Cross-party report calls on government to overhaul tax credits plans

In a unanimous cross-party report published today, Wednesday 11 November 2015, the Commons Work and Pensions Committee says in the absence of any satisfactory mitigation of tax credit cuts, the Government should pause for a year and plan for a major overhaul of the tax credit system.

Steve McCabe MP, who is a member of the Work and Pensions Select Committee has said that the measures for those who would be helped are “dwarfed” by the cuts. As things stand the majority of families affected will still be worse off by 2020-21.

Steve recently undertook a consultation with his constituents on the Government’s plans to cut tax credits and heard from hundreds of people who shared their personal worries about the changes. The results of Steve’s survey revealed that almost 90% of people thought the Government’s plans were unfair and over 90% of people thought transitional arrangements should be put in place for those currently receiving Tax Credits. 95% of people agreed that we should have a right to know which companies are employing people on low wages that need to be topped up with tax credits.

The Committee report found that:

- The increase in the income tax personal allowance is a “very badly targeted tool”, whereby an individual will only start to pay income tax when they earn more than £11,000, but will start to lose tax credits if their combined household earns as little as £3,850. At best, half of families facing tax credit cuts will benefit from the personal allowance increase

- A single earner with 2 children working 35 hours will increase their net income by £323 pounds a year under the National Living Wage, but will lose £1,701 in tax credit cuts, leaving the family £1,378 worse off overall

- Only about one third of those affected by the tax credit cuts would anyway benefit from the Chancellor’s so called National Living Wage, even by the time of its full implementation in 2020/21

- By 2020-21, 78% of affected families will be on average £1,500 worse off in real terms as a consequence of the proposed cuts, the personal allowance increases and wages combined

-  Many individuals would keep just 7p of every additional £1 in earnings: a marginal deduction rate of 93%. This runs directly against the Government’s claim to make work pay

- The Treasury has been unacceptably evasive in failing to provide data about the effects of its Summer Budget measures on different income groups: obfuscation is not consistent with effective scrutiny or effective policy-making

The Committee concludes, as one witness put it, that the answer to tax credits is tax credits.

Steve McCabe MP said:

“As a country, we do have a problem with low pay and I am clear in my mind that this is something that has to be tackled. It just seems ridiculous that those who work hard on low pay are going to be the victims of George Osborne’s latest ill-conceived plans. There is an issue about welfare reform and I am certainly not of the view that nothing can or should be changed but today’s report by the Committee I serve on and the results from my survey show that the Government needs to listen to the findings and the concerns of working families who are already struggling to make ends meet.

“I can’t say I’m optimistic that the Government will change tack given David Cameron’s promise at the election that there would be no cuts to tax credits and it seems to me that he is hitting the very people he is claiming to represent; hard working families. I intend to continue to fight against these cuts in Parliament and can only hope that the Chancellor will take heed of the Committee’s findings ahead of the Autumn Statement.”

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