A damning report on George Osborne’s plans for tax credits has demanded that he must rethink the cuts, saying they run against the government’s stated objective of “making work pay”.
The Commons Work and Pensions select committee told Osborne to get his act together in its report, A reconsideration of tax credit cuts, published on November 9.
It stated: “The proposed changes to tax credits in April 2016 will result in very substantial cuts to the incomes of working families, including many with children. There is now general agreement that it would be right for the Chancellor to rethink reforms that went too far and too fast and may have most impact on those in work and striving to succeed.
“Furthermore, by increasing the rate of withdrawal in taxes and benefits to as much as 93 per cent of additional income, the cuts run against the Government’s objective of making work pay.”
That’s an effective tax rate of 93 per cent on extra money earned. Isn’t Osborne the Chancellor who said a 50 per cent tax on high earners was too much?
The committee warned that Osborne was being disingenuous in his claim that in increase in the income tax personal allowance, the gradual introduction of a higher minimum wage and an expansion of free childcare would mitigate the tax credit cuts – make them less harsh.
“These measures are welcome,” the report stated. “However… they benefit very different parts of the working population. The majority of working families affected by the proposed cuts would still be worse off in 2020-21 as a consequence of the Budget package. We therefore welcome the Chancellor’s commitment to additional measures to lessen the impact of the tax credit cuts.”
But there was a warning that any more tinkering with separate policies would be frowned upon, if they were announced in the autumn statement: “In the same way that the increase in the personal allowance and minimum wage announced in the Budget do not offer targeted respite from the tax credit cuts, further such changes are not the Chancellor’s answer.
“The gains are to individuals rather than households and are too diffuse to efficiently compensate families facing tax credit cuts.
“The way to focus on those households is to use the tax credits system. The answer to tax credits is tax credits.”
There was a stinging rebuke for Osborne and the Treasury over its failure to provide information about the effect the proposed changes would have on people in different income groups.
“The Treasury has been unacceptably evasive,” the report stated. “The Government ought… to have been more forthcoming with statistics about flows on and off tax credits. Their obfuscation is not consistent w
ith effective scrutiny; nor is it consistent with effective policy-making.
The conclusion was clear: Osborne must swallow his pride and accept that he can still achieve a balanced budget by 2019-20, without imposing cuts of £1,100 per household in a single stroke.
“There is no magic bullet within the tax credit system,” the report stated. “One of three things has to give: the impact on poverty, work incentives or the cost. If one accepts both that the proposed cuts to some families are too great and that the limits of damage to incentives to work have been reached with deduction rates of up to 93 per cent, then a reduction in fiscal savings is inevitable.
“The Government’s commitments, both to cut working-age welfare expenditure and to achieve overall fiscal balance, are to be achieved by the end of the current Parliament. Their achievement would not be compromised by the phasing-in of the tax credit cuts.”
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