Thinktank concerned that families are likely to be unfairly hit by welfare cuts

  • The Institute of Economic Affairs thinktank has said that David Cameron’s plans for reducing £12bn of welfare cuts is “extremely unfair” for families. welfare bill 2.jpg

    In a speech the prime minister said that the UK should pay out less in tax credits, and suggests companies should offer higher salaries instead, reports the Guardian.

    Mark Littlewood, director general of the IEA, supported the need for making savings in the welfare budget but said the composition of the cuts “looks set to be extremely unfair on the working-age population. Whilst important for getting cash to relatively poor families, tax credits discourage people from earning more money by creating high effective marginal tax rates, leading to bunching around part-time work hours. They could be reformed in a way which encourages full-time work. But simply salami-slicing the value of tax credits will hit certain households hard without creating this positive dynamic.”

    Questioned about his plans for tax credits, Cameron said: “We have a system at the moment where basically we give people the minimum wage, we have tax taken from people on minimum wage and then we recycle it back to them. What I want to see is this move towards an economy with higher pay, lower welfare and lower taxes rather than low pay, high taxes and high welfare. That’s what we should be aiming for. 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.”

    I ain Duncan Smith, the work and pensions secretary, later told the Commons: “We want companies to pay better salaries, which means less tax credits from us.”

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