For Labour, the coming cuts to tax credits provide some much-needed ammunition. The party views it as an early opportunity to disprove the Tories’ new boast that they are “the party of working people”.
At today’s PMQs, Harriet Harman and David Cameron fought the first of what will be many battles on this territory. Labour’s acting leader turned the Prime Minister’s claim that we are “robbing our children” (by running up debt) against him by declaring that he is set to do just that in the case of tax credits. Cameron did not deny that cuts were on the way, instead boasting that 2.2m more people were in work and emphasising (as ever) the need to reduce the deficit. After Harman played the class card by declaring “I know he doesn’t have to budget” (a line which prompted inevitable cheers and jeers from opposing sides of the House), Cameron replied that “the last government didn’t budget for the country” and that he wanted “to see higher rates of pay”.
But the well-briefed Harman exploited the hole in the PM’s argument by riposting: “You don’t get higher pay by cutting tax credits”. Employers would have to raise pay by twice the forecast level to compensate for the expected tax credit cuts (£1,400 per family), she noted. The minimum wage would have to rise by 25 per cent. Harman concluded: “He’s attacking the low-paid. So much for the party of working people.” In response, Cameron declared: “The party of working people is the party that’s got 2m more people into work”. But he had no answer on how the government might ensure they are paid more.
An increasing number on the left denounce tax credits as an inefficient subsidy to corporate cheapskates. They call for the introduction of a statutory living wage to relieve the burden on the state. But while some Tories occasionally flirt with the idea, no one expects the party to support a measure that all forecasts suggest would cost jobs. If they are smart, however, the Conservatives will look to the Labour manifesto for inspiration. Before the election, the party proposed the introduction of “make work pay” contracts, which would provide a tax rebate to those companies that sign up to become living wage employers. For every £1 that employers pay to raise salaries to living wage-level, the Treasury saves 49p. Under Labour’s plan, the chunk of this accounted for by higher tax revenues (32p) would have been paid back to firms that signed up, while the Exchequer banked the remainder.
The question prompted by today’s PMQs is whether Cameron has anything resembling this in reserve. If not, then attacks on the last Labour government may not be enough to shield him from a backlash from low and middle earners.