PM David Cameron. Photo credit: British PM David Cameron via photopin (license)

The Government’s proposed £4.4bn in cuts to tax credits “will widen the gap in inequalities and push even more people into poverty”, Scotland’s Social Justice Secretary has warned.

Alex Neil says the UK Government should urgently rethink its approach to cutting tax credits, warning that the poorest households will face the biggest losses when the cuts come into force from next April.

The changes will see the earnings threshold for Working Tax Credits reduced from £6,420 to just £3,850 a year, with more than three million households affected.

Child Tax Credit (CTC) will also be limited to no more than two children per household for new applicants. Meanwhile, the income threshold for families only claiming CTC will be reduced from £16,105 to £12,125.

Ministers originally claimed that cuts to tax credits would be offset by an increase to the personal tax allowance, as well as the introduction of a so-called National Living Wage (NLW). However, a Government minister has since admitted that one in five low-income households in receipt of tax credits will be left worse off by the changes.

The ‘real’ Living Wage, set independently and updated regularly, is currently £9.85 an hour in London and £7.85 an hour outside of London. Under the Government’s NLW, minimum hourly rates will increase to £7,20 an hour from next April, before reaching £9 an hour by 2020.

Figures from the House of Commons Library estimate that despite of these changes, working households are set to lose an average £1,300 a year. Meanwhile, the Institute for Fiscal Studies has put the figure closer to £1,000 a year on average.

However, the fact-checking website FullFact says no one really knows how many households will be affected.

According to the Scottish Government, tax credits were worth around £2 billion to Scottish households in 2013/14, with two-thirds of support going to low-income working families.

Alex Neil criticised the UK Government’s “thoughtless approach” to cutting tax credits. Arguing that although the changes may save the Treasury money in the short-term, there could be “heart-breaking long-term consequences that could rebound on other public and charitable services”.

He added: “Tax credits can be a lifeline for families on low incomes that rely on them to get through daily life, put food on the table, heat their home and pay their bills. Removing this vital support from thousands of families will widen the gap in inequalities and push even more people into poverty”.

Mr Neil accused the UK Government of a “clear attack on low-income working families”, adding “those families must be protected as a matter of urgency”.

“The Scottish Government has made clear its opposition to these changes and I urge the UK Government to reconsider the severity and timing of these changes and make changes before the Welfare and Work Bill reaches its next legislative stage, so that the poorest households in receipt of tax credits can be protected from this fall in their incomes.”

He called for more social security powers to be devolved to the Scottish Parliament through the Scotland Bill.

His comments come as the Tories face a triple-whammy of challenges against the cuts.

Firstly, a “fatal motion” is set to be tabled in the House of Lords on Monday, despite of threats from PM David Cameron to suspend the House of Lords or flood it with Tory Peers.

On Tuesday, Labour will table amendments to try to kill off the cuts. Then on Thursday, Labour MP Frank Field will force another vote on the hated policy.

The Sunday Mirror reports that around seven Tory MPs are set to rebel against the Government’s cuts to tax credits.

Shadow Work and Pensions Secretary Owen Smith told the Sunday Mirror: “It’s not too late for us to avert this disaster, but time is running out.

“The ­moment has come for Conservative MPs to do something meaningful.”

Tax credits cuts: winners and losers (BBC News).


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