10/11/2015 19:02 GMT | Updated 11/11/2015 02:59 GMT

Tax Credit Cuts Should Be Shelved For One Year, MPs Tell George Osborne

EMMANUEL DUNAND via Getty Images
Great Britain's Finance Minister George Osborne arrives to attend an Economic and Financial (ECOFIN) Affairs Council meeting at the European Council, in Brussels, on November 10, 2015. AFP PHOTO / EMMANUEL DUNAND (Photo credit should read EMMANUEL DUNAND/AFP/Getty Images)

George Osborne should shelve his plans to cut tax credits for a year and plan a "major overhaul" of the benefit system unless he moves to substantially soften the impact, MPs have said.

Earlier this month, the chancellor was forced by the House of Lords to go back to the drawing board and come up with measures to ensure poor working families were not too harshly affected by the cuts.

Osborne has pledged to bring forward transitional measures in his Autumn Statement at the end of November.

Gordon Brown, who introduced the tax credits, said the biggest losers from the cuts would be "hard-working parents and their children" rather than the unemployed.

"All the facts belie the Tory propaganda. Not only are 51% of Britain’s poor now in working households, but as many as two of every three poor children live in a working family," he wrote in The Guardian.

"For them the promise of globalisation lies unrealised: if you’re young and aspirational, and work hard with a get-up-and-go attitude, you will not necessarily get on in Tory Britain."

However in a report published today, the work and pensions committee of MPs warned that any attempt to use increases in the income tax personal allowance or the National Living Wage "will not wash" as a solution.

The committee warned most of the current ideas about how to help families would still be "dwarfed" by the impact of the cuts.

The Institute for Fiscal Studies had warned under the chancellor's plans, more than three million families will lose an average of £1,300 a year from April.

Heidi Allen, the Conservative MP who used her maiden speech in the Commons to damn the cuts and is a member of the committee, told The Huffington Post UK: "We talk about being a 'One Nation' party, that we are here for everyone, but it doesn't feel like that to those hit by this.

"What I have been over-whelmed by is the number of 'wealthy' people in my constituency that have been saying how we should be sharing the burden among those with the broadest shoulders."

She said Osborne now has an opportunity to rethink his approach and "find a solution that does not impact so severely those on low pay".

"To maintain the economic growth we have worked so hard to achieve, it is vital that we keep everyone working. We are at a critical point in our recovery and this would be jeopardised if we returned to the bad old days of being 'better off out of work'," she said.

"I know there are no easy answers, but I sense the majority of people in this country would back the chancellor if he revisited other possible areas of savings; budget surplus levels or Inheritance tax thresholds for example. We talk so often about 'all being in this together': now is the time to put that mantra into action."

The committee also warned Osborne not to "raid" Universal Credit to make the tax credit cuts hit people less hard. "This would either shift the burden to different low income families or undermine the objective of making work pay," the MPs said.

The report states: "There is, however, no magic bullet in the tax credit system. Something has to give:household incomes, work incentives or fiscal savings. We recommend that, if these major changes cannot be satisfactorily mitigated now, it would be better to pause any major reforms until 2017-18. This would enable a necessary and ambitious debate about the future of working age benefits, and their position in a sustainable welfare system."

The decision by Opposition Lords to knock back Osborne's cuts to tax credits, which had been passed by the Commons, triggered a huge row between the government and peers.

David Cameron responded to the defeat by setting up a "rapid review" into the power of the Lords. The prime minister said peers had overstepped their bounds by voting down a financial measure.


Tax credits are welfare payments to families raising children and working people on low incomes.

More than three million families will lose an average of £1,300 a year from April

The cuts will deliver £4.4bn of the Chancellor’s planned welfare cuts by reducing the earnings level at which tax credits start to be withdrawn from £6,420 to £3,850.

The Government says eight out of 10 would be "better off" overall from a package which also includes increases in the minimum wage for over-25s, rises in the income tax threshold and extended free childcare.