POLITICS

In One Graph, Just How Hard The Poorest Will Be Hit By Tax Credits Cuts

05/11/2015 18:04 GMT | Updated 05/11/2015 18:59 GMT

Here is a graph produced today by The Resolution Foundation that shows how hard-pressed families were set to be worst off as a result of George Osborne's Summer Budget.

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The red line tracks the effect of cutting two forms of tax credit - top-up benefits for low-paid workers - and being offset by boosting salaries by introducing a higher National Living Wage.

That demonstrates how the poorest paid will be hit by "significant losses" while the better off make "modest gains", says The Resolution Foundation.

THE GRAPH EXPLAINED

The dark blue bars measure the impact of reducing the threshold where tax credits are withdrawn from £6,420 to £3,850.

The light blue represents the increase in the proportion of credits taken away at £3,850: the "taper rate" is going up from 41% to 48%.

The National Living Wage, in amber and effectively a higher minimum wage, for over-25s will be introduced at £7.20 in April before rising to £9 in 2020.

The Government would dispute the claim, pointing out that other reforms such as childcare benefits would improve the picture.

The Chancellor at his Autumn Statement this month will outline revised tax credits plans after a House of Lords vote derailed his policy.

The Resolution Foundation, which today published a five-point plan over how the Chancellor can find £4.4bn without cutting tax credits, said there were "plenty of ways" to making the savings.

george osborne

George Osborne this month will announce revised plans to his tax credits policy, which forms the centre-piece of his £12 billion reform agenda

At a meeting in Westminster to launch its report, Tim Montgomerie, a columnist for The Times and founder of the Conservative Home website, said the Chancellor had to look to the better off to meet his deficit goals, arguing "the political class won't confront the middle-class".

He went on that since the The Sun, Boris Johnson and a series of right-wing backbenchers had aired their disquiet at the cuts he had a "massive rebellion on your hands" - and warned about his prospects.

"I don't think George Osborne will tweak," he said. "If he does just try to get away with this, he will not just be defeated in the Lords, he will be defeated in the Commons.

"That's not just the end of his leadership ambitions, it's the end of his Chancellorship and he would have to resign."

Labour MP Frank Field, also the chair of the welfare select committee of MPs, said ditching a taxpayer subsidy for low-paid workers and asking firms to pick up the slack via a National Living Wage "tears up" a welfare pact first formed to help the Elizabethan poor.

The Chancellor was now contending "appalling wages should not be dealt with by taxpayers, but should be born by capitalism itself".

But he advocated offering alternatives within the "high wage, low welfare" parameters the Chancellor advocates, and suggested phasing out over the next four years tax credits for childless couples and single people.

"The unholy tax credit muddle offers the Chancellor the possibility of becoming a serious welfare reformer," he said.