Osborne’s tax credit cuts omnishambles

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The Chancellor, George Osborne, has recently announced that the Conservatives are a true “workers party”  – claiming that his opponents, the Labour Party, represent the unemployed. But the Conservatives are attempting to re-write history: the Labour Party grew from the Trade Union Movement, and have a strong tradition of supporting worker’s rights and fair wages, and of course the Unions have retained close institutional links with the Labour Party.

Osborne has argued, somewhat absurdly, that reducing tax credit payments to people in low paid jobs would give them “economic security” by reducing the Government’s spending deficit. Labour argues that the richest should pay to cut the deficit, and has identified cuts to tax avoidance and corporate subsidies that could replace cuts to the lowest paid. Osborne’s priorities reflect a traditional Conservative ideology.

As Richard Murphy, from Tax Research UK, points out:

“… the government is forcing the burden of risk bearing onto those least able to bear it in society – that is those with the lowest income. So just as we now know inequality, especially concerning wealth, is rising rapidly, insecurity is also increasing exponentially as risk is being passed from those with the capacity to bear it to those who have not.”

Osborne’s “long-term economic plan” isn’t without controversy. According to many economists, during recessions, the government can stimulate the economy by intentionally running a deficit. The budget deficit is the annual amount the government has to borrow to meet the shortfall between current receipts (tax) and government spending.

Of course, last year, serious doubts were raised regarding Osborne’s deficit targets after the treasury met a significant tax revenue shortfall. Osborne’s obsession with deficit cutting and the Conservative small-state ideology has clearly overlooked the problems created by poor pay and high living costs, which has impacted detrimentally at both a micro and macro level, creating an economic spiral of cuts and stagnation. And it has widened inequality significantly.

In order to keep his promises on further future tax cuts for higher earners, Osborne will invariably make even more cuts to public services, public sector pay and the social security safety net that are so deep they will severely damage both the economy and potentially, the fabric of our society.

The Institute for Fiscal Studies (IFS) have recently criticised George Osborne’s proposed tax credit cuts, because it is “at odds” with wider Conservative stated aims to “support hardworking families”.

Research conducted by the IFS calculated that only around quarter of money take from families through tax credit cuts would be returned by the new National “Living Wage”.

Tax credits are payments made by the Government to people on lower incomes, most of whom are in work.

It was announced today that the Work and Pensions Committee is holding an urgent evidence gathering session on the proposed reforms to the tax credit system on Monday 26 October. The Committee will question representatives of respected independent think tanks that have analysed the impact of the Conservative plans, including the IFS and the Resolution Foundation, who revealed that the planned welfare cuts will lead to an increase of 200,000 working households living in poverty by 2020, and that almost two-thirds of the cut would be borne by the poorest 30 per cent of households, whilst almost none of the cuts will fall upon the richest 40 per cent of households.

A Labour motion calling on the government to rethink the controversial tax credit cuts has been defeated in the Commons. But despite Labour losing the vote today, the debate saw a number of Tory MPs attack the proposed changes, too.

In her maiden speech today, Tory MP Heidi Allen said that her party risks betraying its values, as she voiced her opposition to tax credit cuts.

She suggested ministers were losing sight of the difficulties of working people in their “single-minded determination to achieve a [budget] surplus”. She also said that the tax credit changes do not pass the “family test”, warning that the pace of the reforms is “too hard and too fast”.

The opposition day motion called for a reversal of the policy but MPs voted against it by 317 to 295 – a government majority of just 22. Next week, the vote in the House of Lords was set to be far closer, with the very real possibility that on Monday, Peers would  vote to block the changes. Because the tax credit cut proposals were not in the Tory manifesto, it means they are not bound by the usual Salisbury convention that prevents the peers from blocking election promises.

Also, the tax credit cuts were not included in the Finance Bill, which normally enacts a Budget, and the opposition have used the opportunity to seize on the fact that a Statutory Instrument can be halted by a single House of Lords vote.

Mr Cameron effectively ruled out cutting the benefit before the election, telling a voters Question time that he “rejected” proposals to cut tax credits and did not want to do so.

The cuts are part of £12bn cuts to the social security budget that the Government is to make – the details of which the Conservatives refused to announce before the election.

However, in an unprecedented move, the Conservatives have threatened a constitutional “showdown”, and have refused to engage in dialogue with peers that want kill off the proposed Tory cuts. The government warned the House of Lords it would trigger a full-scale constitutional crisis by pressing ahead with their plans.

Despite the fact that the chancellor faces a growing rebellion against the cuts among Tory MPs, the government told the group of crossbench peers that they also “risked” a renewed push to weaken the powers of the upper house if they refused to back down.

The threats from the government that came because it was facing probable defeat on what is an extremely unpopular reform, even amongst their own party ranks, are truly remarkable, showing a contempt for democratic process and a lack of willingness to engage in transparent dialogue. They came after Lady Meacher, a crossbencher who is the former chair of the East London NHS Trust, threatened to table a “fatal motion” to kill off the cuts to tax credits.

The Tories do not have a majority in the Lords and faced defeat after Labour and the Liberal Democrats said they would support Lady Meacher.

It is understood that Meacher withdrew her fatal motion on Tuesday night and announced she would table a motion calling on the government to deliver a report responding to the warning by the Institute for Fiscal Studies that 3 million families would lose over £1,000 a year.

Meacher told the Guardian today:

My plan at the moment is to put down a motion which will prevent this regulation being approved on Monday, which will require the government to produce a report responding to the IFS analysis and consider mitigating action before bringing it back. This gives time to the House of Commons to go on doing what they are doing. There are Tory MPs horrified by this.

So we are giving the government time to think again, but the word fatal would not be appropriate. This is causing a great deal of consternation at government level and we are trying to find a way through which will ensure that the government revisits these regulations

This move will also allow time for the Work and Pensions Committee to gather further evidence to present to the government, too. The Committee have stated that they will ask representatives questions on the following topics;

  • The impact of the April 2016 tax credit cuts (in isolation and in the context of other welfare measures in the Summer Budget), and the National Living Wage
  • The winners and losers and their characteristics
  • The extent to which the National Living Wage will compensate individuals receiving lower tax credit payments
  • The distributional impact of these measures, individually and combined
  • The scale of the financial gains/losses to households and what influences this
  • The quality of the analysis produced by the Government to support their proposals
  • Other options for achieving savings from the tax credit system that will mitigate the impact on the least well off
  • The implications for work incentives and the Government’s wider objectives in welfare reform

Select Committees work in both Houses of parliament. They check and report on areas ranging from the work of government departments to economic affairs. The results of these inquiries are made public and the Government must respond to their findings.

A select committee is a cross-party group of MPs or Lords given a specific remit to investigate and report back to the House that set it up. Select committees are one of the key ways in which Parliament makes sure the Government is adequately scrutinised, held to account, and has to explain or justify what it is doing or how it is spending taxpayers’ money.

Committee findings are reported to the Commons, printed, and published on the Parliament website. The government then usually has 60 days to respond to the committee’s recommendations.

The Osborne omnishambles is far from done and dusted yet.

555114_453356604733873_1986499794_nPictures courtesy of Robert Livingstone

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4 thoughts on “Osborne’s tax credit cuts omnishambles

  1. Why is anyone surprised that the Cameron government is targeting the sick and disabled? Here’s your answer:

    “Under conditions of austerity, in which there is a limited pot of money in toto for social welfare expenditures, retrenchment is borne by those least equipped to cope and/or mount a politically effective campaign to have cuts shifted to other competitors.”

    —Thomas Byrne Edsall, The Age of Austerity: How Scarcity Will Remake American Politics (2012)

    Liked by 3 people

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