Unless there is a last minute U-turn in Whitehall tonight, one of the ways which George Osborne will pay for the various jobs and infrastructure schemes in Tuesday’s growth review will be to squeeze tax credits.
This is a result of protracted bargaining – Osborne wanted to freeze benefits, but the combined efforts of the Lib Dems and Iain Duncan Smith put a stop to that. Eventually the compromise was made that credits would come under the axeman’s blade instead.
So who suffers if these are frozen or cut?
In terms of who stands to lose most, it looks like it is likely to be the “squeezed middle”: people who are richer than the poorest 10 per cent but earn less than the median income. Here is a handy table from the Resolution Foundation about how much different groups claim in credits:
“LMIs” in this chart refers to people on low-middle income. That means different things for households of different sizes, but in 2009 when this table was compiled it meant £12,000-£30,000 for a couple with no children, and £24,000-£42,000 for a couple with two kids.
It is worth noting that by deciding to target credits rather than benefits, the government has changed the main “victims” of Tuesday’s announcement from the poorest to people who form part of the “squeezed middle”. Some might applaud this as fairer, others might decry it as bad politics.
Jim Pickard
Kiran Stacey