Budget will hit pensioners and families, says Harman

Acting Labour leader Harriet Harman has said pensioners and families will lose out from the Budget and accused the government of "broken promises".

She said families on less than £40,000 would lose tax credits and pensioners would get "nothing" from by linking pensions to earnings a year early.

She accused ministers of not "being straight" about the Budget.

PM David Cameron said Labour MPs had not suggested "one penny piece of one saving" to help cut the deficit.

Small print

Ms Harman was speaking at prime minister's questions, a day after Chancellor George Osborne announced a rise in VAT from 17.5% to 20%, a two-year pay freeze for public sector workers earning over £21,000 and substantial welfare savings.

She said Mr Osborne had promised to be open about how the Budget would affect people but details in the "small print" showed "changes to eligibility criteria for tax credits that could see families on a combined income of £30,000 lose all their tax credits.

Mr Cameron said the government was "making sure that the least well-off families get the most money" and said the measures would not increase child poverty.

Ms Harman also said the coalition government had not "set aside one single penny" for its promise to link the state pension to earnings from April 2011, a year earlier than Labour had pledged.

She added: "Next year prices are due to go up more than earnings so bringing forward the earnings link by a year doesn't give pensioners anything extra."

State pension

Mr Cameron said the pension would be uprated by the retail prices index "which is likely to higher than earnings next year" and accused Labour of planning to upgrade benefits by less than consumer prices index.

He said they were putting £1bn into the state pension over the next Parliament: "In 13 years they never linked the pension back to earnings, we've done it in two months."

But Ms Harman accused him of "not being straight about this" saying pensioners would not benefit from raising the personal income tax allowance but would pay more VAT.

She urged him to admit: "Pensioners will be worse off under his Budget."

Mr Cameron accused Labour of leaving a Budget deficit of £155bn "with absolutely no proposals to deal with it" and said until Labour's leadership contenders came up with suggested cuts they would "not be taken seriously".

"Who put forward £50bn of cuts without outlining a single penny piece? The whole country can see what is happening here, one party put us into this mess, two parties are working together to get us out of it."

Departmental cuts

Conservative cabinet minister Philip Hammond confirmed on the BBC's Daily Politics programme that child tax credits after 2012 could be limited to families with a joint income of less than "somewhere between £25,000 to £30,000, depending on your circumstances".

He said up to 2011-12 the limit for receiving tax credits would be £40,000 but that "after that, there will be further changes... which will mean the tax credit pool is focused on those on lower incomes ."

The Institute for Fiscal Studies (IFS) think tank said the Budget had left public services facing the "longest, deepest sustained period of cuts" since the Second World War and warned that some departments could see budgets cut by up to one-third - if health and overseas spending are protected and defence and education are cut by less than others.

Meanwhile, Labour leadership contender Diane Abbott told the BBC that changes to housing benefit - which will cap payments at a maximum of £400 a week - would be "very serious" for claimaints in London and other cities where rents are higher.

She pointed to Shelter's comments that most people on housing benefit were pensioners, disabled people, carers or the low-paid, and only one in eight claimaints were unemployed.

She said half of claimaints already had to top up their benefits with money from their own pocket: "I'm going to see thousands of people in London evicted precisely as a consequence of these housing benefit changes."

But housing minister Grant Shapps said the government "can't just turn our back on a benefit which has ballooned to £21bn [a year] over a relatively short period of time".

He said people who wanted to work should always be in a better position than if they did not and the government was not targeting "most people" on housing benefit.

In a debate on the Budget later, Lib Dem Business Secretary Vince Cable was criticised for going back on an election pledge to oppose raising VAT. He said he had changed his mind on VAT and the cuts because senior officials in the Bank of England had told him there was a "serious threat" to the economy.

He added: "There are risks of tightening fiscal policy too quickly, of course there are risks. But there are risks of doing nothing or less.

"We have had to balance those risks and we have concluded that we had to act."