Paul Abbott is Chief Executive of Conservative Way Forward and an Associate Director at Portland Communications.

“Government is that fiction whereby everybody believes that they can live at the expense of everybody else.”

We should remember this apothegm – from the economist Frederic Bastiat – as the tax credits row rages around us.

Last week, Paul Goodman put up a robust defence of the Treasury team. I believe he was right to do so, especially when he said:

“It is unfair for Conservatives first to castigate Osborne for not bringing welfare spending under control – thereby making the state smaller – and then complain when he strives to rein in a feature of it that needs reform.”

The Chancellor’s push for higher wages – and lower welfare – has been the target of an avalanche of brickbats. But, we should remember what he is trying to achieve. Yes, it means difficult choices. But it is the right thing to do.

As with all policy, no doubt the detail could be improved. Ryan Bourne, for example, has done a characteristically precise demolition of the overall muddle of Labour’s tax credit system, over on CapX.

The basic point remains: Britain needs to live within her means. We need to stop racking up debts, which are simply delayed taxes on our children. We need to control our welfare bills, which we can no longer afford. If not this policy, then what? If not now, when?

It is incumbent on those who disagree with the Chancellor to explain how they would pay for their alternative proposals – in particular the Opposition. I do not wish to be overly quarrelsome, but the sums involved are eye-watering. The tax credit changes from the summer Budget will save £4.4 billion next year. That is a vast ocean of money. Ask yourself: how much extra tax are you prepared to pay – from your pay-packet – to preserve in aspic a wage-subsidy machine that was devised by Gordon Brown? How much cash would you personally donate, over and above your existing taxes, if you had to do fork out for it today?

We must remember how tax credits are paid for. The money does not come from government: it comes from you, and me, and families who earn ordinary incomes. Government has no money of its own. It can devalue the Pound with money-printing, it can tax more, or it can borrow more. But, in the end, we pay the price. The Whitehall money-tap flows from your bank account. HMT has a main-line siphon out of your wallet.

Whatever linguistic similitude this may be veiled in, we should be honest enough to admit that tax credits are never paid with “government money”. They are paid with cash that is confiscated from private individuals every time we buy groceries, or put petrol in our family car, or take home a pay-packet. This includes millions of British people who earn low incomes, surviving from job to job, who struggle with insecure work.

I sympathise with those who have said in recent days that we must protect poorer workers: this is a noble aim. But let us not fool ourselves. £4.4 billion of extra welfare payments next year means £4.4 billion of effective taxation next year – whether it is delayed or immediate – and that is taxation that will continue in the longer term to crush small British enterprises, low-paid workers, and poorer pensioners living on fixed incomes.

The whole point of a Conservative Government – if it is to mean anything – is to stand up for our basic economic rights. These must surely include: our right to work as we choose, to spend what we earn, to own property, and to have the State as our servant – not as our master. As Margaret Thatcher said in 1975, “these are the British inheritance. They are the essence of a free economy. And on that freedom all our other freedoms depend.” Without wishing to be pious about it, this is the most basic job that Conservatives are elected to do. We were elected to run a surplus. No ifs, no buts.

The problem – and I accept this is not a hugely constructive thing to say – is that human beings are “loss averse”. We really, really dislike losses. We move heaven and earth to avoid losing things. So, once a Labour Government had started doling out cash to artificially inflate wages – even if it was just recycled taxes, handed back to us in meager salami slices – then it was always going to be the devil’s own work to unwind it.

Human nature is what it is. We love the taste of a free lunch. Well I’m sorry, comrades, but there are no free lunches. They are a myth. The great post-war consensus that promised free lunches forever has been crumbling away for decades, and globalisation and the internet mean that – bluntly – it is never coming back. Britain is slowly returning to a more normal, contested era in which we must pay our way in the world. Our future will be more competitive, not less. We need to smell the coffee.

The great 19th century Conservative leader Lord Salisbury put it like this:

“No class of men ever rise to any permanent improvement in their condition of body or of mind except by relying upon their own personal efforts.”

Or, more bluntly: there is only one ladder out of poverty. Welfare doesn’t work. Subsidies don’t work. Benefits don’t work. Tax credits don’t work. Workfare doesn’t work. Only work works.

So, let us by all means debate how to help people on lower incomes. Living standards matter. But history suggests that our best hope in this direction would be to focus ruthlessly – and with a nail-biting obsession – on that magic that has delivered the biggest boost in wages and jobs since the invention of fire. Namely: capitalism and free trade.

And – apart from a few odd hiccups here and there – that is exactly what Conservative Ministers have been cracking on with. Say what you like about George Osborne and Greg Hands and the whole of our Treasury team, unemployment has fallen and pay packets are rising. Total pay rose by 3 per cent in the last year. With inflation flat, this means that real wages are rising strongly – good news. At 73.6 per cent, our employment rate is now the highest in British history. The number of workless families has fallen by a whopping 684,000 since 2010. Our trade deficit is the smallest that it has been since the 1990s. Britain is booming: we have now enjoyed the fastest growing, major, advanced economy for two years in a row. Fuel duty has been frozen for years. Income tax has been reduced for 27 million people.

Life is getting better. The Conservative Party needs to hold its nerve.