Next week, George Osborne’s tax credit plans may be defeated in the Lords. It is safe to say that they won’t be today when they are discussed in the Commons, not least because Conservative MPs’ postbags on the matter are relatively light: the reductions that the Chancellor announced in the Budget won’t come into full effect until the New Year. None the less, pressure is building. There has already been a revolt in the lobbies; some Ministers are unhappy; Boris Johnson is on manouevres. Polls have been commissioned to suggest that lots of those Tory MPs will lose their seats if the Government does not back down.
It is true that, in a perfect world, the scaling-back of welfare spending would be concentrated less on working people who are relatively poor and more on non-working ones who are relatively rich – that’s to say, older, retired, better-off people, as Jonathan Isaby argues on this site today. The winter fuel allowance, free bus passes and free TV licences would be means-tested. The state pension age would be raised further and faster. Tax breaks for pensions saving would be concentrated on poorer people who don’t save. If necessary, the state pension would rise in line with prices and not earnings.
Back in this non-perfect one, it is likely that, as the London Mayor has said, some changes will be made to the tax credit proposals – probably in the New Year. Osborne could soften the tapers. He could stagger the timetable. He could bring in a tax credits cap to mirror the benefits cap, so that households earning income more than £20,000 don’t receive what are, after all, really benefits. He could raise national insurance thresholds to help, as Harry Phibbs recently suggested on this site, and which ConservativeHome’s own manifesto argued for last year.
Above all, he could – and should – call in Iain Duncan Smith. The Work and Pensions Secretary believes that many of those set to lose from the changes will see those losses wiped out – and could actually be better-off – if they are able to work a few hours longer. He wants to point them to universal jobmatch or the careers service. This site made the case last week for the Treasury funding work coaches for those affected. These will be available for those on Universal Credit, which Duncan Smith’s department will run, but not for those on tax credits, which are administered by the Treasury.
The latter should never have been used as a social security department – part of the wrecking legacy of Gordon Brown, who invented this new benefit system in the first place. Mention of his name brings us back to basics. The practice of the Chancellor’s plans may be questionable, but the principle behind them is right. In their first year, tax credits cost about £1 billion. Now, they cost £30 billion. 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.
Furthermore, the Treasury has now released figures claiming that the Chancellor’s welfare changes will save the taxpayer £15 billion next year. It claims that were this saving not made the equivalent of around 200,000 nurses, 70,000 doctors; or 325,000 teachers would have to go, and that the sum is equivalent to the entire Home Office budget. These statistics are doubtless arguable either way. But the point behind them remains. If Osborne’s tax credit reductions are not to be made, spending must be cut or taxes must rise by the same amount if the deficit is to be reduced.
Finally, that best of all possible worlds does not exist. David Cameron fought and won an election less than six months ago on a manifesto that ruled out a fairer distribution of welfare pain. This weakens his claim to lead a One Nation Government, but it strengthens the case for supporting the tax credit changes – unless their Tory critics can come up with tax rises or spending reductions that both save billions of pounds and were not ruled out last May. Even then, Osborne’s aim of ending Brown’s dependency system would still be the right one.
The Chancellor has his flaws. For example, the wheeze of seeking to by-pass the Lords (and burden Greg Clark) by tacking a Sunday Trading amendment on to the Devolution Bill is a disreputable piece of Osborne chutzpah. But his virtues outweigh his faults. He helped to deliver the economic recovery that saw Conservative MPs returned. He channeled a flow of cash to target seats. He co-masterminded last spring’s election strategy, with its concentration on hard-working people who live by the rules – and all the rest of the slogans and policies with which we are now so familiar.
And he is the brains behind the Government’s drive for a smaller state. In this sense, he is Margaret Thatcher’s heir. There was no shortage of Tory opposition to her drive to get public spending under control during the early 1980s. They won plaudits at the time, but she gains them now. In terms of vision and ambition, the Chancellor is on the right side of a big argument, and deserves to end up on the right side of history. Tory MPs should not be stampeded into a panic by a rubbish reading of opinion polls that claims to know what will happen in five years time.