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In his annual Mansion House speech last night UK chancellor George Osborne outlined potential plans to cut child tax credits to levels that were last seen around a decade ago in a bid to try and cut £12 billion from the UK’s current £220 billion tax credit and welfare bill. The move would see the poorest working families in Britain lose around £845 per child per year.

Whether or not current child tax credit levels are too high is a subject for debate that we are going to leave for another day. The question we are asking here is, are you properly prepared for this possible cut to child tax credits?

How much will families lose?

If we use the above quoted figure from the Institute of Fiscal Studies of £845 per child per year being cut, this would mean that 2 child families would lose just under £1700 per year, or roughly £140 per month. This is a very sizeable drop and with a potential interest rate rise by the Bank of England being predicted for next year, working households with a variable rate mortgage to pay could be hit with a double whammy to both their income and their outgoings.

How to make savings

So what changes could you make to start planning for this potential cut right now, in order to lessen the blow if a cut to child tax credits did materialise?

Firstly it may be wise to start looking around for better deals on your utilities, such as Gas and Electric.

It might also be a good idea to review your subscription services as they come up for renewal, to see if there are any things you could cut down on or even cut out completely.

I’m thinking of things such as looking for a cheaper mobile phone deal, getting a better deal on your broadband, phone and television package costs and reviewing any insurance you may have to see if you can find a better price.

Basically just looking for any areas where you could potentially make savings. You could even consider talking to a mortgage advisor about the possibility of remortgaging onto a fixed rate deal.

It might be wise to think carefully about any big ticket purchases you may be planning to make. This could include things like a new car, for example. Check if you would still be able to afford them if tax credits were cut and interest rates were to rise.

Time to prepare

It’s true that economic conditions will have to normalise at some point and this means interest rates will have to rise.

What working families may not have expected or be prepared for is facing such a big cut to their tax credits at the same time.

With so many benefits having been ring-fenced by the government during their election campaign, it means that there are not all that many areas of the welfare bill where savings could be made. So it does seem that the tax credit bill will take some kind of hit. With this in mind, it is best to be as prepared as you can possibly be for such an event, so that you don’t find yourself facing financial hardship.

Reduce your reliance on tax credits

One final thing you might want to consider is taking steps to reduce your reliance on tax credits. This could be by finding extra employment to top up your income. If cuts to tax credits do come into force, then there will likely be a rush of people all looking to find part time jobs in order to top up their income all at the same time. There may not be enough of these jobs to go around! Acting now to find employment or even to start building up a bit of a sideline business of your own to reduce your current reliance on tax credits could be a smart move on your part. This way you will pre-empt this rush of people trying to move into the job market, securing your financial well-being for the seemingly tough years ahead for low and middle income working families.