POLITICS
04/10/2015 07:51 BST | Updated 04/10/2015 07:59 BST

David Cameron Says He Will Not Abandon Cuts To Tax Credits

Stefan Rousseau/PA Wire
Prime Minister David Cameron (left) is interviewed by Andrew Marr on his BBC1 current affairs programme at Media City in Manchester, before the start of the Conservative Party annual conference.

David Cameron has ruled out abandoning planned cuts to tax credits, despite warnings the changes will leave workers worse off.

In his Budget, George Osborne moved to limit child tax credit to just the first two children as well to lower the income threshold at which people see their tax credits cut.

Critics have argued this is a disincentive to work. Labour has attacked the plan and said families face losing on average £1,000 a year.

Paul Johnson, the director of the Institute for Fiscal Studies has warned the introduction of a National Minimum Wage will not make up for the cuts.

"The key fact is that the increase in the minimum wage simply cannot provide full compensation for the majority of losses that will be experienced by tax credit recipients. That is just arithmetically impossible," he said after the Budget.

"Unequivocally, tax credit recipients in work will be made worse off by the measures in the Budget on average."

Conservatives including former universities minister David Willetts and London mayor Boris Johnson have also voiced concerns.

But speaking to the BBC's Andrew Marr programme this morning as the Conservative Party's conference in Manchester got underway, the prime minister said there would not be a re-think.

"We have had the vote in parliament on tax credits and I think people respect this argument that the National Living Wage - a 50p increase next year, so a £20-a-week pay rise, rising to £9 by the end of this Parliament - that is a very significant change that really helps to make work pay rather than a tax credit system that recycles money back to people," he said.

Asked if he intended to review the Budget proposals before they are introduced, he said: "No, we think the changes we have put forward are right and they come with higher pay and lower taxes.

"If you take a family where someone is on minimum wage, when you take into account all the things we are changing in tax, in the national living wage, and tax credits, that family will be better off, not least because you’ve got the national living wage, and we are also cutting tax so you can earn £11,000 before you start paying any tax at all."

Today the Resolution Foundation think-tank said the proportion of workers classed as "low paid" is set to fall to its lowest level since 1985 by 2020, but many households will still find themselves worse off because of cuts to tax credits.

Osborne's announcement of a compulsory National Living Wage (NLW), which will rise to around £9 an hour by 2020, will make inroads into the number of people classed as in "low pay", meaning they are on less than two-thirds of median hourly earnings.

But the Resolution Foundation report said that although the NLW will reduce the extent of low pay across Britain from 21.4% in 2014 to 18.8% by 2020, it will have a far more limited impact on raising the living standards of low-income households.

While the NLW will limit the income losses stemming from welfare cuts announced alongside it in the Chancellor's Budget in July, it will not make a considerable difference.

The think-tank warned that the Budget weakened work incentives and reduced incomes for many low-income households, despite the increase in pay.