CUTTING tax credits for low-income households would have a devastating impact in Scotland with the possibility of nearly half of all families with children being affected, according to Scottish Labour.

Using research from the House of Commons Library released today, the party pointed out how 48 per cent of Scottish families received tax credits while across the UK, the figure was 51 per cent.

One option, the UK Government is believed to be considering, is returning child tax credits to the level of 12 years ago, which would save the Treasury about £5 billion a year, but, according to the Resolution Foundation think-tank, families with two children could, under such a move, lose as much as £1,690 a year.

David Cameron and his colleagues are intent on cutting Britain's welfare bill by £12bn a year as set out in the Conservative election manifesto. While pensions and child benefits have been excluded from the axe, it is thought tax credits and housing benefit are likely to be the two main targets for reductions with details likely to come in next month's Budget.

In a speech on Monday, the Prime Minister made clear he wanted to end what he called the "merry-go-round", whereby the low-paid paid their taxes to the Treasury only to get the money back in welfare payments.

"What I want to see is this move towards an economy with higher pay, lower welfare and lower taxes rather than low pay, high taxes and high welfare. That's what we should be aiming for," he argued.

But Ian Murray, the Shadow Scottish Secretary, noting how once again Mr Cameron had failed to be specific about where the welfare cuts would fall, highlighted the Commons research on tax credits, saying: "These new figures lay bare the devastating impact that his cuts could have on families across Scotland. It's time for him to come clean and say exactly what he is proposing."

The Edinburgh MP claimed the Government had a clear choice; asking would it tackle low pay or hit the low paid.

"Tax credits," insisted Mr Murray, "offer a vital boost to living standards for thousands of families in Scotland. Low-paid workers and their families should not be in the firing line from ideologically driven cuts from the Tories.

"Scottish Labour believes the Scottish Parliament should have the final say over welfare in Scotland. That is why I have tabled amendments to the Scotland Bill that would give Holyrood significant over welfare spending in Scotland."

The Commons figures show that 4.5 million people receive tax credits, 72 per cent of whom, some 3.3m, are in work; the respective Scottish figures are 350,000, 71 per cent and 250,000.

Labour said two parents working full time on the national minimum wage with two children would receive £4800 a year in tax credits but could face losing £1400 of that under mooted Tory plans for cuts. To make up such a loss, the party said, one of the parents would have to work an extra six weeks.

Meantime, members of the UK Cabinet discussed child poverty ahead of new official figures out tomorrow, which are expected to show a rise.

No 10 stressed how the PM was determined to tackle child poverty by looking at the "root causes" rather than "just treating the symptoms". This, his spokeswoman explained, fell into the area of aspiration and how the Government could eliminate "some of the causes of the drivers of child poverty".

She highlighted questions about whether or not the child poverty figures were an effective measurement, noting how during the recession the relative rate fell because of the way it was aligned to people's overall incomes, which fell during the downturn.

Asked if the Government was considering a change, the spokeswoman replied: "The Government is now looking at how it takes forward its commitment to do more to eliminate child poverty and to look at having the right approach in place to drive real change."

Some 3.5m million children in the UK, 27 per cent, live in poverty. Two-thirds of children in poverty live in a household where one person works.