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22 October 2015

Why George Osborne feels “comfortable“ about his tax credits decision

The Tories feel unthreatened by Labour and believe they can ride out any unpopularity. 

By George Eaton

The most revealing moment of George Osborne’s appearance before the Treasury select committee came when he declared that he was “comfortable” with the “judgement call” that he had made over tax credit cuts. As with David Cameron saying that he was “delighted” when MPs backed the measure, the choice of word was unwise (inviting Labour MPs to quip about just how “comfortable” the Chancellor is). But it was a sincere reflection of Osborne’s mood.  

The pressure on the Conservatives over the cuts, which will cost 3.2m families an average of £1,300 a year, has significantly increased this week. Tory backbenchers, such as Heidi Allen and London mayoral candidate Zac Goldsmith, Boris Johnson, work and pensions select commitee chair Frank Field, the Sun and the Adam Smith Institute are among those demanding that Osborne modify or abandon his plans. But the Tories are comforted by what they regard as Labour’s weakness. One No.10 strategist said of the pressure on the government: “Corbyn has not created any of it”. The Tories believe that an alternative opposition leader, such as Yvette Cooper, would have made this week’s PMQs far tougher for Cameron. Under Corbyn, they expect Labour to struggle to land blows, and to struggle to exploit those landed by others.

The Tories do not dismiss the possibility that they could fall into mid-term unpopularity, and some expect to. But they are comforted by the experience of the last parliament, when the double-digit leads that Labour enjoyed became a seven-point Conservative advantage. The opposition has highlighted the 71 Tory seats in which the number of families facing significant losses outweighs the party’s majority. But of the 60 constituencies it similarly identified in 2012, it won just five

Even if Osborne does soften the cuts for the lowest-paid in his Autumn Statement on 25 November, as some expect him to, there is now no easy way to avoid major reductions. As Resolution Foundation director Torsten Bells notes in a forensic analysis, even with the immediate introduction of a living wage of £9.35 (which won’t happen), a couple with children and one full-time worker would still lose £620 (down from £1,500). Were this coupled with an increase in the personal tax allowance to £12,500, from £10,500, the loss would be £320. 

Osborne’s pledge to eliminate the deficit by 2019-20, to avoid rises in general taxation and to protect spending on the NHS, schools, defence and international development has left him with little room for manoeuvre (unless he once again allows his targets to slip). It is the inevitability of the cuts that makes the Chancellor’s “comfortable” position all the more striking. 

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