Five reasons why cutting Working Tax Credits is a terrible idea

By Lori Inglis Hall

With newly released research warning that 71 Tory MPs could lose their seats following cuts to Tax Credits – because, yes, a significant chunk of the electorate is pissed off – Tory backbenchers have been lining up to express their concern at the impending changes to the in-work benefit. 

Even the likes of IainDuncan Smith, hardly a man known for his magnanimity towards thoseon low incomes, reportedly called for extra support for those affected.

And yet, when Commons voted on the issue last month, only two Conservative MP’s rebelled against the party.

And while the future of their Westminster careers is no doubt an important consideration when removing the financial safety net of thousands of the UK’s most vulnerable families, here’s five more reasons why the cuts are a terrible idea.

1.    It will financially cripple ‘hard working families’

Ah, remember that phrase? It was the political slogan of the 2015 general election, uttered with such frequency it lost all meaning (just who were these hard-working families, and what about the families that only worked moderately hard – what was to become of them?)

With incomes flat-lining during the financial crisis, in-work tax credits have become a financial buffer for many families, bridging the gap between stagnating low-wages and an ever-rising cost of living.

From April next year, the earnings level at which tax credits start to be withdrawn will drop from £6,420 to £3,850, with Labour claiming that 3 million families are set to lose £1350 a year.

The Government argues that despite the cuts 8 out ten families will actually be better off by 2017/18, because of a rise in the national minimum wage. Yet the Institute of Fiscal Studies has called this ‘arithmetically impossible’, and reports that the much trumpeted National Living Wage will account for just 26% of the losses suffered by those eligible for tax credits, with households on average £550 worse off a year.

For a party who aim to incentivise work, and recently proclaimed themselves the workers party (take that, Corbyn!), this policy seems particularly contradictory.

2.    It will increase child poverty and push more working families into poverty

The day after David Cameron promised ‘an assault on poverty’, the Resolution Foundation (a think tank headed by former Coalition Minister David Willetts), published a report which found that cuts to in-work benefits and the introduction of the National Living Wage will push a further 200,000 children into poverty by 2016.

This will rise to 600,00 children (predominantly in working families) by the time all the policy changes have come into force.

But it’s ok, because the Government have changed the benchmarks for measuring child poverty, so it’s possible many of those forced into poverty will be lost in statistical obfuscation and we’ll never know of their plight.

3.    The Conservatives promised not to cut Tax Credits in the first place

We’ve all seen the footage of Michelle Dorrell berating an increasingly uncomfortable looking Amber Rudd on Question Time (but if haven’t, here it is). “I voted Conservative originally because I thought you were going to be the better chance for me and my children,” the mother told Ms Rudd.

“You’re about to cut tax credits after promising you wouldn’t.’

And she’s right. Weeks before the May election, David Cameron pledged that he wouldn’t cut tax credits twice during a special edition of Question Time, only for the cuts to be revealed three months later.

4.    The Government are hiding their own impact assessment

Recently the Treasury set out the Government’s impact assessment of the cuts for a Lords Select Committee, except the figures supplied measure only the effect on claimants already in receipt of the benefit rather than the population as a whole, in what a member of the Treasury Select Committee called ‘an obvious sleight of hand’.

In other words, it’s impossible to scrutinise the true effect of the cuts. So why the obfuscation?

Are the Government trying to hide the fact that the new system under Universal Credit will not account for the often changeable incomes of the self-employed, leaving them considerably worse off? Or the fact that the cuts will hit single parent families hardest, with women once more disproportionately effected?

Or perhaps they don’t want us to notice the small fact that the combination of the lower earnings threshold and the rise in the minimum wage means that from next April it will be impossible to qualify for Working Tax Credits, effectively abolishing the benefit. George, we wait with baited breath.

5.    The cuts are unlikely to lower the deficit

That’s right. The very reason for the Conservative’s assault on the ‘benefit bill’ and the proposed changes are likely to make things worse.

The more people spend the bigger the benefit to the public purse, through the collection of VAT and the inevitable increase in demand for goods and services.

So reducing spending power will have a detrimental effect on the deficit, because the Government will collect less VAT. Demand will fall which creates less work, which reduces spending power even further. It’s a cycle, of course, which the Tories know well enough.

Because paying down the deficit is just a cover for attacks on the living standards of everyone who isn’t already loaded.