Conservative spending cuts will hit middle-income families, says Labour

Pair Of Scissors

Middle-income families will be in the line of fire of Tory spending cuts after George Osborne declined to rule out a plan to deprive 4.3m families of child benefit at a cost of £1,000 a year per family, Labour has warned.

In an escalation of the row between the Conservatives and Labour over tax policy, Chris Leslie, the shadow chief secretary to the Treasury, said millions of families could suffer if the Tories wrapped child benefit into the new universal credit.

Labour issued its warning after the chancellor declined to rule out a proposal to save £4.8bn by wrapping child benefit into universal credit. In its green budget in February, the Institute for Fiscal Studies said the proposal would help the chancellor achieve nearly half of the £12bn in welfare cuts he aims to introduce in the next parliament. Osborne has declined to spell out the details of his planned £12bn welfare cuts, which are designed to help him achieve a £30bn fiscal consolidation in the next parliament.

Asked whether he was planning to wrap child benefit into universal credit, the chancellor simply said he would apply the same principles that allowed him to achieve £21bn cuts in welfare in the last parliament. One of the changes, introduced in 2013, involved removing child benefit where at least one parent is a higher rate taxpayer, though this was phased in for incomes up to £60,000.

The chancellor said: “You can look at our track record – the £21bn we have saved in this parliament. You can look at the principles that will apply to future such savings. As I say, this is perfectly achievable. Anyone who thinks the job of reforming welfare has somehow been completed is mistaken. We want to go on creating a welfare system which rewards work and the aspirations of families are protected.”

Leslie said: “The Tories won’t admit where their £12bn of welfare cuts will come from, but after this press conference it’s now clear middle income families are in the firing line. George Osborne repeatedly refused to rule out rolling child benefit into universal credit. This would mean 4.3m families losing over £1,000 a year, according to the independent Institute for Fiscal Studies.”

The IFS highlighted the proposal, which would save £4.8bn, in February as part of a series of suggestions for how the chancellor could achieve his £12bn in welfare cuts. The IFS said child benefit should be part of a “more sensible” means-tested support for families and children in the tax credit system in light of the chancellor’s decision to turn child benefit into a means-tested benefit in 2013. Child tax credits are to be subsumed into universal credit, which will merge as many as six separate benefits.

The IFS said: “It would be possible to abolish child benefit and increase the appropriate components of universal credit such that those receiving universal credit did not lose out. We calculate that this policy would reduce benefit entitlements by around £4.8bn a year, since there are over 4.3m families who receive child benefit at the moment but who will not be entitled to universal credit in the future, each of whom would lose over £1,000 a year. This would be a radical change to the structure of the benefits system, but would mean that the system of support for families with children was much more coherent.”

The chancellor tried to make clear that he would not adopt the IFS proposal, though he was unable to rule it out definitively. He said: “You can judge us on our approach in this parliament. If we had wanted to put child benefit into the universal credit we would have done it when we set up universal credit. So we have got a plan that is based on clear principles about making work pay.”

Asked by the Channel 4 News political correspondent Michael Crick to rule out the proposal, the chancellor said: “I have given you a very clear answer. You’d have to be a contortionist to think that I’m not giving a pretty clear answer to that question. We have set out the principles we will apply. You can see from our track record: we have created a welfare system where child poverty is down, inequality is down, we have a record low number of workless households. What we are doing is creating a welfare system where it pays to work.”

The chancellor faced pressure on his plans for welfare as he published a Tory analysis of Labour fiscal plans. This repeated the Tory claim that Labour was planning £15bn in tax increases on the grounds that the party has signed up to the £30bn fiscal consolidation and is committed to a 50/50 split between tax increases and spending cuts. Labour says it has not accepted the Tory premise for the elimination of the structural budget deficit.

Powered by Guardian.co.ukThis article was written by Nicholas Watt Chief political correspondent, for theguardian.com on Tuesday 7th April 2015 14.20 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010