Let’s call the policy what it is: Subjugation of the defenceless.
Does it look good to anybody at all, now?
The chancellor’s choice of words… is revealing… Cutting tax credits is not a necessity: it’s a “judgment call” – a deliberate act of policy.
As Osborne framed it, the cuts result from a binary choice between allowing taxpayer support for working families to balloon unsustainably, and shifting to – his current catchphrase – a low-welfare, high-wage economy.
There’s a second choice involved here: putting the weight heavily on spending cuts rather than tax rises to balance the books – about 80%-20% over the past five years.
And the government has made a third choice – picking its targets.
The state pension has been protected since 2010 by the “triple lock”, originally a Liberal Democrat policy, which Paul Johnson, director of the Institute for Fiscal Studies, said last week would eventually prove unsustainable.
A report from the Government Actuary’s Department, which was briefly published and then removed from the web earlier this month – but not before being spotted by eagle-eyed journalists – suggested that maintaining the triple lock is costing £6bn a year compared to just increasing state pensions in line with earnings. That would be more than enough to reverse the tax credit changes.
Other groups have been the beneficiaries of the chancellor’s generosity too. Corporation tax, already the joint lowest among G20 countries, alongside Russia, Turkey and Saudi Arabia, is set to be cut again. It was 28% in 2010; it will be 18% by 2020. The latest two-percentage-point cut, announced in July, will cost £2.5bn a year by 2020. The government would argue a lower rate attracts investment and helps create jobs; but it’s hard to see the rationale for continuing a race to the bottom you’ve already won.
Higher earners have been winners too, with the threshold for higher rate tax set to rise, and wealthy homeowners allowed to pass on a larger property to their children free of inheritance tax.
When challenged about the tax credit cuts, Osborne trumpets his new “national living wage”, the extension of free childcare and the planned increase in the personal tax allowance.
Yet most of the boost from these measures will not be felt by tax credit recipients. Many already have most of their childcare costs paid for, and the personal tax allowance is already high enough to exclude many lower earners.
But most importantly, as work by the Resolution Foundation has painstakingly pointed out, the structure of the cuts – which both reduce the earnings level at which tax credits are lost and increase the rate at which they are withdrawn – means many tax credit recipients will see almost all the benefit of higher wages wiped out.
Tax credits cuts may yet be the policy that sees Osborne’s carefully constructed political edifice start to crumble.
He chose austerity over investment, cutting back the state over taxing the rich, rewarding the comfortable over protecting the needy.
As Heidi Allen’s powerful maiden speech showed last week, those “judgment calls” may finally have caught up with him, by leading to policies even his own backbenchers are struggling to defend.