From the archive: The political class wrong on tax credits (again)

Michael Harris /   October 21, 2015 at 6:15 PM 3,317 views


The prevailing political class view is that Cameron and Osborne will get away with their cuts to tax credits, even if it gets uncomfortable for them. Here’s five reasons why they might be wrong.

Firstly, the political class seems to think the cuts are difficult for people to understand (this may be because the political class finds such issues difficult to understand, for which see the second point below).

Polly Toynbee was pretty patronising in this vein in the Guardian this week:

“Osborne is not likely to U-turn, beyond some small useful gesture. His spending review next month may throw a titbit in the general direction of the lower paid, to blow smoke in the eyes of the vast majority of voters clueless about the devilish working of tax-credit tapers and cliff edges.”

It is complicated – but not all that complicated, especially when you’re extremely conscious of even small changes to your household budget, as the ‘losers’ from the measure (overwhelmingly, low and modest income working families with children) no doubt are.

There’s been claim and counterclaim, which is reminiscent of the poll tax (one of the precedents put forward this week). Whatever the Government might try to claim though, the facts are clear: more than three million families will lose an average of £1,300 a year. This hasn’t stopped the Government digging, with Osborne claiming that workers will be £2,000 a year better off – a figure that the the Institute for Fiscal Studies has called “arithmetically impossible’ (economics for bullshit).

The Government has been left looking like it’s trying to cover up the real impact, which it is.

Paul Gray, chairman of the independent social security advisory committee, has said that ministers have still not set out the full impact of the cuts, or explained what it means for Universal Credit, despite him asking for more details. On Monday, the House of Lords will consider whether to urge the Government to deliver a full response to the IFS report. On the same day, the House of Commons Work and Pensions select committee will hold an evidence session including the IFS and the Resolution Foundation on the the scale of the impact.

For the moment, commentators are making the same mistake that George Osborne made: thinking that tax credits are too difficult for people to understand and it will all blow over.

Secondly, yet again the issue reflects an out-of-touch political class. It took single mother Michelle Dorrell’s tears on Question Time, and then the speech yesterday by Conservative MP Heidi Allen, to really spark the issue in the mainstream media. The exception, interestingly, was Rupert Murdoch’s The Sun, which started running on the issue during the Conservative Party conference.

It fell to Allen to point out the obvious about the Government’s claim that workers will not lose out if all tax and benefit changes are considered over the lifetime of the Parliament:

“People on the breadline cannot wait for the parliament to pass along. For many, everyday living is hand-to-mouth living. …Conservatives pride themselves on living within their means, of cutting their cloth. But what if there is no cloth left to cut? …This is not a spreadsheet exercise …we are talking about real people, working people.”

Allen also accused the Government of ‘naivety’ in claiming low-paid workers could easily earn more by working extra hours (moreover, analysis shows that they will also find it hard to earn more to recover their loss in income, as they will keep only 20p of each additional pound they earn).

But why did she need to say any of this at all? Perhaps because the mainstream media was too busy praising Osborne’s ‘political genius’ to notice what was about to happen. All of which means of course that it’s the 10p tax rate (Gordon Brown’s decision to abolish the 10p starter rate of tax in 2008) all over again.

By the way, the letters to be sent to affected families will arrive just before Christmas.

Thirdly, the whole farrago only deepens distrust of politicians. Cutting tax credits was not in the Conservative manifesto and was specifically denied by David Cameron in a leaders’ TV election debate.

Despite what the political class sometimes seems to think, the public isn’t stupid. As Michelle Dorrell said on Question Time: “You’re about to cut tax credits when you promised you wouldn’t. …Shame on you!”

So it may not be a poll tax moment – rather, it’s tuition fees. As per much political class commentary, the Lib Dems told themselves at the time that the general election was ‘years away’ and the issue would blow over. How did that work out?

Fourthly, it’s particularly politically toxic to the Tories. They rely on working class Conservative voters for majorities, which was of course what the rhetoric about ‘hardworking families’ was all about. It’s in-work tax credits that often make employment worthwhile. Not anymore, at least for many families. So what now for Osborne’s boast that the Conservatives are the ‘party of working people’?

I’m not suggesting the Tories will be wiped out, but the cuts will resonate in the way that others haven’t. The reason is not just financial, which Osborne can try to fix. It’s emotional.

A critical part of the Tories’ political strategy has of course been to cast Labour as the ‘party of welfare’ (i.e. ‘skivers’). Suddenly however, ‘welfare recipients’ means me, not them. The Tories have just embarrassed the very people who won them the last election. Moreover, Osborne has just put these people on the wrong side of a political divide that he did so much to create. D’oh.

It seems unlikely that they will forget just how that feels.

Fifthly, Osborne’s too-clever-by-half approach has yet again set off some debates he probably doesn’t want.

The first is why the economy doesn’t create sufficient jobs paying adequate wages. Cameron and Osborne say that the cuts to tax credits are part of a package to ‘make work pay’, and critical to moving the UK to a low tax, low welfare, high productivity, high pay economy. But our low wage, poor productivity economy isn’t a situation the Tories have inherited – it’s the deliberate and natural outcome of Tory economic policies, which is why even more Tory economic policies can’t solve the problem (even with Chinese investment).

The second debate, and one that’s even more critical for the Tories, is that Osborne’s gamble has raised the issue of why austerity is more important than people’s living conditions, which is to say, it has highlighted just how ideologically-driven this Government is.

This was a point that Heidi Allen made in her speech:

“It is right that people are encouraged to strive for self reliance and to find work that pays for their independence from the state. But I worry that our single-minded determination to run a budget surplus is betraying who [Conservatives] are.”

That’s fighting talk. But the level of cuts proposed by Osborne could only ever have been achieved by targeting in-work benefits claimed by those in low-paid jobs – all to achieve a political target of Osborne’s own choosing of an overall budget surplus by 2019-20.

This is why the Government has got itself in a bit of a spin, by claiming both that the cuts don’t really leave most people worse off (in the context of other changes at least) …but at the same time also claiming that they are critical to reducing the deficit and debt (and so people must lose out).So, which is it: critical to the nation’s finances, or just misunderstood? The Government still doesn’t seem to know.

The Treasury is reported as saying that Osborne has no plans to change his proposals. He will, but the measures will probably be technical in nature. U-turning without it being (too) humiliating is what will save Osborne, but it’s also what will mean that the issue – the impression – will linger that the Tories don’t care about the very ‘hardworking families’ they just won an election off the back of.

David Cameron said today that he’s “delighted” that the cuts passed the House of Commons again. He might not stay so happy.

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