The Chancellor took an axe to tax credits yesterday as part of a radical package of welfare reforms intended to ensure those on benefits face the same choices as those in work.

In a move which triggered howls of protest from Labour, George Osborne announced a string of cuts or freezes to working-age benefits.

The Office for Budget Responsibility said that, overall, welfare spending will be reduced by £34.9billion over the Parliament as a result.

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Paul and Fran Hathaway with their children Noah, Samson and Isaac. They say cuts to tax credits will leave them struggling

The cuts, worth £12billion a year by 2020, include:

Ending automatic housing benefit for 18 to 21-year-olds

Freezing working-age benefits, including tax credits, for four years

Restricting child tax credits to two children for new claimants from 2017

Slashing the benefits cap from £26,000 to £23,000 in London and £20,000 elsewhere

Cutting employment and support allowance payments for those capable of work by £30 a week

Labour and the unions complained of an ‘assault on the poor’, particularly over child benefit changes which some have likened to China’s one-child policy.

But the Tories say the changes are needed to put Britain’s welfare budget and finances on a sustainable footing.

Ministers say they are also part of a concerted attempt to make Britain a stronger, more responsible country.

FAMILIES WILL STRUGGLE AFTER TAX CREDIT CUTS Fran and Paul Hathaway say the limiting of tax credits to two children means many families will struggle. They have three children – Isaac, 13, Noah, 11, and Samson, nine. Mrs Hathaway, 48, earns the minimum wage as a part-time play group assistant, while her husband earns £24,000 as a part-time sixth-form college lecturer in Treffgarne, Pembrokeshire. They receive a payment worth £2,780 a year for each child. While they will continue to receive their payments, any family having a third or subsequent child after 2017 will find they receive no extra credits Mrs Hathaway said: ‘Child tax credits are hugely important, we rely on them heavily. It’s all part of our income, there’s nothing left to save.’ Increases in income tax personal allowances will make a difference – but Mrs Hathaway said this will not fill the financial hole for large families who miss out on extra child tax credits. Advertisement

Work and Pensions Secretary Iain Duncan Smith is expected to tell MPs today that many of the changes are about ‘ensuring that people on benefits face the same choices as those in work and not on benefits’ – such as having to work out the number of children they can afford.

Mr Duncan Smith is expected to describe tax credits as ‘a subsidy for employers, which enabled the payment of lower wages’.

He will point to the lowering of the benefit cap, saying it ‘re-emphasises the message that it’s not fair for someone on benefits to be receiving more than someone in work’.

Mr Duncan Smith will also say the Government is to use the new Universal Credit to reduce the ‘couples penalty’ that means more support is given to parents who live alone.

Social housing rents are to be cut by 1 per cent a year, saving £2billion in housing benefit, and the level of earnings at which a household’s tax credits and Universal Credit start to be withdrawn will be reduced from £6,420 to £3,850.

Tory insiders flatly deny the accusation that benefits are being cut to the bone.

Even after yesterday’s changes, spending on tax credits is being pared back only to the levels of 2007/08.

Mr Osborne said: ‘In 1980, working-age welfare accounted for 8 per cent of all public spending. Today it is 13 per cent.

‘The original tax credit system cost £1.1billion in its first year. This year, that cost has reached £30billion. We spend more on family benefits in Britain than Germany, France or Sweden.’

The Chancellor added: ‘Those who oppose any savings to tax credits will have to explain how on Earth they propose to eliminate the deficit, let alone run a surplus and pay down debt.’

Since the crash, average earnings have risen by 11 per cent but most benefits have risen by 21 per cent, he said.

Labour described the changes as a ‘work penalty’.