Sending the strongest signal yet that the he is intent on targeting the poorest in our society, George Osborne used last month’s summer budget to announce a real-terms cut to tax credits. It was a move which will see millions of working people, already struggling to get by on low wages, unable to escape the grasp of poverty. As Barnardo’s, the children’s charity estimated, tax credit cuts could see as many as 7.5 million children left to suffer as their parents’ income is slashed.
New figures I uncovered recently showed that London alone over one million children will be hit. The measures set out in the budget will see tax credits undergo their most fundamental reform since their introduction. A four-year freeze on working-age benefits from next April will leave those families reliant on tax credits left to grapple with a real-terms cut in their income as inflation increases. That means less and less in their pocket each year. That impact will be compounded by the decision to lower the income threshold for tax credits from next spring, and restrict child tax credits to two children the following April.
Reforms to tax credits form just one part of a series of measures designed to slash £12m from the welfare bill, but their impact will undoubtedly be the most far reaching. Research from Barnardo’s shows that 7.5 million – 50 per cent – of children in Britain live in families that rely on tax credits to top up their income. In London alone that means over a million children could feel the damning effects of the chancellor’s changes to tax credits.
The measures also lay bare the empty rhetoric behind the government’s pledge to make work pay. In London, the latest Her Majesty’s Revenue and Customs data reveals 550,400 families are reliant on tax credits, the vast majority of whom, 68 per cent, are in work. Far from making work pay, the majority of those who will be affected by the chancellor’s cuts are those reliant upon tax credits to top up wages that simply are not high enough to get by on in our capital. A tokenistic rise in the minimum wage to £9 will not come anywhere near balancing out the loss in London, as the real cost of living is far higher. Remove tax credits and the Greater London authority estimates the London living wage – currently £9.15 – would already need to be £11.65 today.
Paul Johnson, director of the Institute for Fiscal Studies, pulled a few punches giving his verdict on the reforms stating, ‘unequivocally, tax credit recipients in work will be made worse off by the measures in the Budget on average’. These are reforms that will reinforce poverty, not address it.
For families already struggling with the higher cost of living in London, the loss of tax credits could easily tip the balance and force them out of the capital. Many could find themselves in the miserable position of having to say goodbye to their homes, their communities, and their support systems unless pay starts keeping up with the cost of living.
There is the added issue that employers are arguably less likely to see the need to pay for accreditation by the Living Wage Foundation when they know that a couple of years down the line they will be paying a ‘national living wage’. Although Ikea announced recently that they were signing up to the living wage, Boris Johnson effectively admitted in July’s mayor’s question time that the chancellor’s appropriation of the ‘living wage’ terminology was unhelpful hinting that a deal with a major retailer to pay the living wage was under threat. In his time as mayor, Boris Johnson has associated himself strongly with the living wage campaign, while overseeing a situation in which more people – and a greater proportion of those in work in London – are paid below the London living wage.
It is increasingly clear that the chancellor is intent on targeting the poorest people in our community. This means that whoever succeeds Boris Johnson as mayor will have to go beyond rhetoric and make tackling low pay a real priority. The fact the government has refused to tackle the root causes of poverty, such as the ever-deepening housing crisis, has led us to this point. Coupled with the delay to help with childcare costs, the chancellor’s reforms to tax credits could see yet more families falling into poverty no matter what calculation is used.
Yes we do have to balance the books. But making the poor, including the people on low wages, even poorer while pretending that you are doing the opposite is not the solution. It is political smoke and mirrors – simply narrow-minded and cruel.
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Fiona Twycross is a member of the London assembly. She tweets @fionatwycross
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