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Tax credit reforms will save £15bn a year, Treasury insists Conservatives voice tax credit doubts ahead of Commons debate
(about 2 hours later)
The government has defended its cuts to tax credits, saying reforms made since 2010 will save taxpayers £15bn a year. Tory MPs have continued to voice doubts about proposed cuts to tax credits as the Commons debates the issue.
The Treasury released its analysis to the BBC as ministers faced calls to rethink the latest changes, which come into force in April. Stephen McPartland told the BBC that people trying to get on in life faced losing 10% of income and were being "punished" rather than rewarded.
London mayor Boris Johnson is among those to have warned about the need to protect low-paid workers. He said he expected Chancellor George Osborne to mitigate the financial impact before the end of the year.
Labour has pledged to reverse the changes and is urging Tories to oppose them in a Commons vote on Tuesday. The government is standing by the changes, saying these and other reforms will save taxpayers £15bn a year.
From April, the threshold at which tax credits begin to be withdrawn will fall from £6,420 to £3,850, and people's credit entitlement over this amount will be reduced more steeply.From April, the threshold at which tax credits begin to be withdrawn will fall from £6,420 to £3,850, and people's credit entitlement over this amount will be reduced more steeply.
Millions of people are due to learn how much money they will lose in letters received shortly before Christmas.Millions of people are due to learn how much money they will lose in letters received shortly before Christmas.
The government says people's incomes will be protected by other measures, including the new National Living Wage, increased free childcare and a larger personal income tax allowance.The government says people's incomes will be protected by other measures, including the new National Living Wage, increased free childcare and a larger personal income tax allowance.
'200,000 nurses' 'Way out of poverty'
In a challenge to critics of the policy, the Treasury has commissioned analysis on public spending levels that would have occurred without any of the government's changes and challenged Labour to say what it would do differently to reduce borrowing. But a growing number of Tory MPs say they are not satisfied with this and want "transitional" arrangements to be put in place to help those affected.
The Treasury study found that spending on tax credits would have risen to £40bn a year by 2016-17. It is now forecast by the Office for Budge Responsibility to be just over £25bn in 2016-17 - around £15bn lower. James Cartlidge, MP for Suffolk South, told Radio 5Live some people would be left in a "very vulnerable position". "The worst thing we can do here to try and pretend that some people will not be worse off," he added. "I think that's a mistake".
This figure, which includes the £4.5bn due to be saved by the latest changes, was the equivalent of the cost of 200,000 nurses or 325,000 teachers, the Treasury said. And Mr McPartland, one of two Tory MPs to vote against the changes when they were approved last month, said that while he agreed with the need to overhaul tax credits he did not support how it was being done.
"When you look at the original change to the threshold… that's going to be a £1,200 cut to a range of families," he told the BBC's Daily Politics.
"So if you're a teaching assistant on about £11,000 a year you're talking about a 10% loss in your income. That's punishing people who get up and go out to work, and are trying to work their way out of poverty, that we should be rewarding."
BackgroundBackground
Tax credits debate: Finding your wayTax credits debate: Finding your way
But shadow Treasury minister Seema Malhotra said the poorest were being hit while the wealthiest were gaining from tax cuts. "This choice is actually about many of these nurses, teachers and teaching assistants, carers, those who are on low incomes," she told BBC Radio 4's Today. MPs are debating the issue in the House of Commons at the moment, with Labour urging Tory MPs to back its motion calling for a rethink.
"It is going to backfire because what George Osborne is doing essentially is choosing between the working poor and the non working poor when what he should be doing, if he is trying to balance the books, is making sure we can grow the economy." While this is unlikely, some MPs could use the occasion to increase the pressure on the government to rethink their implementation.
'Very vulnerable' Mr McPartland said he hoped Mr Osborne would address the issue and, if not, expected him to take action in next month's Autumn Statement, which will be delivered on the same day as the government's spending review.
MPs will debate the issue in the House of Commons later on Monday, with Labour urging Tory MPs to back its motion calling for a rethink. Cross-bench peer Baroness Meacher is also tabling a so-called "fatal motion" for next Monday to kill off the changes in the House of Lords, where the government does not have a majority. He added: "When you actually look at the effect it is going to have on those people that get up and go to work, those people we believe that the Labour Party has left behind, the effect on them is one the chancellor is going to want to mitigate and calm down."
The BBC's John Pienaar said Liberal Democrats in the House of Lords will be formally instructed to vote down the government's plans, despite fears among senior peers that a veto could provoke a government backlash, and even constitutional retaliation against the unelected chamber. 'Going to backfire'
Labour has accused the Conservatives of deceiving the public after ministers made repeated statements during the election campaign insisting that tax credits were not going to fall in value.
"It is going to backfire because what George Osborne is doing essentially is choosing between the working poor and the non working poor when what he should be doing, if he is trying to balance the books, is making sure we can grow the economy," said shadow Treasury minister Seema Malhotra.
The Lords cannot interfere in the government's Finance Bill but the tax credit cuts are contained in a separate piece of legislation and the Huffington Post reported that should they be blocked, it could prompt calls for peers' powers to be curbed and even for the Lords to be "suspended".The Lords cannot interfere in the government's Finance Bill but the tax credit cuts are contained in a separate piece of legislation and the Huffington Post reported that should they be blocked, it could prompt calls for peers' powers to be curbed and even for the Lords to be "suspended".
While backing the principle of the changes, several Tory MPs are calling for "transitional" arrangements to be put in place to help those affected. Cross-bench peer Baroness Meacher is tabling a so-called "fatal motion" for next Monday in an attempt to kill off the changes in the House of Lords, where the government does not have a majority.
James Cartlidge, MP for Suffolk South, told Radio 5Live some people would be left in a "very vulnerable position". "The worst thing we can do here to try and pretend that some people will not be worse off," he added. "I think that's a mistake". The BBC's John Pienaar said Liberal Democrats in the House of Lords will be formally instructed to vote down the government's plans, despite fears among senior peers that a veto could provoke a government backlash, and even constitutional retaliation against the unelected chamber.
And Lucy Allan, MP for Telford, has called for a "discretionary hardship fund" to help those on the lowest incomes in receipt of working tax credits who she says could lose out until the new national living wage rises to £9 in 2020.
She wrote on her blog that "during the transition period there are working families in Telford who will struggle" and remedial action was needed.
The Institute for Fiscal Studies has said those on lower incomes will be more affected by the cutbacks than any welfare change since 2010 but its director Paul Johnson told Today that, even so, the tax credit system would remain "far more generous" than it was in 1997.The Institute for Fiscal Studies has said those on lower incomes will be more affected by the cutbacks than any welfare change since 2010 but its director Paul Johnson told Today that, even so, the tax credit system would remain "far more generous" than it was in 1997.
"Wherever we end up in 2017...the total level of spending is back to about 2003 levels, not back to a world before tax credits," he said. "Wherever we end up in 2017... the total level of spending is back to about 2003 levels, not back to a world before tax credits," he said.
How will you be affected by cuts to tax credits? Please email haveyoursay@bbc.co.uk with your experiences.How will you be affected by cuts to tax credits? Please email haveyoursay@bbc.co.uk with your experiences.
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