How the House of Lords might help me look dinner ladies in the eye again.
8October 26, 2015 by Paul Goldsmith
I’ve been brought up to look everyone in the eye. Everyone, from Chief Executives to cleaners. But last week I struggled to look the dinner ladies and cleaners at my school in the eye. Why? Because I know that they work just as hard as I do, and sometimes for longer hours, but get paid very little compared to what I do. Yet their take home pay is being cut by the government’s tax credit reforms. At the same time, I stand to inherit more from my Parents because of the government’s inheritance tax reforms. Every time I think about that, say that and write that I can barely look at myself in the eye in the mirror let alone those people working at my school on low pay.
The oddest thing about these cuts in working tax credits when compared to the rise in the inheritance tax thresholds (that will effectively cut inheritance tax) is that they are being called ‘ideological’. Well, yes, I guess if the most important ideological priority for the Conservatives today is to shrink the size of the state and prioritise the keeping of private property within a family unit. But I thought the Conservative Party of today was ideological about being the party of ‘work’. If you get out of bed, go out and work hard you get rewarded. Yet, people on low pay who are doing this are having their income cut, whilst the income and wealth I get to accrue without any work (apart from being born to the ‘right’ people) is being raised. In short, these tax credit reforms rob those who work to provide more money to those who don’t have to.
The Tories may complain that I haven’t understood. The tax credit reforms are ‘part of a package’. This package will allegedly raise incomes over the long term. Yes, but they might push the working poor to need to use food banks or have to turn off their heating in the short term.
The Tories, or George Osborne to be precise, argue that the Conservatives have a mandate to implement the tax credit reforms as they claimed in their 2015 General Election manifesto that they would implement £12bn in welfare cuts. Poppycock. They were asked time and time and time again to spell out how they would cut £12bn from the welfare bill and refused to answer. Now we know why, because if they had dared to mention they would be trying to lower the deficit literally on the backs of the working poor then Ed Miliband might be Prime Minister right now.
This week the House of Lords are going to be debating the reforms. Unlike the House of Commons the Conservatives don’t have a majority in the second chamber. Unlike the House of Commons the Lords aren’t elected. This legislation is a statutory instrument called a ‘delegated legislation’ as it is part of the Tax Credit Act 2002 that the Government needn’t present a new Bill to change rate bands, which is what they are trying to do here. There have been a variety of motions put down, some wanting to delay the changes, and some trying to kill the changes.
The Lords do have a formal veto over delegated legislation. However, it is more likely that what the Lords will actually do is the equivalent of asking the Government “are you sure about this.” They have a right to do this. Whatever Osborne says it wasn’t in the Government’s manifesto so it isn’t covered by the Salisbury Convention (which generally means the Lords do not challenge anything that the Government has an electoral mandate for).
It could be argued that a more important constitutional convention is at risk here; that the Lords shouldn’t intervene in financial matters, particularly as the savings from the tax credit cuts are very large (around £4 billion). But Labour and the Lib Dems argue that this isn’t a financial matter but a welfare matter. Furthermore, the Lords are emboldened by the current disquiet on the Government’s own benches, with Conservative MPs Heidi Allen and Johnny Mercer both making speeches setting out their concerns during last week’s Labour opposition day debate.
The Conservative leadership are trying everything to warn the Lords against overplaying their hand (Excellent explanation by Professor Meg Russell here). There have been stories in the press of the Lords being suspended, of cutting the Lords’ powers and of David Cameron flooding the Lords with appointed Tory peers.
The first option is simply not in the Government’s powers. The second option is not possible without primary legislation that would have to pass through both chambers and thus could take two years. The final option would be highly controversial, eventually drawing the Monarch into a constitutional crisis like the ones over the 1832 Great Reform Act and the 1909 ‘People’s budget’.
Those two pieces of legislation were over vitally important issues. Both of them were perhaps worth fighting over. Will the Conservatives really create a constitutional crisis over their right to penalize those that work for very little pay instead of settling for a life on benefits. Really?
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Another excellent blog highlighting the social and political implications of the proposals to cut the working tax credit. Thank you.
Having read somewhere (in this blog?) that Gordon Brown presented at introduction the tax credits to Blair as costing gbp700mio and now possibly having ballooned to as much as gbp20billion (gbp20,000mio), I wondered if you could help clarify the economic implications (macro and micro) of these subsidies of labour. Hasn’t it caused a considerable distortion in the labour market?
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Yes, I guess you could say so. If tax credits weren’t offered many people might not offer their labour as they would be better off on benefits. Therefore the supply of labour has been artificially increased by this government subsidy. If the government went the other way and forced firms to pay more, and I mean much more, then demand for labour would fall eventually, causing a different type of distortion. If the market were left to operate normally, the working poor would simply not be able to put food on the table, and we have decided as a country that is not acceptable. Since you simply cannot force a company to hire someone at a loss, the best long term solution would be to make the British public more productive, so that the revenue and productivity they produce is higher, economically as well as politically justifying high wages. BUT, there ARE people who are more productive who are also prepared to work for much lower wages. That’s immigration. Economics isn’t called the dismal science for nowt!
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Another thought on the matter:
http://www.conservativehome.com/platform/2015/10/ben-southwood-replacing-benefits-with-a-negative-income-tax-would-solve-osbornes-problems.html
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What’s all the fuss about Paul? Don’t tell me that any of this is inconsistent with what the Tories stand for and what they said they were going to do – except in minor points of detail perhaps. Over the last few weeks we have seen hand wringing over certain Tory policies by newspapers who told their readers to vote for them in May. It’s pathetic.
And of course the other point is that they want to get all the ‘nasty’ stuff out of the way now – so that in 3 or 4 years time they can start with the sweeteners leading in to the 2020 election. With Labour divided, with a compliant right wing media, and with an electorate who have low levels of political consciousness and short memories – no doubt they’ll get away with it.
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You are right in that it is purely folklore that the government could suspend or restrict the powers of the Lords. I accept that some people on low incomes will inevitably lose out due to the new legislation, despite the cuts being made in conjunction with cuts to income tax and the introduction of a living wage. But I will point out that both tax credits and the minimum wage were brought in by the last Labour government rather briskly, effectively making 5 million people dependent upon the state, possibly buying those votes. The Tories were against both of those pieces of legislation then. If they were being truly ideological they would use their parliamentary majority to repeal both immediately. They have already made a compromise in that they were willing to increase the minimum wage to £7.20 then £9 by 2020, which contradicts the party’s long held position on a minimum wage.
The transition from a country with a strong welfare state to a high income low tax job orientated society is not going as smoothly as the Chancellor might have expected.
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Hi Tristan, I must correct you on your reading of both history and the nature of conservatism. Firstly, history. Labour didn’t bring in the minimum wage ‘briskly’. They campaigned for it for years. They said it would be in their manifesto for 1997 a long time before and were then buoyed by some research at Princeton university in 1995 that showed that employment had RISEN in New Jersey when the minimum wage came in. The explanation for this was the increased productivity of people paid a decent wage for their work and the increased revenue from those on low pay who have a higher income.
Anyway, the Conservatives campaigned against it because they thought it would cause unemployment. Yes, the business community were encouraging them, but Conservatism as a whole is suspicious of the state intervening in wage setting and also wary of radical ideas, which the minimum wage was at the time.
Tax credits were introduced in 2002, so again, not ‘briskly’. The aim was to carry on the New Labour project of encouraging people to work. Yes, they could have forced the minimum wage higher instead, but they were wary themselves as they didn’t have enough data on whether it was causing unemployment. It was supposed to cost £1bn but instead it is now costing £30bn.
Yes, the Conservatives could have repealed the Minimum wage and tax credits but the nature of conservatism is that it is pragmatic, and they could see that the minimum wage and tax credits were first of all helping people not to choose a life on benefits but also were encouraging work.
The difference between tax credits and the living wage is that tax credits is all coming from the government but the living wage is paid by firms, which rolls back the state a bit. With the bill at £30bn, they saw they could do a lot to reduce the deficit with the changes they are bringing in. I do have to wonder though if the distributional effects of the changes were fully thought through.
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I accept the points you made.
My own speculation is that the Autumn Statement will include some concession on tax credits that will seek to re-humanise the Tories in the eyes of the public. Could this be true
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