22 Jun 2015

Rolling the pitch for tax credit rollback

David Cameron has delivered his attack on “merry-go-round” welfare. It’s a piece of pitch rolling ahead of the budget welfare cuts. He’s signalling severe real terms cuts to tax credits next month and attacking the whole principle of “topping up low pay” for the future. Bold stuff when you consider 4.5m people claim credits and two thirds of them  are in work.

Tax credits were at the heart of Gordon Brown’s time at the Treasury. An important figure behind the scenes  crunching the detail was a young Ed Miliband, over-seeing a massive policy area and not yet 30 years of age.

Not much of the agenda was pre-sold to the electorate in the 1997 general election manifesto. This, it could be said, was part of New Labour’s “redistribution by stealth” agenda. It also sat with Gordon Brown’s determination to promote work with income support that appeared in the pay packet rather than as a welfare payment.

And it was a massive buy-in into President Clinton’s earned income tax credit. In practice, recent research by the Resolution Foundation suggests that tax credits helped to propel many women into the labour market and have helped the UK labour market out-perform the US labour market in some areas.

George Osborne’s instincts are always towards cutting back the ivy of state entanglement. He slashed £3bn from the tax credits budget in 2010 when he withdrew them from the better off and withdrawing them more quickly. But at the same time he increased child tax credits for less well off families. And his hired gun, the man behind the “new workers’ party” rhetoric, not so long ago was calling for them to be increased again.

David Cameron said in his speech today that he wanted a low tax/high wage/low welfare economy but the Treasury doesn’t sound minded to get heavy-handed on the “living wage”. Tax credits were a response to systemically low wages and it’s not clear that winding them down will remove that problem.

The government is acutely aware that some of the voters critical to its victory in swing seats were workers at the lower end of the pay scale who were claiming tax credits. David Cameron rehearsed his arguments today about how tax thresholds and childcare were helping these same people but knows it’ll be a mighty challenge to win them over if they see they are worse off by a high three figure or even a four figure sum in a month’s time.

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