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Tories get just deserts over deeply flawed tax credit cuts

By Sammy Wilson

Published 29/10/2015

Defeated: David Cameron
Defeated: David Cameron

Westminster witnesses a fair number of unusual events, but surely one of the most surprising was this week's rebellion by the lords, ladies, barons, earls and bishops in the upper chamber when - metaphorically speaking - the red benches were draped in red flags and the lords went a leaping to the defence of millions of low-paid workers across the UK.

I am referring, of course, to the vote on Monday evening which stopped the Government's plan to substantially reduce the tax credits paid to workers on low incomes. The parliamentary anoraks went ballistic. This was an unprecedented attack by the unelected house on the will of the elected House of Commons. It was an undemocratic assault on the electorate who had given the Conservative Party a majority at the recent election and it overturned the unwritten rules of our parliamentary system that the Lords should not overturn a finance measure passed by the Commons.

There is no doubt that the Lords' declaration of war on the tax credit policy will have constitutional implications, but for the millions of low-income people across the UK and the 109,000 in Northern Ireland who were set to lose about £1,100 per year on tax credits, I imagine the constitutional pin head dancing will not bother them one iota; they will just be thankful that the Government has not got its way with an ill-thought-out policy.

The losses which thousands of low-income families were facing from next year were due to changes in the income threshold at which tax credits would be paid, a steeper reduction in tax credits for every pound earned over that threshold and the decision to limit payments to a maximum of two children.

The argument for introducing this change is that the existence of tax credits enabled employers to pay low wages and the taxpayer then paid the rest through tax credits. By reducing tax credits and imposing a National Living Wage, which would gradually increase to more than £9 per hour by 2020, workers would be no worse off, employers would be forced to pay their way and the fiscal deficit would be reduced.

All great in theory, but in practice nothing of the sort will happen. First of all, the tax credit reductions will happen immediately, but the National Living Wage will be introduced over five years, so incomes will fall.

Secondly, the National Living Wage will not apply to anyone under 25, so they will get no compensatory increase in wages from their employer.

Thirdly, not every region, or every sector of the economy, has a buoyant labour market, so some employers will not be able to afford the increase.

The Government has countered that other measures, such as tax cuts, increase in allowances for childcare and rent-freezes in the public sector, will also help soften the impact of the tax credit cuts.

However, all the economic analysis of the policy has shown that low-income workers will finish up worse off and, indeed, the policy will act as a disincentive to work. So much for the Government's objective of making work pay. Ironically, the people most affected are those willing to take on low-paid work, because they see it as a first step on the employment ladder and have aspirations to better themselves and, therefore, are most likely to vote Conservative.

Instead of railing against the turbulent toffs of the upper house, the Government ought to be thankful that they now have a chance to go back to the drawing-board. They owe it to those individuals and families who are struggling on low incomes not to add to their financial burdens.

  • Sammy Wilson is MP for East Antrim

Belfast Telegraph

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