The government’s reported package of welfare cuts in next month’s budget, including a £5bn cut to child tax credit, would overwhelmingly hit the poorest third of families in the UK, new research shows.



The research, by the Resolution Foundation thinktank that specialises in living standards, puts a question mark over the political feasibility of the government pressing ahead with £12bn in welfare cuts on its 2017-18 planned timetable.

David Cameron has ruled out cuts to child benefit and to the £85bn pensions bill, leaving Iain Duncan Smith, the work and pensions secretary, to look at cuts to tax credits, housing benefit (where a 10% cut would save £2.5bn) and some disability benefits.

David Gauke, the financial secretary to the Treasury, last week reiterated that the new fiscal mandate proposed by the chancellor, George Osborne, did not mean the timetable of cuts proposed at the election, including a £12bn cut to welfare, was slipping.



Osborne, who is due to take prime minister’s questions for the first time this Wednesday in the absence of Cameron, refused throughout the election campaign to spell out details of the cuts.

Ministers have been looking at putting the value of the child tax credit (CTC) back to its 2003-04 levels in real terms, it has been reported.

The Resolution Foundation says that if the measure goes ahead, more than two-thirds of the families affected will be in work and that families with two children will lose up to £1,690 a year.



In addition, almost two-thirds of the cut would be borne by the poorest 30% of households; almost none of the cut would fall upon the richest 40% of households.

The child tax credit is paid to a total of 4 million families (with 5 million children). More than two-thirds of these families (2.7 million) are in work.

The annual value for each child in a family is £2,780 in 2015-16. Reducing it back to its 2003-04 level in real terms would cut support by £845 a year per child – a cut of 30%.

Working families with two children would therefore lose up to £1,690 a year as a result of such a reduction in CTC. Not all families would lose this much – about 800,000 working families receive less than the full value of the CTC entitlement as some of it is tapered away from those households not on the lowest incomes.

As well as hitting the poorest, it would remove some modest-income families from CTC eligibility altogether. Currently, entitlement to CTC for families with one to three children is fully exhausted when gross household earnings reach about £26,000 and £40,000 a year respectively. A £5bn cut to CTC would reduce those figures by about £2,000 and £6,000.

Ministers could, however, say the cuts would improve work incentives because they would make out-of-work benefits far less generous, in part because the reduced generosity would mean CTC entitlement would run out at a lower level of household earnings, thereby cutting the marginal effective tax rates some working families face.

Gavin Kelly, chief executive of the Resolution Foundation, said: “The government is clearly grappling with its pre-election commitment to cut £12bn from the welfare budget. If it did decide to take £5bn out of child tax credits as a central part of this effort, it would concentrate the pain of fiscal consolidation on the poorest families – both working and non-working – in the UK. Child poverty, and working poverty, would rise sharply as a result.

“The reduction in the amount of support per child this implies is severe – it would mean an already hard-pressed low-income family with two children losing £1,700.

“There will inevitably be lots of speculation about all sorts of possible measures that may be introduced in July’s budget. Let’s just hope that in relation to this proposal it remains speculation.”

Labour’s political problems in opposing welfare cuts were underlined by a poll for the centre-right thinktank Policy Exchange showing the key C1/C2 voters in battleground constituencies regard Labour as the party that represents those on welfare and in trade unions. It is not seen as as the party of the squeezed middle. The Conservatives are seen as the party of the rich.

The report, Overlooked but Decisive: Connecting with England’s Just About Managing Classes, examines the values and political attitudes of C1/C2 voters in 119 “permanent” battleground seats in England that are likely to remain critical in future elections.

When given a list of priorities divided into five categories – financial, health, education, “family friendly” and crime and justice – C1s/C2s favoured raising the personal allowance, preventing “health tourism”, introducing stricter discipline in schools, increasing the number of free childcare hours and amending human rights laws to ensure the swifter deportation of criminals who were foreign nationals.

James Frayne, author of the report, said: “Westminster politics has become detached from mainstream opinion. Vast swaths of the middle class – those just about managing – are overlooked as the parties increasingly focus their attention on those at the top and bottom. The fact is that these voters decide elections and parties that want workable majorities in the long-term need to prioritise their concerns.”