Hard-working people will still be left worse off as a result of changes to tax credits sought by Chancellor George Osborne despite a defeat in the House of Lords, fears Alistair Carmichael.
The Orkney and Shetland MP predicts watered down cuts will fail to go far enough to protect households at risk of losing out.
The House of Lords voted down the Tory plans to save billions of pounds from the welfare bill, sparking fears that a “constitutional crisis” will emerge because the Tory cuts have already been passed by the House of Commons.
Peers want Mr Osborne to come up with a way of effectively compensating low-paid workers who stand to be affected.
It follows warnings from Mr Carmichael last week that almost 2,000 families across Orkney and Shetland stood to lose a total of £1.4 million.
Today, the isles MP gave a cautious welcome to the news.
“I would have preferred that the Lords had killed it outright. They had the option to do that, but they allowed themselves to be bullied by the government, for constitutional reasons, into delaying the implementation,” said Mr Carmichael.
“I suspect that George Osborne will come back now with changed proposals which will take some of the heat out of the issue, but will still leave a lot of people worse off who can not afford to be worse off. We’re not out of the woods yet.”
He cited experience from the previous coalition government, insisting the Liberal Democrats had blocked similar proposals from the Tories in the past.
“The proposals, I think, are wrong-headed and I am glad that for the moment at least they have been seen off.”
Last week the proposals were supported by Tory Scottish parliamentary candidate, Cameron Smith, who said a new living wage announced in the budget would “significantly increase” the pay of those on low incomes.
The head of his own party north of the border, Ruth Davidson, voiced concerns, however.
Mr Carmichael said the cart had been put before the horse.
“The objection to what has been done is the immediacy of it. Tax credits need a fundamental reform and, as a model, they are not working.
“But, if you are going to change them, you have to protect the people who currently rely on them in the meantime. That’s the test that the Tories have failed this time.
“He [Osborne] is right that increases to the minimum wage and increases to the level of tax allowance will all help, but they won’t help everybody uniformly.
“You need to see where the winners and losers are going to be in these changes.
“The other truth is that the overall budget for tax credits will come down as people’s incomes go up, so you don’t need to drive the programme of cuts that George Osborne is doing if what you want to do is help people who are in work and who are not in well paid jobs.”
Following the Lords defeat, Mr Osborne said he would act on concerns about the impact of the cuts.
But he vowed to press on with changes.
“Tonight, unelected Labour and Liberal Lords have defeated a financial matter passed by the elected House of Commons, and David Cameron and I are clear that this raises constitutional issues that need to be dealt with,” he said.
“I believe we can achieve the same goal of reforming tax credits, saving the money we need to save to secure our economy while at the same time helping in the transition. That is what I intend to do in the autumn statement.”