PM does not rule out more tax credit cuts after Labour claim of ‘secret plan’

David Cameron says he will press on with welfare reforms after Miliband’s earlier claim Tories have plan for cuts to tax credits that would devastate family finances

David Cameron declined an opportunity to rule out imposing further cuts to tax credits in the next parliament an hour after Labour accused the Conservatives of having a “secret plan” to do so as part of £12bn welfare cuts after the general election.

In a speech to factory workers in the West Midlands, the prime minister highlighted Tory unease about tax credits when he said they would eventually be replaced by universal credit. The Tories say universal credit will incentivise work by ensuring that employees will always be better off if they increase their hours.

The prime minister, who was asked why he was cutting tax credits, said he would press on with welfare reforms to ensure that work – and extra hours – always pay. He said: “I never want someone to be in a situation where working another hour or another shift cuts their benefits or cuts their pay so they actually take home less. That is what universal credit, which of course will replace tax credits over time, is all about.”

Earlier, Ed Miliband had tried to sharpen the electoral choice in the final eight days of the election campaign, saying another Tory-led government would lead to the devastation of family finances.

The Tories have a “secret plan” to cut tax credits and child benefit that would lead to 7.5 million families losing £760 a year, the Labour leader claimed. He also said the armed forces, social care and neighbourhood policing would be cut, saying the chancellor, George Osborne, had a £58bn hole in his finances to fill through cuts.

Michael Gove, the former education secretary, said Miliband’s claims that the Conservatives’ spending plans necessitated a cut in tax credits were based on a mistake in their figures and that the cut would not happen.

“First of all, the figures on which they’re extrapolating this alleged cut don’t take account of the full £30bn of savings we’re going to make, including cracking down on tax evasion and tax avoidance. The second mistake is that it doesn’t take account of the introduction of universal credit overall,” he told BBC Radio 4’s World at One programme.

Asked to confirm that his party was not planning any cut, Mr Gove replied: “We’re going to freeze them for two years. We are not going to cut them.”

He also argued that the Conservatives’ record showed they were capable of making £12bn savings from the welfare budget they have planned during the next parliament. “The past is the best guide to the future. Our track record is the best way in which we can be judged and the fact that we’ve been able to save £21bn in the welfare budget and at the same time reduce inequality and reduce child poverty in this country is an indication of our values and our competence.”

At a rare Labour press conference in London, in a presentation by the shadow chancellor, Ed Balls, the party tried to pin the Tories down to admit that their proposed £12bn savings in the welfare budget to 2017-18 will require cuts to child benefit and tax credits. Cameron has so far refused to rule out cuts to tax credits, 75 % of which go to families in work.

Referring to Conservative plans to legislate against tax rises, Miliband said: “Ask yourself this: why have the Tories not ruled out making changes to child benefit and tax credits? They have had plenty of opportunities. Their last-minute gimmicks on tax merely highlight what they have left out – no protection for family benefits. Do you believe what you have heard from the Tories in the last five weeks or what you and you and your family have experienced over the last five years?”

The prime minister was careful not to be drawn into his party’s specific plans on tax credits. But the Tories remain deeply suspicious of the measures, championed by Gordon Brown, which top up the pay of low-paid workers, on the grounds that they can discourage employees from working extra hours. The Tories say that tax credits lead to high marginal tax rates – the so-called poverty trap that describes the way in which tax credits are clawed back to make it less worthwhile to work extra hours.

Cameron also used his speech at the Sertec car components plant in Coleshill to offer a legal guarantee that VAT, income tax and national insurance would not rise under a Tory government.

The prime minister said his main focus was on ensuring working people did not pay more tax. He said: “This is the Conservative plan. This is my plan. I know what the books require. They do not require a tax increase on working people. If you go on finding savings in government, if you reform welfare, if you go after tax evaders and tax avoiders, there is no need to put up taxes.

“Indeed, you can cut taxes just as we have done in this parliament. That is the pledge we make. As for welfare, let’s go on getting people off welfare and into work. We made huge savings by the fact that 900,000 fewer people are on out-of-work welfare. Yes, that saved money. But what I care about even more is it changes lives, it gives people the chance of a job, of a livelihood. That is what welfare should be about.

“We inherited a system where welfare was paying people to be idle and often paying people who would like to work but if they did work they kept less money. We have changed that and we need to go on changing that so that it always pays to work. It always pays to work that extra hour, that extra shift.”

In his speech, the prime minister challenged voters to trust him or take a risk with Miliband. He said: “This election is all about the economy. I use that word trust for a simple reason. In the end you’ve got to ask yourself the question: who do you trust to make sure the economy keeps moving, to make sure we get that deficit eradicated, to make sure we go on creating jobs. If you trust me, vote for me. If you don’t, vote for the other guy and take a risk. It’s your choice.”

At Labour’s press conference, Miliband came under pressure to say more about his party’s own tax plans but stressed that he had guaranteed that tax credits rose in line with inflation year-on-year in every budget.

Balls said the Tories were involved in a deception because they were trying to claim the cuts in the next parliament would be smaller than in this parliament. The shadow chancellor said that by 2019 the cuts would reach £35bn, but due to increases in pension spending and capital spending an even bigger cut of £45bn would be required. In addition, he said Tory plans to cut taxes including personal allowance by 2018-19 would cost £5bn. Other unfunded pledges on right to buy, rail fare caps and volunteering lead to a total requirement to cut £58bn in 2019-20.

Balls said that even if the Tories could cut £12bn from welfare this would require a £46bn cut – larger than proposed by any other political party and a bigger cut in the next three years than in the past five years. He claimed these plans would require cuts to the health service, army, police and Sure Start centres.

Balls added that month after month Osborne had refused to say who would pay for the cuts in welfare. He said the chancellor said he would tell us after the election but had promised not to cut pension or disability benefits.

Balls said it was highly unlikely, based on their record, that the Tories would be able to cut incapacity or housing benefit bills, suggesting 75% of the welfare cuts would be focused on child benefit and tax credits.

“So they cannot make these sums add up without a £3.4m cut to tax credits and child benefit, meaning a family on £23,000 with one child will be worse off by £1,640 a year.” He pointed out that 75% of people on tax credits are in work.

He claimed the Tories had refused to rule out putting child benefit into universal credit, a change that would lead to 4.3 million families losing out.

Rachel Reeves, the shadow work and pensions secretary, said: “If these are not your plans, what are your plans for family finances and social security expenditure? Will you, David Cameron and George Osborne, guarantee that you will not cut child benefit again?

“Will you, David Cameron and George Osborne, guarantee that you will not cut family tax credits again? Will you, David Cameron and George Osborne, guarantee that you won’t hit family budgets like you did in the last parliament?

“So watch them when they are asked today will they guarantee those things. The simple answer is that they cannot offer guarantees because you cannot make these extreme cuts to social security and to public spending without hitting ordinary working families. So these plans might be secret, but they are the Tory plans nonetheless.”