David Cameron has often expressed a simple creed: “If you want to work hard and get on in life, this government will be on your side.” Yet the imminent cuts to tax credits – given to four and a half million Britons to supplement low-paid work – expose the hollowness of this claim. Introduced in Gordon Brown’s first term as chancellor, they have been credited with helping to reduce the proportion of children living below the poverty line from 35 per cent in 1998-99 to 19 per cent in 2012-13. Now, the cuts to tax credits announced by George Osborne in his first post-election Budget will leave three million households £1,000 a year worse off, according to the independent Institute for Fiscal Studies (IFS). With unfortunate timing, households will be informed just before Christmas of how much they stand to lose from April next year.
These cuts will have bleak consequences for working families on the lowest incomes, the “strivers” whom the Conservatives aspire to support. They are antithetical to social mobility, pulling the ladder into work away from struggling families and ensuring that more children grow up in poverty. The stated reasons for pursuing the policy are to run an annual Budget surplus, to reduce government subsidies for low-paid work and to encourage employers to pay more. Yet the higher minimum wage announced by Mr Osborne (which he calls a “living wage”) will reach only £9 in 2020, long after the tax-credit cuts are scheduled to take effect. In addition, Paul Johnson of the IFS rejects the link that the Chancellor has made between the higher minimum wage and the withdrawal of tax credits. “There’s not actually an enormously close overlap between those on the minimum wage and those on tax credits, so the gainers from the minimum wage are a very different group on average to the people losing from tax credits,” he told the BBC’s World at One on 5 October.
The opposition to cutting tax credits extends far beyond the political left. The Sun has condemned the plans and the Mayor of London, Boris Johnson, as well as the former Tory minister and executive chair of the Resolution Foundation, David Willetts, are opposed to them. David Davis, who stood for the leadership against Mr Cameron, voted against them in the House of Commons last month.
Besides the economic effects of tax credits, the whole issue has become politically dangerous for the Chancellor, threatening to crowd out the positive messages he was trying to promote at the Conservative party conference and losing him support on his own benches. His cause was not helped by the declaration to a fringe meeting in Manchester by the Health Secretary, Jeremy Hunt, that the forthcoming cuts to welfare were a “cultural signal” that Britons were prepared to work as hard as Asians or Americans. A positive cultural signal is little comfort to struggling families.
Mr Osborne has been offered a way out of this mess by Frank Field, the chair of the Commons work and pensions select committee and a Labour MP respected by many Tories. He proposes to keep the level at which tax credits are withdrawn at £6,420, rather than reducing it as planned to £3,850. This could be paid for by increasing the withdrawal rate for those higher up the income scale. Mr Osborne, who has spoken of his wish to command and hold the centre ground of British politics, seems disinclined to follow this advice. How can Mr Cameron claim that the Tories are now the “workers’ party” when he has just taken away a significant sum of money from some of the hardest workers in the country?
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This article appears in the 07 Oct 2015 issue of the New Statesman, Putin vs Isis