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16.09.15

MPs back controversial £4.4bn tax credit cuts

The House of Commons has backed £4.4bn plans to reduce the earnings level threshold above which tax credits are withdrawn from £6,420 to £3,850.

MPs approved the motion, originally put forth by chancellor George Osborne, in a marginal victory of 35 votes during a 90-minute debate yesterday (15 September).

This was just hours after Labour leader Jeremy Corbyn accused the Conservatives of being “poverty deniers” for cutting tax credits and “imposing austerity” on the most vulnerable.

The move is estimated to save more than £4bn as part of a wider plan to incentivise work, but Labour have dubbed it an “ideological attack” on working families.

Seema Malhotra, shadow chief secretary, said: “This measure will attack families in which people are working hard to do the right thing and to achieve what we all want to see: a higher-wage economy in which people are less reliant on tax credits to make ends meet.

“What is before us today must be called out for what it is. According to the Office for Budget Responsibility, it amounts to what will be a cut of more than £3.4bn annually by 2020 – a cut that the government have sought to slip through without even having the courage to carry out an impact assessment.

“These cuts in tax credits will hit working families in every constituency, and they were to be sneaked in through the back door. Today’s debate is about a political decision made by the chancellor which is set to see more than three million families lose an average of £1,000 per year.”

Andrew Gwynne, the Labour MP for Denton and Reddish, added: “After the prime minister said that he would not cut tax credits, we are seeing the most pernicious and unfair cut, imposed on some of the poorest people in society.”

Stephen Timms MP, former shadow work and pensions secretary, said that a couple with two children earning £26,000 year will be more than £2,500 worse off next year, but Damian Hinds MP, exchequer secretary, said changes need to be perceived in “the overall context” as eight out of 10 households are expected to be “better off by 2017-18”.

Hinds said that the tax credit system had “for too long” been used to subsidise low pay and guaranteed that the measure would become a part of what Osborne calls a “new contract” with the working class.

According to him, the threshold will tell businesses that they will have to pay higher wages but in return for “lower taxes and a stable economy”, while saying to the people that they will receive a higher pay and lower tax, but with less benefit top-up.

Two Conservative MPs – David Davis and Stephen McPartland - voted against the statutory instrument, while Andrew Percy abstained.

Percy said he would not support the changes because he is concerned with its short-term impact, particularly as he hails from a constituency with a lower median salary.

But he suggested that there would be time between now and the next year to make changes, either to national insurance or emergency tax codes, to mitigate the impact the move would have on the poorest families.

And another Conservative MP, Neil Parish, said the government “must recognise that the living wage must be brought up so that people are not worse off as a result of the cut in tax credits”.

“We have to drive up the living wage so that we do not take too much money away from them,” he added.

(Top image c. M. Holland)

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