Child benefit fury catches Tories on back foot
David Cameron will today try to defuse a Conservative Party rebellion over the Government's decision to cut child benefit for higher-rate taxpayers.
The Prime Minister spent yesterday trying to steady Tory nerves.
Monday's announcement by Chancellor George Osborne of the child benefit shake-up sent shockwaves through the conference in Birmingham, with many MPs and activists fearing that the Government had declared war on its natural middle-class supporters.
The concern about the controversy extends to the Cabinet. It is understood that Iain Duncan Smith, who as Work and Pensions Secretary is responsible for benefits, was not consulted in advance of Monday's announcement. It is believed to have been finalised by Mr Cameron and Mr Osborne on the eve of the conference.
Last night, Mr Duncan Smith blamed the media for the haphazard announcement, saying it was brought forward because journalists were "dwelling on this the whole time". He did stick up for the policy, however, insisting: "The middle class should buy into the idea of a unified society and one that looks after the worst off in society, full stop."
Cameron allies insisted the child benefit change had been under discussion "for months" and that Mr Duncan Smith had been involved. But one senior Tory said: "It's a complete mess. If people had been consulted, they could have sounded a warning. You can impose policy from the top like this in opposition but it shouldn't happen in government."
In a speech to delegates this afternoon to the Tory conference, Mr Cameron will promise tax breaks for married couples before the next general election. The concession to his critics could cushion the blow for some of the 1.2 million families with someone on the 40 per cent tax rate, who will lose their child benefit in 2013.
The Tory high command was shaken by the backlash from the party and "stay-at-home mothers". Some critics even likened the own goal to Gordon Brown's disastrous decision to scrap the 10p income tax rate, which hit Labour's working-class supporters. At the same time as the Treasury was ruling out concessions, Mr Cameron and his aides were talking up the possibility of compensatory measures to try to calm the storm. Mr Cameron apologised on ITV News for not telling the public about the child benefit cut at the election – when he pledged to preserve it.
He said: "In the election campaign, both the Conservatives and the Liberal Democrats said there are going to be cuts, and we outlined some of those cuts. We did not outline all of those cuts; we did not know exactly the situation we were going to inherit. But, yes, I acknowledge this was not in our manifesto. Of course I'm sorry about that, but I think we need to be clear about why we're doing what we're doing."
At the election, the Tories pledged to give married couples a £150-a-year tax break through transferable allowances but said it would be restricted to those on the basic rate of income tax. Yesterday, Cameron aides left the door open to extending the marriage tax cut to some people on the 40 per cent rate. But handing it to all 1.2 million losers would cost an estimated £1.6bn – more than the £1bn saved from withdrawing child benefit in the first place.
Another headache for the Prime Minister is that the Liberal Democrats oppose tax relief for married couples as out of tune with modern family life. Under the Coalition agreement, Liberal Democrat MPs will be allowed to abstain when the move is introduced in Parliament.
In today's speech, Mr Cameron will defend the child benefit shake-up as he prepares the ground for £83bn of spending cuts.
He will say: "Fairness means supporting people out of poverty, not trapping them in dependency. So we will make a bold choice. For too long, we have measured success in tackling poverty by the size of the cheque we give people.
"Let's support real routes out of poverty: a strong family, a good education, a job. So we'll invest in the early years, help put troubled families back on track, use a pupil premium to make sure kids from the poorest homes to go the best schools not the worst, recognise marriage in the tax system and, most of all, make sure that work really pays for every person in our country."
How the child benefit row escalated
George Osborne drops a bombshell by announcing on breakfast television that he planned to abolish child benefit for higher-rate taxpayers from 2013, saving the Exchequer £1bn a year. "I understand these people are not the super-rich but we have to make sure that we're all in this together," he said. "I think people out there will understand that it's fair that you don't tax someone earning £18,000 a year to pay the child benefit of someone earning £50,000 a year. It's not a decision we've taken lightly. Wwe think this is fair – it means we're all in this together; each part of society is going to make a contribution." Over the next 48 hours the party would desperately try to control the fallout.
Grilled on Radio 4's Today programme, Osborne acknowledges that a family on £44,000 a year where one parent stays at home would lose child benefit, while a couple with a combined income of between, say, £80,000 and £87,000, split roughly equally between them, would keep it.
Having trumped his own conference set piece, Osborne confirms his plan to startled Tory delegates in a speech celebrating the human instinct for "aspiration to a better life, to get a better job... to work the extra hour". Some of the audience soon learnt that they would be hit by the change.
The independent Institute for Fiscal Studies economic think-tank points out that the policy is unfair, favouring two-income families over single-income families where one parent stays at home. Conservative activists begin to complain that the policy undermines the party's commitment to families. The IFS also points out that a parent of two children with an income of £43,875 would actually lose money if given a pay rise of less than £2,975.
Children's minister Tim Loughton hints at a possible retreat on Channel 4 News, saying the policy may need to be revised: "If the thresholds need to be adjusted, there's plenty of time to look at that." Later he backtracks on his own backtrack and insists that he fully supported the policy. Former shadow home secretary David Davis says the idea should be rethought entirely.
Faced with an increasingly hostile reaction from within the Cabinet, the Conservative Party and the media, parts of which deride it as "a tax on stay-at-home mums", Cameron takes part in a round of interviews to try to claw back the initiative. In an attempt to sugar the pill for those middle-class families hit by the change, he revives talk of transferable tax allowances (which permit, for example, a husband to claim some of his wife's £6,600 tax-free personal allowance if she doesn't use it all – or vice versa). The proposal has not had support from the Liberal Democrats, though.
The Work and Pensions Secretary Iain Duncan Smith – who was not consulted about the child benefit cut by George Osborne and David Cameron – delivers a speech revealing surprisingly little detail about his much-heralded plans to revolutionise welfare.
In light of the concerns raised by members of the Conservative parliamentary party, Osborne writes to all MPs to try to explain the changes. He admits something about his emergency Budget that he was unwilling to do at the time – that the poor got hit. "I made £11bn of savings from other parts of the welfare system, many of which affected people on lower incomes," Osborne writes.
Cameron embarks on a second series of interviews for the early evening news, and says he is "sorry" for breaking Tory election promises on child benefit. "We did not outline all of those cuts," he told ITV News. "I acknowledge this was not in our manifesto." Davis ups the ante: "If you're carrying out a programme of cuts, you've got to do things that are seen to be fair."
Tory thinking, then and now
Before the election:
'We will preserve child benefit, winter fuel payments and free TV licences. They are valued by millions.'
George Osborne, Conservative Party conference, 6 October 2009
'A system that taxes people at high rates only to give it back in child benefit is very difficult to justify at a time like this.'
George Osborne, Conservative Party conference, 4 October 2010