Labour's John McDonnell to press Treasury on effects of tax credit cuts

Hundreds of thousands of people will be hit by a tax credit cut despite George Osborne's U-turn on large parts of the planned reductions, the Treasury has said.

The Chancellor ditched most of his highly contentious plan to cut tax credits for millions of low paid workers in November, but is going ahead with a measure reducing the amount by which a claimant's income can increase in-year before their claim is affected.

In its estimate of the impact, the Treasury said 800,000 would see their entitlement to tax credits reduced but would not lose out in cash terms because their earnings would increase.

Shadow chancellor John McDonnell plans to ask Commons Speaker John Bercow to summon a Treasury minister to answer questions about the cut, due to come into force in April.

In the July 2015 Budget Mr Osborne set out plans to reduce the "income rise disregard" from £5,000 to £2,500, which is forecast to save £170 million in 2016-17.

Unlike other parts of the package, he did not reverse it when he delivered his Autumn Statement in November.

The Guardian reported the details of numbers affected by the cut have only emerged because the Treasury was forced to give the data to a Lords committee examining the draft secondary legislation implementing the measure.

The assessment compared the number of people affected by the new £2,500 limit compared to leaving it at £5,000.

"A tax credit award will only be adjusted in response to a claimant earning more money," the document said. "Next year there are expected to be 800,000 claimants with a reduced award as a result of their income increasing - none will be cash losers because their income will have increased."

A Treasury spokeswoman said: "It is a simple matter of fairness and common sense that tax credit awards are reviewed as people's incomes change. It isn't right that someone earning significantly more should do just as well in terms of tax credits than someone earning less.

"Lowering the maximum annual pay rise that is disregarded to £2,500 will simply return the system to the same level as when tax credits were first introduced.

"By definition there will be no losers because people's increase in income will outstrip any reduction to their tax credit award."