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| How George Osborne got himself into a fix over tax credits | How George Osborne got himself into a fix over tax credits |
| (34 minutes later) | |
| On 28 April Danny Alexander’s office rang the Guardian to leak discussions inside the coalition government over the previous two years, in an attempt to force the Conservatives to admit its £12bn planned welfare cut would have to involve cuts to child tax credits as well as cuts to child benefit. | |
| Related: Tax credits: power of Lords must be contained after defeat, Grayling says - Politics live | Related: Tax credits: power of Lords must be contained after defeat, Grayling says - Politics live |
| The office of Alexander – the Lib Dem chief secretary to the Treasury – was trying to jemmy open a debate that the Tories intended to keep closed. David Cameron’s strategy was to say he would cut £12bn from welfare, but not set out the specific cuts. Cuts to welfare in abstract were popular, according to polling, but less so once individual measures was spelled out. Tory ministers were told to say decisions would be taken after the election. | |
| Alexander knew Cameron would then have to answer the allegations when he appeared on a BBC Question Time leaders’ debate. The Guardian splashed the story on its front page, and duly in the TV debate Cameron was challenged about the reports. An audience member asked him: will you put to bed rumours that you plan to cut child tax credit and restrict child benefit to two children? | |
| Cameron replied: “No, I don’t want to do that – this report that was out today is something I rejected at the time as prime minister and I reject it again today.” | |
| Dimbleby challenged him further: ”You said you didn’t want to put to bed rumours that you were going to cut child tax credits –you meant you did want to put to bed the rumours?” | Dimbleby challenged him further: ”You said you didn’t want to put to bed rumours that you were going to cut child tax credits –you meant you did want to put to bed the rumours?” |
| Cameron replied: “Yes, we have increased child tax credits.” | |
| Dimbleby challenged him again: “Clearly there are some people who are worried that you have a plan to cut child credit and tax credits. Are you saying absolutely as a guarantee, it will never happen?” | Dimbleby challenged him again: “Clearly there are some people who are worried that you have a plan to cut child credit and tax credits. Are you saying absolutely as a guarantee, it will never happen?” |
| Cameron answered: “First of all, child tax credit, we increased by £450.” | Cameron answered: “First of all, child tax credit, we increased by £450.” |
| Dimbleby asked: “And it’s not going to fall?” Cameron replied: “It’s not going to fall. Child benefit, to me, is one of the most important benefits there is. It goes directly to the family, normally to the mother, £20 for the first child, £14 for the second. It is the key part of families’ budgets in this country. That’s not what we need to change.” | Dimbleby asked: “And it’s not going to fall?” Cameron replied: “It’s not going to fall. Child benefit, to me, is one of the most important benefits there is. It goes directly to the family, normally to the mother, £20 for the first child, £14 for the second. It is the key part of families’ budgets in this country. That’s not what we need to change.” |
| Cameron was correct to reply as he did on child benefit, but is in more difficult territory with child tax credits. | Cameron was correct to reply as he did on child benefit, but is in more difficult territory with child tax credits. |
| All through the election the IFS thinktank and Labour insisted it was not possible for Cameron to cut £12bn without hitting tax credits. | All through the election the IFS thinktank and Labour insisted it was not possible for Cameron to cut £12bn without hitting tax credits. |
| For instance, at a high-profile press conference with Ed Miliband the day before the Guardian leak, Rachel Reeves, then shadow work and pensions secretary, directly challenged the Tory leadership: “Will you, David Cameron and George Osborne, guarantee that you will not cut family tax credits again? Will you, David Cameron and George Osborne, guarantee that you won’t hit family budgets like you did in the last parliament? | |
| “So watch them when they are asked today will they guarantee those things. The simple answer is that they cannot offer guarantees because you cannot make these extreme cuts to social security and to public spending without hitting ordinary working families.” | “So watch them when they are asked today will they guarantee those things. The simple answer is that they cannot offer guarantees because you cannot make these extreme cuts to social security and to public spending without hitting ordinary working families.” |
| Most of the media obsessed by an SNP-Labour coalition took little interest in the story, and the issue of how the Tories would treat the working poor after the election was submerged in a discussion based on the output of a faulty polling industry. | Most of the media obsessed by an SNP-Labour coalition took little interest in the story, and the issue of how the Tories would treat the working poor after the election was submerged in a discussion based on the output of a faulty polling industry. |
| Yet the subterfuge has come back to haunt the government. Even if Osborne did not know in May precisely how he would deliver £12bn of welfare cuts, his pledge to protect pensioners left him with little option but to reduce the value of tax credits. | Yet the subterfuge has come back to haunt the government. Even if Osborne did not know in May precisely how he would deliver £12bn of welfare cuts, his pledge to protect pensioners left him with little option but to reduce the value of tax credits. |
| Before the summer budget Osborne prepared the ground with the care that he often does, classifying the tax credit bill as out of control, saying the cost had ballooned from a couple of billion pounds to £30bn a year. The whole tax credit bill was portrayed as a ludicrous invention by Gordon Brown. | |
| With classic political skill he argued that the solution lay deep in a thinktank then run by Gavin Kelly, a former adviser to Brown and chief executive of the Resolution Foundation. | |
| He would increase the minimum wage sharply to above £9 by the end of the parliament, rebrand the statutory minimum as a “national living wage”, and cut tax credits. He was planning to turn the British economy from a low-wage, high-welfare economy into a high-wage, high-productivity, low-welfare economy. | He would increase the minimum wage sharply to above £9 by the end of the parliament, rebrand the statutory minimum as a “national living wage”, and cut tax credits. He was planning to turn the British economy from a low-wage, high-welfare economy into a high-wage, high-productivity, low-welfare economy. |
| For good measure other budgets items – an extension of free childcare and increases in the personal tax allowance – meant eight out of 10 families would benefit. The Conservatives were soon claiming to be “the true workers’ party”. | |
| Osborne, flushed with an election victory and with Labour in disarray, pressed ahead with the big decisions that would define his chancellorship. It was, he said, a big judgment call, and a test of his party’s nerve. He limited child tax credit to the first two children and lowered the income threshold at which tax credits would be cut, the single measure that most hits the working poor. All benefits would be frozen for four years. | |
| Related: Even the House of Lords couldn’t stomach Osborne’s tax credit cuts | Polly Toynbee | Related: Even the House of Lords couldn’t stomach Osborne’s tax credit cuts | Polly Toynbee |
| In the immediate aftermath of the budget Osborne seemed to have pulled off his conjuring trick, but as often with budgets the IFS and others started to unpick the impact of his work. | |
| Moreover, the Treasury started to play a tiresome game of cat and mouse with three select committees – Treasury, work and pensions and the Lords statutory committee – about the true implications of the changes to tax credit. The Treasury produced an analysis of the distributional impact of its measures, but only for those on working tax credits and not the wider population. | |
| One other problem hit the government – and he was called Frank Field. Now chairman of the work and pensions select committee, Field is respected across the Commons, and knows instinctively how to work on a cross-party basis. | One other problem hit the government – and he was called Frank Field. Now chairman of the work and pensions select committee, Field is respected across the Commons, and knows instinctively how to work on a cross-party basis. |
| He spotted the danger to the Tory “strivers” in the tax credit measures and played on Tory backbench fears about the sense of betrayal that would be walking into their constituency surgeries when the measures hit pay packets in April. He probably did not foresee Osborne’s undoing would come in the Lords as opposed to the Commons, but he gave the peers the political ammunition to fire this week. | He spotted the danger to the Tory “strivers” in the tax credit measures and played on Tory backbench fears about the sense of betrayal that would be walking into their constituency surgeries when the measures hit pay packets in April. He probably did not foresee Osborne’s undoing would come in the Lords as opposed to the Commons, but he gave the peers the political ammunition to fire this week. |
| In retrospect, Osborne was mistaken in massaging, or at least being selective, about the impact of the measures on the working poor. It might have been better to admit this was a very painful measure, rather than leave a chasm between rhetoric and reality. | In retrospect, Osborne was mistaken in massaging, or at least being selective, about the impact of the measures on the working poor. It might have been better to admit this was a very painful measure, rather than leave a chasm between rhetoric and reality. |
| At the same time Osborne should not have pushed through these changes through a statutory instrument, as opposed to the finance bill or the welfare bill. A statutory instrument can be passed more quickly with less debate. Peers are reluctant to overturn financial measures on a government bill, and know they cannot do so if the measure was in the governing party’s manifesto. | At the same time Osborne should not have pushed through these changes through a statutory instrument, as opposed to the finance bill or the welfare bill. A statutory instrument can be passed more quickly with less debate. Peers are reluctant to overturn financial measures on a government bill, and know they cannot do so if the measure was in the governing party’s manifesto. |
| Yet for reasons of convenience, the measure was in a statutory instrument, and for reasons of secrecy not in the Conservative manifesto. | Yet for reasons of convenience, the measure was in a statutory instrument, and for reasons of secrecy not in the Conservative manifesto. |
| Many will see the episode as a dreadful blow to the prestige of Osborne; just as his stock has risen since the election, it will now fall, and the blond locks of his rival for the leadership, Boris Johnson, will sheen more brightly. It is a personal test for the chancellor since the the bright young things at Treasury hate their authority being challenged, especially by a bunch of septuagenarians. | Many will see the episode as a dreadful blow to the prestige of Osborne; just as his stock has risen since the election, it will now fall, and the blond locks of his rival for the leadership, Boris Johnson, will sheen more brightly. It is a personal test for the chancellor since the the bright young things at Treasury hate their authority being challenged, especially by a bunch of septuagenarians. |
| He needs to develop a new political skill – grace and clear thinking in retreat. He has until the autumn statement – a huge enterprise in itself – to prepare himself. | He needs to develop a new political skill – grace and clear thinking in retreat. He has until the autumn statement – a huge enterprise in itself – to prepare himself. |