151029 Tax credits
  • False memory. I coulda sworn I’d written a To The Point post on Tax Credits – but, turns out, this is the closest I got, and that’s not one at all. So, whilst this week’s vote is done with, and whilst George Osborne is going to change his current plans, here is a post to rectify that. A bit of context is always useful, even after the event.
  • The rise of Tax Credits… The above graph shows the Government’s spending on Tax Credits, in real terms, over the past 20 years, and including the July Budget’s expectations for the next five. The first thing you might notice is how it grew over the New Labour years. In 1996-97 it was £7.1 billion, in this year’s money. In 2009-10 it was £30.6 billion. That’s a rise of 331 per cent. According to the pink line on the graph, Tax Credits had swollen to represent 15 per cent of all social security spending.
  • …and their relatively slight fall. This is the great Brownian behemoth that Osborne was looking to bring down. He managed to do so a little bit during the last Parliament: spending on Tax Credits declined from £30.6 billion to £29.1 billion, or 5 per cent, between 2009-10 and 2014-15. But more, of course, was to be done in these next five years. July’s Budget had spending reducing to £24.6 billion in 2020-21. This would have returned it exactly to the level of 2007-08.
  • What now? Yet these plans are no more – to a degree that the forthcoming Autumn Statement will reveal. Which prompts the question implied by Mark Wallace’s insightful post on the subject on Tuesday: where else will the savings come from? Some of it will surely still be from Tax Credits, only (hopefully) leavened away from the least well-off. The rest will probably come from somewhere in the graph’s dark blue bars. But what is there left to cut in that territory? The biggest single component of it, accounting for £89.7 billion of spending in the current financial year, is the state pension. Yet this has been left unpruned. It rose by 18 per cent, in real terms, over the last Parliament. It’s expected to rise by another 8 per cent over this.
  • Against attitudes. Osborne wouldn’t dare decrease the amount that’s spent on pensioners, would he? Probably not. They’re the demographic that votes the most, after all. They’re also a demographic that is fêted by others: according to the Demos report Generation Strains, which I have mentioned before, not only are older generations “more likely to prioritise pensions for extra spending”, but younger generations are pretty keen on the idea too. Without changing public and political attitudes wholesale, cutting an extra £12 billion from the welfare budget was always going to be a fraught process.