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

David Cameron has insisted that the Government's welfare reforms will create a fairer Britain by boosting social mobility and economic opportunity in a speech today.

He argued that the welfare system must help people to get good jobs instead of giving them handouts signalling an attack on the tax credit pay-outs that top up low wages for the working poor and housing benefit.

But he will pledge to 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, which will be announced in full in next month's Budget, will include capping benefits at £23,000 a year for each family.

: : Read Sky's Jason Farrell On PM Makes No Pain, No Gain Pitch

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 (Other OTC: BSYBF - news) '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. "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."

Employment minister Priti Patel told Sky News the Government would end the "welfare dependency" she claimed had been created by Labour governments.

She said the Prime Minister would "focus on creating a fairer society based on more opportunity for all" adding this was "not about a debate on welfare cuts, this is a continuation of welfare reform and how we can work together to create a one nation society by investing in people".

Labour leadership contender Andy Burnham said it was "disgraceful" that ministers had yet to spell out where the cuts would fall and questioned whether they had a mandate from the electorate.

The shadow health secretary accepted that the welfare bill needed to shrink, but made clear he would oppose any attempt to cut tax credits for the low paid or disability benefits.