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Tax credit cuts: PM challenges IFS warning that low paid workers will lose out Tax credit cuts: PM rejects claim that low paid workers will lose out
(35 minutes later)
David Cameron is digging in over a row on the impact of cuts to tax credits by directly challenging the calculations of the Institute for Fiscal Studies, which has warned that low paid workers will lose out.David Cameron is digging in over a row on the impact of cuts to tax credits by directly challenging the calculations of the Institute for Fiscal Studies, which has warned that low paid workers will lose out.
The prime minister, who pledged to deliver a “crusading Conservative programme of social reform”, insisted that the government was helping the poorest earners but said it was right to change the “old Labour” way of topping up their pay from taxpayers’ money.The prime minister, who pledged to deliver a “crusading Conservative programme of social reform”, insisted that the government was helping the poorest earners but said it was right to change the “old Labour” way of topping up their pay from taxpayers’ money.
The Tory leadership is facing pressure from the compassionate Conservative wing of the party over the chancellor’s plans, outlined in his budget in July, to cut tax credits. David Willetts, the former science minister, warned of a “sour taste” after Osborne announced that he would slash the earnings level at which tax credits start to be withdrawn from £6,420 to £3,850 from next April. The Tory leadership is facing pressure from the compassionate Conservative wing of the party over the chancellor’s plans, outlined in his budget in July, to cut tax credits.
Boris Johnson, the London mayor and potential future leadership contender, will use his party conference speech on Tuesday to signal he wants to see greater protection for workers on tax credits.
In coded criticism of Downing Street, he will say: “We must ensure that as we reform welfare and we cut taxes that we protect the hardest working and lowest paid: shops workers, cleaners, the people who get up in the small hours or work through the night because they have dreams for what their families can achieve.”
David Willetts, the former science minister, warned of a “sour taste” after Osborne announced that he would slash the earnings level at which tax credits start to be withdrawn from £6,420 to £3,850 from next April.
Related: Is George Osborne correct to say workers will be £2,000 a year better off?Related: Is George Osborne correct to say workers will be £2,000 a year better off?
The chancellor said nine out of 10 families would be better off if all the tax changes and his “national living wage” were taken into account. The latter is a rebranding of the minimum wage, which would be set at £7.20 an hour from next April for over-25s. It is to rise to £9 an hour by 2020.The chancellor said nine out of 10 families would be better off if all the tax changes and his “national living wage” were taken into account. The latter is a rebranding of the minimum wage, which would be set at £7.20 an hour from next April for over-25s. It is to rise to £9 an hour by 2020.
Paul Johnson, the director of the Institute for Fiscal Studies, said it was “arithmetically impossible” for the increase in the minimum wage to compensate for the loss in tax credits. In its post-budget briefing, the IFS said 13 million families would lose an average of £240 a year, while 3 million families would lose £1,000 a year.Paul Johnson, the director of the Institute for Fiscal Studies, said it was “arithmetically impossible” for the increase in the minimum wage to compensate for the loss in tax credits. In its post-budget briefing, the IFS said 13 million families would lose an average of £240 a year, while 3 million families would lose £1,000 a year.
Cameron issued a direct challenge to the IFS, telling the Today programme on BBC Radio 4 on Tuesday: “We are going to help those families in all the ways we can. If you look at the Institute for Fiscal Studies figures they are not taking into account the additional childcare that is going to be there. They are not taking into account, for instance, the cuts in social rents we are bringing in to help working people living in council and housing association homes. So we are helping all families. But above all you don’t help families if you lose control of your public finances.”Cameron issued a direct challenge to the IFS, telling the Today programme on BBC Radio 4 on Tuesday: “We are going to help those families in all the ways we can. If you look at the Institute for Fiscal Studies figures they are not taking into account the additional childcare that is going to be there. They are not taking into account, for instance, the cuts in social rents we are bringing in to help working people living in council and housing association homes. So we are helping all families. But above all you don’t help families if you lose control of your public finances.”
The prime minister added: “We are helping the poorest earners in our country, the people on the lowest incomes in our country are going to get a boost from having a national living wage that next year will give the lowest paid in our country a £20 a week pay rise. That national living wage will be £9 by the end of the parliament. Very much part of this vision is to say let’s have an economy where you earn more money and you keep more of that money at the end of the month because you are not paying higher taxes.”The prime minister added: “We are helping the poorest earners in our country, the people on the lowest incomes in our country are going to get a boost from having a national living wage that next year will give the lowest paid in our country a £20 a week pay rise. That national living wage will be £9 by the end of the parliament. Very much part of this vision is to say let’s have an economy where you earn more money and you keep more of that money at the end of the month because you are not paying higher taxes.”
But Cameron said that “over-relying” on tax credits, the cost of which has risen from just over £1bn to £30bn, did not work as it was an “old Labour” idea for the state to top up the pay of the poorest worker – a jibe at Gordon Brown, who introduced tax credits.But Cameron said that “over-relying” on tax credits, the cost of which has risen from just over £1bn to £30bn, did not work as it was an “old Labour” idea for the state to top up the pay of the poorest worker – a jibe at Gordon Brown, who introduced tax credits.
He said: “That was the old Labour way of doing things – that you have low rates of pay, you tax people, you give people bits of money back through the tax credit system and you use that to try and just get people over the line in terms of some artificial poverty measurement. Far more meaningful is to go after the causes of poverty … This system of over-relying on tax credits hasn’t worked.”He said: “That was the old Labour way of doing things – that you have low rates of pay, you tax people, you give people bits of money back through the tax credit system and you use that to try and just get people over the line in terms of some artificial poverty measurement. Far more meaningful is to go after the causes of poverty … This system of over-relying on tax credits hasn’t worked.”
The prime minister said that it was more important to tackle the root causes of poverty as he pledged to deliver better childcare and improve schools.The prime minister said that it was more important to tackle the root causes of poverty as he pledged to deliver better childcare and improve schools.
“There are unmet challenges. There are things we need to do to tackle problems in our care system, to reform our prisons, to tackle the entrenched poverty where people can’t escape the circumstances they are born into because we need better schools, we need more childcare, we need to make sure we tackle things like drug addiction. So I think a crusading Conservative programme of social reform is something we can add to the strong basis that we have got.”“There are unmet challenges. There are things we need to do to tackle problems in our care system, to reform our prisons, to tackle the entrenched poverty where people can’t escape the circumstances they are born into because we need better schools, we need more childcare, we need to make sure we tackle things like drug addiction. So I think a crusading Conservative programme of social reform is something we can add to the strong basis that we have got.”