Skip to Content

Leading article

Tearing tax credits away from the working poor is a battle of choice, not necessity

24 October 2015

9:00 AM

24 October 2015

9:00 AM

Just over 30 years ago, Margaret Thatcher’s government decided to look at local government finance. A young aide, John Redwood, outlined ‘some kind of poll tax which is paid by every elector’. Discussions continued, and bright young men (including the young Oliver Letwin) assured the Prime Minister that the figures would all stack up. Unpopular to start with, perhaps, but necessary. Later, Kenneth Baker had a niggle: ‘If I’m on Question Time and I’m asked “Why must the Duke and the dustman pay the same?” there’s no answer.’

Last week the energy secretary Amber Rudd was on Question Time. She was challenged by a weeping Tory voter who asked why, as a mother who worked ‘bloody hard’, she should have her tax credits taken away by a Tory government. There was no answer.

An awful sense of déjà vu is sweeping through the Tory party — not only because of Charles Moore’s second volume of his Thatcher biography, with its delicious details about how the poll tax was cooked up. Many Tories fear that now, as then, the government has come up with a scheme which makes sense on paper but which will end up being a political disaster.

Welfare reform was conducted by Iain Duncan Smith, who took great care to explain how he was out to save lives, rather than save money. Tax credit reform is being handled by George Osborne, who is less careful. Now and again, he snarls at those he suspects of ‘sleeping off a life on benefits’ — portraying them as villains rather than as victims of a cruel welfare system. He has been discouraged from talking too much about the subject; David Cameron’s more compassionate language has prevailed.


Until now there has been a clear moral purpose behind Tory welfare reforms: yes, life on benefits would be harder. But those who moved into work would find every assistance — including tax cuts. Millions accepted this bargain, and jobs have been created at an unprecedented rate. During the general election, Cameron had a new message: that the Tories were now the new workers’ party, and a vote for the Conservatives was a vote for economic security.

Now, Osborne is coming after the very people whom his party pushed towards work. Those on the breadline, trying to work their way up, are finding themselves treated like benefit cheats as a result of the Chancellor’s tax credits crackdown. A mother of two children who is paid £20,000 stands to lose £2,000 a year due to his reforms. Some seven million working families stand to lose an average £1,200 a year. Some workers may claw back almost £150 a year by the proposed minimum wage increase. But they also face a bitter headwind blown by a Tory Treasury.

Tax credits needed to be reformed. But Osborne had a choice. He could have stopped issuing new tax credits, and phased them out. That is how tax-credit cuts to larger families were handled in the last parliament. Besides, the new welfare system, Universal Credit, will steadily replace tax credits.

But emboldened by the new parliamentary majority, and seeing the Labour party in disarray, the Chancellor chose a faster route: to tear tax credits away from the millions who have them. Yes, he argues, it will be unpopular. But the next election is five years away. Now is the time to do unpopular things and tackle the £80 billion deficit. And if the low-waged find themselves losing money as a result, let them work harder to earn it back. Under Jeremy Corbyn, he argues, the government faces no effective opposition — so it is best to move now.

Having spent most of his adult life in Westminster, Osborne has come to view politics as a game of chess he is playing with the Labour party. As a result, he struggles to comprehend the human factor — the effect his policies will have on low-wage workers, who believed that the Tories were on their side; the effect on the party’s reputation; and the effect on Tory MPs, especially the new ones, who had themselves come to believe what the Prime Minister was saying about being in politics to support working families.

The Chancellor now seems to almost relish the battle ahead; but this is a battle of choice, not necessity. By wrenching tax credits away from low-waged families, rather than phasing them out, he will save about £3.5 billion. There are other ways to find this sum. He currently plans to increase foreign aid by £3.5 billion, for example, so he is making a political choice: to confront the working poor, rather than face the embarrassment of pausing his unpopular foreign aid giveaway. Or finding savings in the indefensibly generous pensions budget, or in the £120 billion health budget. Or giving himself another year to balance the books.

This battle raises a question: when the Tories said they would stand by those who worked hard, were they serious? Or was it just a ploy to get past the election? It would be a great error for Osborne to think that this is a matter of handling Tory rebels and managing the media. This is about the lives of the low-waged, but also about the identity, purpose and priorities of the Conservative party. If the Chancellor is serious about wanting to lead that party, he should think again.


Show comments
Close