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Osborne Simply Can't Proceed With His Tax Credit Plans - He Must Focus on a Real Living Wage

25/11/2015 07:42 GMT | Updated 24/11/2016 10:12 GMT

If George Osborne goes ahead with his plans to cut tax credits, the consequence will be a £3.5billion cut to consumer spending from next April. London and the North West will see the biggest losses with falls of £460million and £440million respectively.

Almost three million working families with children currently receive tax credits. Research shows that low to middle income households are more likely to spend rather than save their income, and that most of that income is spent in the local economy. With an average loss of £1,300 per household, local businesses and high streets will take the brunt of any loss of the spending power these households suffer.

The savage losses faced by working families fly in the face of any claim to be a 'one nation' government, or one that has working people at its heart, or David Cameron says that work will be rewarded.

Instead the government has come up with the most unfair cuts affecting low to middle income households. Tax credits are not a luxury, but are quite simply a lifeline for hardworking families. Taking away a large proportion of the tax credits they rely upon will turn their already precarious finances upside down.

The House of Lords refused to consider the changes until the government came up with a scheme for full transitional protection for tax credit families for at least three years. Backbenchers called for the changes to be reconsidered and for mitigation measures to soften the blow. The Work and Pensions Select Committee recommended that the government pause any reforms to tax credits until 2017-18.

How the Chancellor will respond has been the subject of considerable speculation. He simply can't just proceed with his original plans. There has been significant pressure from Conservative MPs to delay the changes and to leave things as they are in April 2016, allow his 'national living wage' of £7.20 per hour to come in and then make changes, possibly the following year.

But taking this advice would only mean delaying the changes and still imposing financial misery onto millions of hardworking families and their children - just a later date. These unfair changes to tax credits will hang over people's heads as they are likely to be introduced at some point in this parliament.

And the problem is that while families won't face a big cut next April, as the changes are phased in, most families will end up being worse off in 2020.

Others have argued for the increase in the income tax personal allowance to £12,500 to happen sooner but Treasury officials will be pointing to the huge extra cost - because it will be given to all taxpayers, not just those in receipt of tax credits. Others suggest increasing the point at which peoplestart paying national insurance contributions, but that also has a big cost.

The smart move would be to drop the changes to the threshold and taper altogether and focus on getting employers to pay the real living wage of £8.25 a hour or £9.40 in London. That is what would make a real difference to the lives of millions of low income working households struggling to make ends meet.

Dave Prentis is the general secretary of Unison