By cutting away at tax credits, George Osborne is destroying the prop that kept many middle England families afloat during the recession and faltering recovery.

Tax credits – now under threat in Osborne’s £12bn welfare cuts – were Gordon Brown’s great reform operated as a negative income tax, providing tops-ups for families on low income according to family size and support for childcare. At the peak in 2010 it was paid out to 6.31 million families, 4.85 million of them in work. It replaced the inefficient and unpopular Family Income Supplement which was the centre of previous benefits to support low income families.

When the financial crash came, they were what enabled families to get by, and now they persist at a time when the working poor outnumber, for the first time, those out of work who are living in poverty.

Of course the system had its flaws. Administrative problems and delays led to overpayments of large amounts of money which then had to be clawed back. Because the amounts paid out could be so large, so were the overpayments, estimated over a decade to be a total £5.6bn, which is a big sum, but represents about two per cent of the annual £30bn cost of tax credits. Whether the universal credit will fare any better remains to be seen. Both the contributory and the residential requirements of tax credits were less clear, making them especially vulnerable to the current Conservative attacks. And at the present time of stagnant wage growth, they can act as a disincentive to increasing hours beyond the 30 hours a week qualifying threshold for a working parent.

That said, tax credits have been effective in achieving some key policy objectives. The system was very effective in tackling child poverty, as a TUC report noted last February. Being a child is the biggest risk factor in poverty in the United Kingdom, and reducing this by 900,000 was one of the great achievements of the Labour government. Now numbers are rising again, and on the present trajectory is expected to reach a record 3.5 million by 2020.

It was also effective in paying for childcare for working mothers. A family on working tax credits could claim childcare tax credits paid at a level that actually covered the cost of childcare. By replacing this with childcare places that are free for parents but inadequately subsidised for providers, the Conservatives have probably set back the cause of increasing the supply of flexible, quality, affordable childcare.

Tax credits are spent. They get into circulation in the real economy faster than quantitative easing, important though the latter is. This is one reason that reclaiming overpayments has been so impossible. Money paid to people on low incomes isn’t saved or invested – it’s spent.

The year after the recession hit, I did a study of its impact on families in Northampton to see how they had coped. For very many the answer was tax credits. Employers faced with the prospect of making people redundant or reducing their hours opted for the latter, and the balance of the family income was picked up through tax credits.

This was one of the costs of the recession, but worth paying to keep people in work and in their homes.

Now, with an uneven recovery, sluggish wage growth and evidence of underemployment and employee hoarding, tax credits are the price of a low-wage, low-skill economy. The problem is the economic model the Tories are pursuing, not a tax credit system that makes it manageable for many working families.

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Sally Keeble is a former minister and former member of the Treasury select committee. She tweets @Sally_Keeble