years are going to be dominated by the prospect of a referendum on Britain’s membership of the EU. First off David Cameron has the daunting task of negotiating a deal with other EU leaders an acceptable deal that he can sell to his party so he can go into the referendum campaigning for a ‘yes’ vote. This may be unachievable and it is possible that the Tories may end up arguing to leave. Opinion polls show Britain is divided on EU membership, one poll this year showed 51% said they would opt to leave compared to 49% who would vote to stay in
4/8 There will be more privatisation of the NHS
Having won the election the Tories now have a mandate to go further and faster reforming the NHS. In order to make cost savings there is likely to be greater private involvement in running services, while some smaller hospitals may lose services they currently provide like A&E and maternity units
5/8 There will be many more free schools – and traditional state schools will become a thing of the past
The Tories plans to create 500 new free schools and make 3,000 state schools become academies. They will also carry on reforming the Department of Education and remove more powers from local authorities over how schools are run
6/8 On shore wind farms will be a thing of the past and fracking will be the future
Government spending on renewable energy is under real threat now the Lib Dems are no longer in power with the Tories. Subsidies are likely to be slashed for off-shore wind farm and other green energy supplies. Meanwhile there will be generous tax break for fracking as ministers try and incentivise the industry to drill for onshore oil and gas
7/8 There maybe more free childcare – but not necessarily
In the campaign the Tories pledged to double the amount of free early education for three- and four-year-olds from 15 hours a week to 30. The extra hours would only be offered to working families where parents are employed for at least eight hours a week. However they have not said where the money will come from to fund the pledge
8/8 Workers' rights could be reduced
The Tories want to slash business regulation, merge regulator and cut costs. The Lib Dems stopped them from reducing the employment rights of workers in power – but these are now under threat
“With two in three poor children now in families where someone is in work, the priority has to be to tackle in-work poverty. That’s why the Government should resist making welfare cuts that fall exclusively on the working poor. The risk otherwise is that its approach of making work a route out of poverty will be fundamentally undermined.”
Mr Milburn joined growing calls on Mr Osborne to cushion the blow of lower tax credits by urging employers to pay the Living Wage which, at £7.85 an hour and £9.15 an hour in London, is higher than the £6.50-an-hour national minimum wage.
He added: “At a minimum, the Chancellor must act to balance any cuts in tax credits for working families with a new Government drive to champion the Living Wage, to increase Universal Credit work allowances and to enhance skills training budgets.”
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A think tank has warned Mr Osborne that tax credit cuts could stall the recovery. Gavin Kelly, chief executive of the Resolution Foundation, said: “There has been welcome return to rising living standards in recent years.
“But major reductions in working age welfare support over the next two years risk putting the brakes on recovery for millions of low income households. With some families potentially facing losses of up to £1,700 from cuts to child tax credits alone, they are unlikely to be able to earn their way of out of this fresh income squeeze.”
The Institute for Fiscal Studies said in May that reducing tax credits to their 2003-04 levels would push 300,000 more children into poverty.
David Kirkby, senior research fellow at Bright Blue, a Tory modernisers’ think tank, said: “The scale of the proposed cuts to tax credits, which are primarily claimed by working households, could push more children into poverty. Reductions in welfare expenditure should be more evenly distributed across the whole population.”
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Mr Osborne confirmed that the first Conservative-only Budget since 1996 would reduce tax credits, saying the cost had ballooned from a couple of billion pounds to £30bn a year.
Osborne allies pointed out that the cap on the amount one family can claim in benefits in a year does not affect households in work, only workless ones.
The Chancellor reacted coolly to the calls for the Living Wage to be extended. He told the BBC’s Andrew Marr Show that the best way to boost earnings was “to reduce taxes on working people”.
Mr Osborne could speed up the promise in his party’s manifesto to raise the £10,600 personal tax allowance to £12,500 a year by 2020. He appeared to dismiss demands by Tory MPs for him to reduce the top rate of tax on incomes over £150,000 a year from 45p to 40p. He has identified the £12bn of welfare cuts promised in the manifesto and said they would help to create “a welfare system that is fair not just to those who need it but to those who pay for it”.Reuse content