• The saving still needs to be made. Those opposing the cuts to tax credits have yet to offer an alternative way to save £4.4 billion.  Paul Abbott rightly argued yesterday that simply adding more taxes, or more deferred taxes in the form of debt, would be unacceptable. And Paul Goodman pointed out last week that the Government has only just been elected on a platform that ruled out making savings from pensioners, who are relatively better off. Voters were clear that they support the plan to return the nation to surplus by the end of this Parliament, and that we absolutely must do.
  • Letting the finances slide so early would be a serious error. The closest thing to an alternative yet presented is the case made in parliamentary evidence yesterday by the Resolution Foundation and the IFS, who essentially called for a drastic slowing of the changes – and thus of the savings. Torsten Bell, the Resolution Foundation’s director, was previously the Labour Party’s director of policy under Ed Miliband – and his view that “The answer to tax credits is tax credits,” suggests he may not be the most committed ally in unwinding the system. The IFS’ argument that delaying the saving would be fine because in “the long run” the savings would still be made is insufficient – we saw in the last Parliament how easy it is to whittle away a deficit abolition plan through a hundred shortfalls and delays. The Chancellor will need another plan, but the solution to a disagreement about the detail should not be to abandon the overall principle of a return to surplus.
  • The search is on for other ways to save £4.4 billion. The Government’s dual defeat not only delays the policy (as specified in the crossbench Meacher motion, the acceptable defeat that Osborne preferred people to vote for), it also demands that low-earning people are compensated for their losses (as specified in Labour’s Hollis motion, the unacceptable defeat that seemed to take the Government by surprise). Now the hunt is on – in the Treasury, in DWP, in think tanks and elsewhere – for a way to restructure the policy. How much of the financial burden could be shifted to those relatively higher-earning tax credit recipients, for example? How much would be saved by simply applying the policy to new recipients, as Lady Hollis suggests? The Chancellor has until the Autumn Statement on 25th November to decide.
  • Like unspent munitions, Gordon Brown’s policy legacy continues to cause damage years after he left office. The tax credits machine is a classic Gordonian knot – hugely complex, vastly expensive, and almost impossible to unravel. Where Tony Blair’s policy spoor is hard to undo for presentational reasons (give your Acts nice-sounding names and you make it harder to scrap them, regardless of content – see the Human Rights Act), Brown’s genius was to make people reliant on the continuation of his spending machine – try to change any part of it and you are instantly laid open to charges of harming people. And yet it must be dismantled and replaced with something more fair to taxpayers and more effective at ending, rather than just subsidising, poverty.
  • The Government still struggles with the management of Parliamentary business. Lots of things have improved since 2010 – Ministers have gained considerable experience, the jobs miracle is the envy of our competitors, there is a core of battle-hardened advisers and the Parliamentary Conservative Party has grown in number and in skill. But for some reason Downing Street is still prone to major misjudgements when it comes to steering its way through Parliament. This year alone has seen the farce over the Speaker (misjudging the mood of the Commons), the defeat on purdah (misjudging the mood of the Conservative backbenches) and now this defeat over tax credits (misjudging the mood of the House of Lords). These mis-steps are the source of unnecessary pain in Westminster and on the newspaper front pages – the Government needs better antennae.
  • If this is a constitutional crisis, I doubt we’ll see much happen as a result. The Chancellor’s frustration that the unelected Lords had outrageously over-ruled the elected Commons is understandable – as Henry Hill argues, the behaviour of Opposition peers threatens to undermine the second chamber for partisan advantage. But Osborne’s promise that he and the Prime Minister will ‘deal with’ the issues involved sounds more ominous than it can possibly prove in practice. For a start, the Government would be unwise to get into a protracted debate about the technicalities of the Statutory Instruments and money matters involved here - not least because there is a lingering suspicion that they were guilty of somewhat sharp practice to try to rush through the tax credit changes. Even more importantly, the question of Lords reform is such a sticky one that it is hard to see the slim Conservative majority rallying behind one particular proposal or another. Remember, it only takes a handful of rebels to stop anything in the Commons.
  • Osborne is irritated, not mortally wounded. Inevitably, some people are getting over-excited about the effect this defeat will have on the Chancellor’s prospects. No doubt we will see in our current survey of Party members whether his standing has been seriously diminished among the grassroots, but my instinct says that it has not. Sure, it would be better for him had this not happened – and if it keeps happening that would become a problem – but his record is sufficiently strong and his personal position so powerful that it will take more than this to destroy his ambitions or his chance of pursuing them.
  • What lessons will Labour learn? It isn’t a great sign for Corbyn’s Labour Party that their peers are now more feted and more effective than their MPs. However, this will give a morale boost to the Labour troops to some extent. The big question will be whether this becomes a habit for Labour Peers – will their response to defeat at the ballot box simply be to repeatedly throw their weight around in the Lords instead? That would offer a short term tactical advantage but could ultimately backfire if they look like they are out to block the will of the electorate at all costs.
  • Why wasn’t the Church of England this angry about any other injustices? It was refreshing in a way to see Bishops get worked up about something – particularly given the all-too-common tendency of the Church to emphasise mildness above every other virtue. But hearing them rail against “morally indefensible” welfare reforms, I was struck by the thought that we never heard them use such harsh terms to criticise the culture of welfare dependency. Where was this anger when millions were ensnared in the welfare trap? Where has been the matching enthusiasm for the Government’s success in helping people to escape it and get into work? The Lords Spiritual at times seem overly selective in their application of righteous fury.

188 comments for: The Government is defeated in the Lords on tax credits. What next for Osborne, welfare reform and the constitution?

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