DEEP cuts are being prepared for tax credits as the Government aims to slash £12 billion from the welfare bill.
David Cameron yesterday defended the proposals, saying that Britain needs to become a “a higher wage, lower tax, lower welfare society” rather than simply dealing with “symptoms” of low pay by topping up people’s pay packets.
In a keynote speech in Runcorn in Cheshire, he vowed to end the “merry-go-round” where people on low pay paid tax to the Government only for the Government to hand back the money in welfare payments.
Chancellor George Osborne and Work and Pensions Secretary Iain Duncan Smith have confirmed plans to strip another £12 billion off the benefits bill.
The announcement dashed speculation that the reduction could be scaled back or delayed when Mr Osborne sets out further details in his first all-Conservative Budget next month.
With pensioners, the disabled and child benefit all protected, the brunt of cuts is expected to fall on tax credits and housing benefit.
Mr Cameron said: “There is what I would call a merry-go-round. People working on the minimum wage having that money taxed by the Government and then the Government giving them that money back - and more - in welfare,” he said.
“Again, it’s dealing with the symptoms of the problem - topping up low pay rather than extending the drivers of opportunity - helping to create well paid jobs in the first place.
“We need to move from a low wage, high tax, high welfare society to a higher wage, lower tax, lower welfare society.”
Labour leadership frontrunner Andy Burnham said it was “disgraceful” that ministers had yet to spell out where the cuts would fall and questioned whether they had a mandate from the electorate.
Mr Cameron insisted that the Government was determined to tackle the root causes of inequality and not just the symptoms.
“The right track is to recognise the causes of stalled social mobility and a lack of economic opportunity,” he said.
“Family breakdown. Debt. Addiction. Poor schools. Lack of skills. Unemployment. People capable of work, written off to a lifetime on benefits.
“Recognise those causes, and the solutions follow. Strong families that give children the best start in life. A great education system that helps everyone get on. A welfare system that encourages work - well paid work.
“These are the drivers of opportunity - and we need to extend them.”
Mr Cameron highlighted three strands of his plan to improve social mobility.
:: Families will be strengthened with better childcare, flexible working and relationship support, as well as a faster adoption process and an expansion of the Troubled Families programme to help 400,000 families over the next five years.
:: A focus on “first class” education, with “zero tolerance” of failing schools and a new focus on “coasting schools”.
:: Creating well-paid jobs, increasing the minimum wage to £6.70 in October and the personal tax threshold to £12,500 over the next five years and “going further” as the economy recovers and welfare is reformed.
Mr Cameron said he wanted to move from a society with low pay and high welfare costs to one with increased wages and a reduced benefits bill.
The Prime Minister highlighted moves to increase the income tax threshold but would not be drawn on the Government’s plans for tax credits.
“We did well in the last parliament: more than two million people in work, we lifted many people out of income tax altogether, but we need to continue with that approach.
“That’s why we are committed to this higher tax threshold so someone working 30 hours a week on minimum wage isn’t paying income tax.”
Mr Cameron failed to rule out making any changes to disability benefits but said: “We are actually spending more per year on disability benefits than in the past. I think that is important, helping the most disabled people.”