The Guardian view on cutting in-work benefits: another way of squeezing the poor
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Version 0 of 1. You’re a prime minister who’s spent five years telling everyone who’ll listen that you’re on the side of “hard-working families”. Next month you’ll cut the cash going to those same “hard-working families”. How do you justify that? Welcome to David Cameron’s world and to a dilemma that – to take a page out of Mrs Cameron’s Diary – is totally awks. The prime minister can’t turn back on his pledge to cut another £12bn from Britain’s social-security bill, confirmed afresh last weekend by both his chancellor and his work and pensions secretary. He must do this within the next two years – which means starting in earnest in the budget on 8 July. But keeping his word on that promise means breaking his commitment to those hard-working families who depend on the tax credits he plans to cut. Not quite the hypocrisy charge chucked at Nick Clegg after his U-turn on student fees – but bad enough. So into this political battle comes Mr Cameron toting a new shield. His pre-emptive defence, unveiled in a speech this week: blame the system. It is a “ridiculous merry-go-round”, claims the prime minister, to tax low-earners then hand them back money in tax credits. Not only that, but “it’s dealing with the symptoms of the problem – topping up low pay, rather than ... helping to create well-paid jobs in the first place.” This is a tortured case to make, as one might expect from a prime minister who has backed himself into a tight corner. Take the first charge of the money merry-go-round: it may make sense on talk radio (“It’s fiscal correctness gone mad!”); it makes none in the real world. Tax is levied on individuals; child tax credits are paid according to family need. Tax credits are given to the lowest-paid, whereas even millionaires enjoy the benefits of a rising basic-rate threshold. So the lowest-paid are losing money, even while the richest gain. The problem is well summed up by Donald Hirsch, head of Loughborough University’s centre for research in social policy. There are, he says, six times as many taxpayers as families receiving tax credits. So for every £6 cut from those households receiving tax credits that contain a taxpayer (riding on this “merry-go-round”), they would receive £1 back in lower tax. The neediest families would lose £6 each. “Only those too well off to qualify for tax credits would gain.” The prime minister’s point about Britons earning a living through good jobs rather than relying on benefits is fair. So fair that it was made repeatedly at the last election – by the man whom Mr Cameron lambasted as Red Ed. It’s unfair for billion-pound companies – spraying millions at directors and shareholders – to rely on the state to top up the poverty wages they pay their workers. So the Conservatives might justify a cut in tax credits if they were also to drive private sector businesses to pay the living wage. But they show no inclination to do so. Indeed, as the Child Poverty Action Group points out, the government’s draft child poverty strategy last year didn’t even mention the living wage – until campaigners intervened. If Mr Cameron really wants a discussion of welfare – social and corporate – we’re all ears. As it is, this looks like hastily made excuses for a rash and damaging policy. |