Chancellor’s ‘sneaky’ tax credit cut to hit 800,000
GEORGE Osborne has been accused of trying to sneak in a tax credit cut which will affect 800,000 workers.
The Treasury plans cut the ‘income rise disregard’ – the extra amount you can earn a year before tax credits start to be reduced – despite the move being blocked by the Lords last year. The cut could hit households by up to £300 a year.
The Chancellor suffered a furious backlash from his own party last year when he tried to save £4.4 billion by introducing a broader cut to working households earning tax credits. He wanted to lower the earnings level above which the credits would be withdrawn from £6,420 to £3,850.
Mr Osborne also proposed speeding up the rate at which the benefit was lost when the recipient’s pay rises. But he was forced into a U-turn after pressure from his colleagues, and in a spectacular policy change in November, he ditched the plans.
However, draft legislation reveals that the Government plans to remove tax credits sooner when people’s incomes rise by more than £ 2,500. Those earning the new national living wage will be at risk of having their money clawed back.
Critics said this would be a disincentive to take on more hours at work and raise the risk of overpayments, which then have to be repaid, causing hardship for low-paid families.
Shadow Chancellor John McDonnell said: ‘The Chancellor said he was reversing his cuts to tax credits only two months ago, but like many announcements he makes, he says one thing in public and does another when he thinks no one is looking.
‘It’s completely shameful when you consider that 800,000 working people face losing money when the Tories are cutting taxes for a wealthy few.’
Mr McDonnell called on Mr Osborne to use next month’s budget to reverse the cuts, which are due to save the Treasury £170 million next year and £250 million by 2018-19.
‘There will be many Tory MPs who will have told their constituents that their Chancellor was not cutting their tax credits who will now be left looking silly,’ he said.
The Government says people will not be worse off overall because they will be earning more from elsewhere.
The Treasury told the Lords committee examining the draft legislation: ‘HM Treasury has released the estimated number of people that will be affected by the new income-rise disregard in tax credits, of £2,500, compared to a situation where the disregard had remained at £5,000.
‘A tax credit award will only be adjusted in response to a claimant earning more money. Next year there are expected to be 800,000 claimants with a reduced award as a result of their income increasing – none will be cash losers because their income will have increased.’
A Treasury spokesman said: ‘It is a simple matter of fairness and common sense that tax credit awards are reviewed as people’s incomes change. It isn’t right that someone earning significantly more should do just as well in terms of tax credits than someone earning less.’
She added: ‘By definition there will be no l osers because people’s increase in income will outstrip any reduction to their tax credit award.’
‘Completely shameful’