Tax credit cuts: Lords’ battle

Former chancellor Nigel Lawson is the latest among a growing group of senior Tory statesmen who have come out against the government’s plans to slash tax credits next April, which would decimate incomes for those in low-paid work.

Speaking yesterday (October 22) on BBC’s Radio 4 Today programme, Lawson countered the government’s official line that low-income earners would not lose out from the tax credit measures.

“You cannot remove these tax credits without people being worse off,” he said. “The question is who is going to be worse off. People are going to get better off as the economy grows, and it is growing and we want a successful economic policy to ensure it continues to.

“But there is a problem,” Lawson went on to say. “Tax credits go a long way up the scale. It goes up to half the families in the land.”

The former chancellor joins prominent Conservatives including London mayor Boris Johnson, cabinet minister Andrew Mitchell, and MPs Zac Goldsmith, Heidi Allen and David Davis in publically opposing the tax credit cuts as they stand now.

Still, on Tuesday (October 20), Labour’s motion in the House of Commons to rethink the government’s plans – which would cut tax credits by more than £4bn and would leave 3.3m low-income earners more than £1,000 worse off each year – was defeated by a majority of 22.

But even as tax credit cuts are moving along through Parliament, opposition continues to mount and reached a dramatic turning point when peers in the upper chamber threatened to take almost unheard of action against the cuts.

‘Unacceptable’

The Liberal-Democrats in the House of Lords plan to table a “fatal motion” on Monday (October 26), which would decline to approve the government’s regulations on tax credits. If the motion is carried, the government will be forced to put forward alternative proposals.

Lib-Dem leader Tim Farron called the government’s tax credit cuts “unacceptable”.

“David Cameron explicitly ruled them out during the General Election,” he said. “Yet now he is dead set on cutting support for people who are doing the right thing and going out to work for provide for their families.

“These changes have all the hallmarks of a Poll Tax of the 21st Century,” Farron added. “David Cameron and George Osborne need to listen to those, including their own backbenchers, telling them to think again.

Another possibility on Monday is a motion tabled by a crossbench peer Lady Meacher that would force the government to delay cuts to the tax credits until it has answered for the impact analysis by the Institute of Fiscal Studies, which shows just how hard low-income households will be hit by the changes.

Finally, the Labour peer Lady Hollis plans to also table a motion on Monday that would delay the cuts until transitional measures are put into place that protect tax credit claimants who will be affected.

The government has said that any motion by the House of Lords to stop or delay the cuts would trigger a constitutional crisis and would entail overstepping their powers, arguing that peers should not meddle in financial matters introduced in the Commons.

But the Labour party contests this, pointing to the fact that cuts to tax credits are not being introduced through the traditional route as part of a Finance Bill but are rather being pushed through in what’s known as secondary or subordinate legislation.

The party points to a resolution peers supported in 1994 which gives the House of Lords “unfettered freedom” to vote on any subordinate legislation. The Salisbury-Addison convention, which restricts peers from voting against legislation that is explicitly outlined in the ruling party’s manifesto, also does not come into play.

In this case, tax credit cuts were completely absent from the Tory manifesto. And as early as April, a week before the general election, prime minister David Cameron pledged not to cut tax credits, calling child tax credits “one of the most important benefits there is”.

Swingeing cuts

Unite political director Jennie Formby condemned the government for attacking working people and reversing pledges it made prior to the election.

“Swingeing cuts to tax credits will mean that the millions of families who are teetering on the edge of poverty will be plunged deep into despair – and it is children who will be most severely hit,” she said. “Unions know it, independent think tanks have proven it, and even senior Tory ministers are coming out to say to Cameron and Osborne that these cuts are unacceptable.

“While the upper chamber rarely intervenes in such legislation, I can understand why so many in the Lords feel they have been forced into a position where they have no alternative,” Formby went on to say.

“The Tories pledged that they would not cut tax credits before the election, but just months later they made a sharp U-turn. The government is clearly going against the will of the people – and even against the voters who put them into power in the first place. This undemocratic abuse of power must be stopped – and at this point, it’s up to the House of Lords to stand on principle and do it.”

Formby questioned the government’s motives for slashing tax credits.

“Cuts to tax credits are absolutely not a necessity, even if you accept the government’s obsession with achieving a budget surplus,” she explained. “The same savings can be made if they stop lathering the wealthiest 1 per cent with handouts that they neither need nor deserve, or by making hugely profitable transnational companies pay their taxes that many so successfully avoid.”

Indeed, a recent analysis shows that government measures that mainly benefit the rich, such as cuts to inheritance tax and an increase in the personal allowance, would free up the same amount of money the government hopes to save from tax credit cuts.

What’s more, the latest figures show that last year’s ‘tax gap’ – the difference between the amount of tax collected and the amount the HMRC believes should have been collected stands at a staggering £34bn – more than £7bn of which is attributed to direct tax evasion or avoidance.

“In this light, cuts to tax credits can only be seen as a choice based on their sinister ideology that working people on low-incomes don’t deserve more than the hand that they are dealt, no matter how hard they work,” Formby noted. “The Tories’ attempt to pass themselves as the party of working people while pushing millions more into poverty will fool no-one.”