PM: Tax Credits 'Merry-Go-Round' Must End

David Cameron has insisted that the Government's £12bn welfare cuts will create a fairer Britain by boosting social mobility and economic opportunity.

The Prime Minister said the welfare system must help people to get good jobs instead of giving them handouts, signalling an attack on the tax credit payouts that top up low wages for the working poor and housing benefit.

But he said the Government would balance benefit cuts with boosts to the minimum wage and personal tax allowance, as well as providing further childcare support for working families and improvements to education.

The speech, to an audience in Cheshire, comes after Chancellor George Osborne and Work and Pensions Secretary Iain Duncan Smith confirmed plans to strip another £12bn a year off the benefits bills.

The changes will be announced in full in next month's Budget and will include capping benefits at £23,000 a year for each family.

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Mr Cameron accused Labour of being "complacent" about the issue of low pay.

He said: "There is what I would call a merry-go-round. People working on the minimum wage having that money taxed by the Government and then the Government giving them that money back - and more - in welfare.

"Again, it's dealing with the symptoms of the problem - topping up low pay rather than extending the drivers of opportunity - helping to create well paid jobs in the first place.

"We need to move from a low wage, high tax, high welfare society to a higher wage, lower tax, lower welfare society."

Tax credits cost the Government around £30bn, accounting for 14.3% of welfare spending and making the scheme one of the most costly benefits.

By comparison, unemployment benefits cost only around £4bn - or 2.1% of welfare spending.

Part of Mr Cameron's immigration reforms that have to be negotiated with the EU are plans to end in-work benefits for migrants.

Sky's Political Editor Faisal Islam points out that Mr Cameron's strike against tax credits for UK workers would also have an impact on the benefits EU workers can expect.

EU migrants are entitled to the benefits enjoyed by the citizens of the home country.

Islam said: "One way to limit tax credits/ wage subsidies for EU workers whilst remaining Treaty compliant, is to cut them for UK workers, too ... Two birds."

TUC general secretary Frances O'Grady said: "Today the Government has smashed the myth that it is the party for blue-collar workers.

"Tax credits play a vital role in making sure the UK's working families are better off in work.

"Cutting this crucial benefit will consign millions of hard-working families and their children to living on the poverty line.

"Even if they secured decent pay rises well above the minimum wage, as well as income tax cuts, millions of working households would still rely on tax credits to survive.

"The best way to make work pay for families is to deliver better wages while protecting tax credit entitlements."

Unite assistant general secretary Steve Turner said: "The prime minister has confirmed that this is the government that kicks low-waged workers, despite his rhetoric, when he ought to be offering them a helping hand."

Shadow chancellor Chris Leslie said: "The Prime Minister still hasn't come clean and said exactly what cuts he is proposing.

"The Government have a clear choice - will they tackle low pay or will they hit the low paid?

"David Cameron has already spent £25bn more than he planned on welfare because of low wages and rising housing costs.

"David Cameron concealed his proposals from public view throughout the election campaign.

"It is time for him to spell them out and let people judge whether or not they are fair."