Fiction can become fact; the constant lie can become accepted and incontrovertible truth. So it was with Tory claims that Labour had brought Britain close to being another Greece. Now it is happening again on Europe. And the most insidious myth, increasingly pervasive, is that the poor are workshy, scrounging out chaotic lives in a nation where strivers are paying their taxes for skivers. In a recent poll British people thought 40% of the welfare state budget went to those registered unemployed: the true figure is 1.5%.

Tax credits cuts 'will leave key workers up to £12,000 poorer by 2020' Read more

Sitting in the Treasury drafting the autumn statement for 25 November, George Osborne may now be planning to phase in his tax credit cuts. But only a total abandonment of the cuts will correct his mistakes. For once we separate fact from fiction, it will be clear that the majority of today’s poor, and the biggest losers from his tax credit changes, are not the unemployed or “chaotic” families but hard-working parents and their children. Under the Conservative proposals child poverty numbers will, according to the independent Resolution Foundation, rise from 2.3 million two years ago to 3.9 million in 2020 – a level of child poverty worse than at any time in the Thatcher years.

All the facts belie the Tory propaganda. Not only are 51% of Britain’s poor now in working households, but as many as two of every three poor children live in a working family. Indeed, the biggest group of families in poverty are highly traditional families: fathers who work and mothers who stay at home, but who now cannot survive on one wage. Of course we have to deal with a range of problems – from drugs and domestic violence to mental illness and family break-ups – but it is a fiction that the biggest army of today’s poor are from “chaotic” families.

And the fastest rising group of poor families are the millennials: couples in their 20s who face stagnant wages, high rents and now tax credit cuts, and who slide into poverty when they have children: 30% of men in their 20s and 35% of women face rising household bills, with average earnings below the voluntary living wage. For them the promise of globalisation lies unrealised: if you’re young and aspirational, and work hard with a get-up-and-go attitude, you will not necessarily get on in Tory Britain.

The biggest problem is not worklessness but low pay, and it is not a cyclical or post-recession problem. Low pay is rooted in the decline of manufacturing and heavy industries, the openness of the British economy to global competition, and the scale of technological change that has destroyed jobs and deskilled thousands. More than 20% of workers are in jobs paying less than the voluntary living wage – and despite the Conservative promise of a higher minimum wage, experts think that because of an even more polarised labour market, this will rise to 25%. Many of the low-paid – half are in social care, retail or hospitality – want to work longer hours to make ends meet, but cannot.

Nor can child benefit lift millions out of poverty. Between 2010 and 2020 child benefit is likely to lose 25% of its value. By then it will cover little more than 10% of the costs of bringing up a child. And as Paul Gregg of Bath University has shown, even a 2020 minimum wage of £12 an hour for families with two children will not undo the damage of tax credit cuts and lift them out of poverty. For a family with three children, a £14-an-hour wage would be required – a demonstration of how a minimum wage alone cannot cater for the full range of family needs, and why we need child benefit and child tax credits alongside it.

Some argue that personal tax allowances, a citizen’s income and a negative income tax offer better solutions. But if it is family poverty we want to relieve, nothing is as targeted or cost effective as tax credits.

The truth is that there is not one class of taxpayers and a separate underclass of dependants

And there’s another fiction here. Tax credits did not cost £1.5bn in their first full year of operation, as the chancellor claimed, but £10.5bn at today’s prices. And they successively absorbed existing benefits – from family credit to the child payments in jobseeker’s allowance.

It was because child, work and pension tax credits rose that 2 million children and 2 million pensioners escaped poverty – and because they were cost-effective: the biggest increases in social spending from 1999 were not on tax credits but on the NHS (up £65bn), followed by pensions (up £35bn). What’s more, tax credits helped workers stay in jobs when forced on to fewer hours during the recession; and they ensured that while income inequality rose almost everywhere, including Scandinavia, our redistributive taxes stemmed the tide.

So by hitting tax credit twice over – by cutting the income threshold, and changing the “tapers” to weaken work incentives – Conservative ministers are doing the opposite of what they should be doing. Their analysis – that the problem is worklessness – is wrong; their assumptions – that the poor are feckless – are wrong. And their prescription – that incentives to work should be cut – is wrong.

The truth is that there is not one class of taxpayers and a separate underclass of dependants. Over its life cycle almost every family benefits from a welfare state whose main spending is on health, education and pensions.

• Gordon Brown is marking the 50th anniversary of the Child Poverty Action Group with a lecture in Westminster on Wednesday