A LABOUR leadership candidate’s plan to pay lower tax credits in the North than in the South has been criticised by a local MP.

Ed Miliband put forward the proposal in an interview with The Northern Echo, arguing it could help deliver a higher “living wage” in areas where the cost of living is higher.

But Jenny Chapman, the Labour MP for Darlington, said: “Parents in the North are already bearing the brunt of the Government’s cuts, and this is something else that would be seen as unfair.

“The natural market response would be to increase the price of childcare in parts of the country where tax credits were higher.

“Also, the money for those increased payments would have to come from somewhere else.”

She is backing David Miliband in the leadership race – a contest thought to be straining relations between the brothers.

Ed Miliband, the Shadow Energy Secretary, has made the drive for a “living wage” – of up to £7.60-an-hour – the centrepiece of his campaign, arguing that the minimum wage “fails to lift most people out of poverty”.

However, he went further in his Northern Echo interview, suggesting mechanisms that could ensure that living wage was higher in the more costly South.

Mr Miliband said: “We can look at the level of tax credits so they benefit people in the South of England, who have not benefited from the minimum wage.”

The proposal came as the entire future of tax credits was cast into doubt by Work and Pensions Secretary Iain Duncan Smith, who suggested they could be merged with income support and housing benefit.

About 65,000 families across the region, who earn above £30,000, will lose thousands of pounds a year.

And there are fears that many more families will be caught up in repayment demands as ministers reinstate a lower “clawback” threshold.

Currently, credits are based on a family’s estimate of income in the coming year. They are allowed to earn up to £25,000 more than that figure before they repay the excess.

But Chancellor George Osborne said the threshold would fall to £10,000 next April and to £5,000 by the end of 2013.