Tax credit cuts ‘tweak’ won’t help poorer families – think-tank

Published: Thursday 5th November 2015 by The News Editor

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Only the full reversal of planned tax credit cuts will properly protect millions of lower-wage households, a think-tank has said.

Chancellor George Osborne is preparing measures to mitigate the impact after the House of Lords rejected the welfare squeeze.

But the Resolution Foundation said “tweaks” to the £4.3 billion cut would be expensive and still leave millions of families worse off.

It suggested Mr Osborne could more than cover the desired savings by slowing planned income tax reductions.

Linking rises in the personal allowance and threshold for paying higher rate tax to inflation instead of accelerating them to £12,500 and £50,000 would allow the cuts to be dropped altogether, according to its research.

Other ways to plug the gap included reversing the increase in the inheritance tax threshold and cuts to corporation tax (£3.4 billion by 2020), limiting pension rises to claw back previous inflation-busting increases (£6bn) or returning spending on tax reliefs to 2010 levels by 2020 (£10 billion), the foundation said.

David Finch, senior economic analyst at the foundation, said: “The Chancellor now has an opportunity to think again and limit the losses.

“His options come down to pushing ahead with the reforms while trying and failing to compensate those losing out at significant expense, protecting current claimants at the price of much lower savings and creating perverse incentives, or finding the money to reverse at least the most damaging of the cuts.

“Many proposals have been suggested to soften the impact of the changes – from further tax cuts, to a phasing-in of the reforms – but none of them make much of an imprint into the scale of losses being imposed on low income working families.

“If the Government is serious about providing more help to working families, its only option is to reverse the cuts.

“Fortunately there are plenty of ways to fund this move – such as cancelling tax cuts targeted at better-off households.

“And with a surplus of close to £12 billion pencilled in for the end of the Parliament, the Chancellor can afford to cancel the tax credit cuts and still eliminate the deficit.”

Shadow chief secretary to the Treasury Seema Malhotra said: “I welcome the Resolution Foundation’s conclusions, which support Labour’s argument that reversing the tax credit cuts in full is the fairest way of protecting the incomes of millions of low and middle income working families.

“The 3.2 million working families who stand to lose an average of £1,300 a year under the tax credits cuts now know that the only way they won’t be worse off is if Osborne reverses these proposed cuts in his Autumn Statement.

“Now is the time to put party politics aside and do the right thing for millions of British workers and their families. George Osborne should adopt Labour and the Resolution Foundation’s position and reverse his tax credit cuts, abandon his inheritance and corporation tax plans cuts and accept a lower surplus target. If he does that we will support his decision.”

Published: Thursday 5th November 2015 by The News Editor

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