David Cameron has often expressed a simple creed: “If you want to work hard and get on in life, this government will be on your side.” Yet the imminent cuts to tax credits – given to four and a half million Britons to supplement low-paid work – expose the hollowness of this claim. Introduced in Gordon Brown’s first term as chancellor, they have been credited with helping to reduce the proportion of children living below the poverty line from 35 per cent in 1998-99 to 19 per cent in 2012-13. Now, the cuts to tax credits announced by George Osborne in his first post-election Budget will leave three million households £1,000 a year worse off, according to the independent Institute for Fiscal Studies (IFS). With unfortunate timing, households will be informed just before Christmas of how much they stand to lose from April next year.
These cuts will have bleak consequences for working families on the lowest incomes, the “strivers” whom the Conservatives aspire to support. They are antithetical to social mobility, pulling the ladder into work away from struggling families and ensuring that more children grow up in poverty. The stated reasons for pursuing the policy are to run an annual Budget surplus, to reduce government subsidies for low-paid work and to encourage employers to pay more. Yet the higher minimum wage announced by Mr Osborne (which he calls a “living wage”) will reach only £9 in 2020, long after the tax-credit cuts are scheduled to take effect. In addition, Paul Johnson of the IFS rejects the link that the Chancellor has made between the higher minimum wage and the withdrawal of tax credits. “There’s not actually an enormously close overlap between those on the minimum wage and those on tax credits, so the gainers from the minimum wage are a very different group on average to the people losing from tax credits,” he told the BBC’s World at One on 5 October.
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