Tories Consider £5bn Child Tax Credits Cut

photo credit: HM Treasury via photopin cc

The government is considering slashing tax credits for millions of low-income families, according to the BBC.

Allies close to George Osborne are said to be exploring an option, originally detailed by the Institute for Fiscal Studies (IFS), where the value of child tax credits would be returned to 2003/4 levels.

The move would see spending on child tax credits reduced by about £5bn, as part of the Conservative’s manifesto pledge to reduce the welfare bill by £12bn.

Under the proposal, a family with two children and with one parent working full-time would see their entitlement threshold cut from £32,969 to £28,847 of gross earnings.

3.7 million low-income families would lose around £1,400 a year, the IFS said. While the poorest families could see child tax credit payments reduced by around £845 per child per year.

Government sources told the BBC that cutting tax credits would encourage people to seek work or increase their working hours. They added that the tax credits “paper over the cracks of in work poverty”, rather than addressing its “root causes”.

Senior Tories believe employers are exploiting the tax credit system to get away with paying less in wages. However, child tax credits can be claimed regardless of employment status.

photo credit: NEFATRON via photopin cc
photo credit: NEFATRON via photopin cc

David Skelton, director of the Conservative pressure group Renewal, told BBC Newsnight:

“What I would like to see is the burden moved away from the taxpayer and from the state towards some big profitable employers.

“The point is you have a lot of employers who are basically getting subsidy from the state for low paid work and we’d like to see a shift towards those employers who can afford to pay the living wage to pay the living wage.

“To encourage workers to work more hours if they can, if they are working part time at the moment. And also get to see a higher minimum wage over time as well.

“So that shift in the burden should come from the state towards employers over the medium term.”

Former Conservative minister Damian Green said cutting tax credits was just “one of the options in front of ministers”. He added: “I don’t think anyone can complain that ministers are looking at options”.

Labour’s acting Shadow Work and Pensions Secretary, Stephen Timms MP, warned that the government’s commitment to cutting £12bn from the welfare bill would hit “working families and children hard”.

“It’s clear that David Cameron and George Osborne’s plan will make working families less secure”, he said.

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