Working Tax Credits

Gale's View - Working Tax Credits

October 28th 2015

The House of Lords has voted to frustrate the Chancellor`s proposals to reform Working Tax Credits. In so doing they have also provoked a constitutional crisis as it is not the duty of the Upper House to seek to intervene in matters directly affecting the economy. As one who has long called for the replacement of the Upper House with an elected Senate (and the replacement of The Commons with an English parliament) I believe that the time has come to act to reform our constitutional arrangements radically.

That should not, though, be allowed to detract from the thrust of the Government`s manifesto pledge to reform our welfare system.

It was not a Tory Minister but the last Labour Chancellor of the Exchequer, Alastair Darling, who was honest enough to admit that the law of unintended consequences had prevailed and that Working Tax Credits had, far from achieving the desired aim, led to employers under-paying staff in the knowledge that the shortfall would be met by massive state subsidy of wages. This, in turn, led to a huge escalation in the cost of what seemed to be a good idea at the time but in fact turned out to be deeply flawed.

The Prime Minister, backed by his Chancellor, George Osborne, is absolutely correct to say that it is pointless, costly and plain wrong to take money from working in tax with one hand only to dole it out again in benefits with the other. That is the economics of the mad house.

Those, in my case a couple of hundred, who have sent round-robin e-mails calling for the protection of the tax credit system in full will clearly not, in the main, be directly affected by any of the changes to the system, have not appreciated that the alterations proposed are part of a package of measures designed to ensure that hard-working families on low incomes will not be worse off and have lent themselves, deliberately or otherwise, to a pretty cynical campaign designed to undermine a plank in the Treasury`s platform of determination to put the United Kingdom`s finances on a sound footing again. It is, perhaps, not surprising that some Members of Parliament have been swayed by the push-button pressure of the electronic “lobby” but it is also significant that not one Member of Parliament sitting on the Government – even those that expressed reservations - supported the Labour Party`s motion last week. Having listened with great care to the speeches made in the Chamber during the debate I suspect that, having nailed their colours prematurely to the mast, some of my colleagues were persuaded by the arguments that were made in support of Government policy.

All that said, I took the trouble to discuss, last week, the issues arising from these measures, privately and face to face, with the Chancellor of the Exchequer. I did so because I want to ensure that, as with Alastair Darling`s good intentions, we do not find that the Government`s proposals are not themselves subject to the law of unintended consequences. I do have a concern that while the significant increases in child care allowances , the increase in the threshold of basic tax payments, the introduction of the living wage and other changes are implemented there may be some who, as these measures take time to take effect, may in the short term find that they are losing out, and that is not the intention.

While the very high-profile and widely publicised outburst on the BBC`s Question Time a couple of weeks ago was revealed to be unfounded in fact I nevertheless want to hear from any constituent who has, taking not just tax credits but the whole package into account, found themselves to be actually worse off than before the changes. Those of us on the backbenches and the Chancellor of the Exchequer need to know if this proves to be the actual case so that measures – and I have already myself made one or two suggestions for inclusion in the Autumn Statement – may be taken to fine-tune the policy. What we cannot do, though, if our children and our grandchildren are not to have to pick up the bill for the last Labour government`s errors and if vital investment in hospitals, schools, transport infrastructure and defence is to be maintained, is to surrender to every ill-advised and populist ”campaign”.