Thousands of low-income families have had their tax credit payments cut in the run-up to Christmas.Income from the new Child Tax Credit and Working Tax Credit has fallen by a third in hundreds of cases after the Inland Revenue began to retrieve money from overpayments.

Steve Webb, the Liberal Democrat spokesman for work and pensions, said: "They are trying to recover the money in a ham-fisted and aggressive way."

Dawn Primarolo, the paymaster general, defended the move.

She said: "Six million families are benefiting from the new tax credits. But in a small fraction of cases, people's circumstances change in the course of a year - if they get a pay rise or go part-time, if they have a new baby or if the children leave home - and that changes the size of their entitlement."