Welfare

MPs urge Osborne to shelve tax credit cuts in light of damning inquiry

Chancellor George Osborne has been urged in a damning report by the Work and Pensions Committee to put off tax credit reforms until the end of this Parliament, given that any benefits for those who would be helped will be dwarfed by the cuts.

In a unanimous cross-party report, MPs found a number of fundamental flaws in Osborne’s intention to slash tax credits as part of the government’s welfare reforms.

Echoing an earlier report by the Institute for Fiscal Studies (IFS), the committee said most families would be worse off by the end of the decade under the chancellor’s plan.

Committee chair Frank Field MP said: “No-one has been able to provide the committee with a satisfactory series of mitigating policies to combat the impact of cuts in tax credits next year.”

He advised the chancellor to halt the cuts and use the next 18 months to devise a major overhaul to abolish tax credits altogether, which could be implemented by 2020 when the national living wage was already fully operational.

“This would allow him to question whether a reformed tax credit system shouldn’t be remodelled to help only lower earning families with children,” Field concluded.

Another committee member, Heidi Allen MP, suggested that Whitehall should take this as an opportunity to rethink its approach to tax credits and find a solution that does not impact “so severely” those on lower pay.

This follows on from many of the Conservative MP’s previous messages, given her outspoken stance on her party’s tax credit proposals.

Speaking after the launch of the committee’s report, she said: “We are at a critical point in our recovery and this would be jeopardised if we returned to the bad old days of being ‘better off out of work’. I know there are no easy answers, but I sense the majority of people in this country would back the chancellor if he revisited other possible areas of savings; budget surplus levels or Inheritance tax thresholds, for example.

“We talk so often about ‘all being in this together’. Now is the time to put that mantra into action.”

The committee’s report specifically pinpointed a series of detrimental effects that tax credit reforms, as they currently stand, would have.

Topping the list, and perhaps the most relevant considering the government’s rhetoric on welfare reforms, is that increases in the income tax personal allowance and the national living wage “should not be confused with compensation for tax credit cuts”.

“An individual will only start to pay income tax when they earn more than £11,000, but will start to lose tax credits if their combined households earns as little as £3,850. At best, half of families facing tax credit cuts will benefit from the personal allowance increase,” the report said.

Other findings reiterated what the IFS, councils, unions and other expert bodies had already said, using figures to show how 78% of affected families will be around £1,500 worse off in real terms by 2020-21.

As well as slamming Iain Duncan Smith’s universal credit programme as a flawed means of covering adjustments to tax credit plans, the committee also accused the Treasury of being “unacceptably evasive” in failing to provide data about the effects of its Summer Budget measures on different income groups.

The report came on the same day that Gordon Brown, former Labour prime minister and one of the leading architects of tax credits, warned Osborne that even a watered-down version of his cuts will drive Britain to higher levels of child poverty than at any time since the 1970s.

He compared the government’s reform plans to the controversial poll tax that did so much to damage former prime minister Margaret Thatcher: “Tory analysis is so wrong – a mistake on a par with the poll tax and worse than bedroom tax. The impact of cuts cannot be massaged or phased to soften the blow. Even a modified version will destroy jobs, stunt children’s development and impoverish hard-working families.”

But Treasury minister Priti Patel told BBC Radio 4 that the chancellor has already “been very clear” that the government is listening to criticisms as to how it can make the transition to cut tax credits, and that he will announce proposals of how to do this in the upcoming Spending Review.

(Top image c. Richard Stonehouse/PA Wire)