Tax credits: Osborne should defy the Lords
and stick to his guns

The rules have changed. Opponents of tax credit cuts voted to delay George Osborne’s planned cuts to tax credits last night. By doing so they have opened up a constitutional Pandora’s box. The centuries-old convention that the Lords may not oppose a government’s financial measures lies in tatters. Those celebrating the defeat of the measures have set the cause of British democracy back by several centuries.

Nor should we be celebrating the preservation of New Labour era wage subsidies. Tax credits – introduced by Gordon Brown in 1999 – changed the entire purpose of welfare. No longer were benefits just for those who couldn’t take care of themselves. The state would pay you just enough money to ensure that you and your family were not statistically ‘in poverty’, but no more.

This created a very nasty trap. The moment you begin to earn more, your tax credits are withdrawn. Millions of families are kept just above the poverty line, discouraged from attempting to better themselves any further. The marginal tax rate on a low paid household can be as high as ninety five percent. Any attempt to better yourself by earning more is made pointless.

As I’ve argued before, tax credits are a ladder to nowhere.

The trap keeps working families pressed down. It also tears them apart. It is worth more to young mothers and fathers to live apart than to live together as a couple. Even if they do live together, it is far easier to leave. A single mother is more likely to take her children and run if she knows the state will support them. The father is much more likely to walk out on her if he knows his family will be supported.

The reforms had another dubious benefit. Labour used to be the party of the working classes. But then the working classes left it behind. Labour needed a new constituency. Gordon Brown gave it one. People on handouts are more likely to vote Labour. Creating a whole new class of state dependants was in Labour’s interests.

Of course, once the government has ‘given’ you something, it is harder to take it away. Tax credits were always designed to be irreversible. That is why rebellious Tory MPs like Heidi Allen line up with Labour and the SNP against the government. Or why former Conservative voters like Michelle Dorrell launch impassioned appeals on Question Time.

Millions of people have got used to the state topping up their wages. The longer these benefits are entrenched, the more people come to see them as normal. That was part of the reason why they were created. It is also exactly why they have got to go.

The rhetoric surrounding tax credits has been nothing short of hysterical. You would think that George Osborne was personally stealing food from the mouths of starving children. Last night’s debate was no exception.

Baroness Manzoor claimed millions would be affected by this “wrong headed, ill thought through” legislation. Lady Meacher claimed carers and self-employed people would be left “devastated”. The Bishop of Portsmouth called the proposals “morally indefensible”.

What is truly indefensible is the idea that those in work should be supported by the taxpayer, often other low paid workers. Government, after all, has no money of its own. Tax credits turn independent human beings into serfs of the welfare state. Ordinary working people pay for them. In return they are given some of it back and are expected to be grateful.

The cost of tax credits is staggering. When Gordon Brown introduced tax credits he claimed they would cost no more than £1 billion a year. He was wrong. Tax credits account for a massive £28 billion worth of public spending.

We simply cannot afford to dole out ‘free’ stuff on this scale. The deficit is coming down, but far too slowly. The national debt – as anti-austerity types keep telling us – has increased dramatically since 2010. We are not living within our means.

The Chancellor should hold his ground and send the measures back to the Lords. If his enemies in the upper house are still determined to ignore a time-honoured constitutional convention, then it ought to be enshrined in law that the upper house cannot overrule the Commons on financial matters.

There is a precedent for this sort of action. When Lloyd George was faced with defeat in the Lords over his ‘People’s Budget’, he threatened to pack the Lords full of new peers. The result was the Parliament Act of 1911.

The Lords had no right to derail a financial measure passed through the Commons by an elected government. They should face the consequences. It’s time to get tough on these unelected former politicians and turbulent priests. The Chancellor has received a bloody nose. Unfortunately, so has our democracy.


Chris has been a member of the Conservative Party since 2010. He believes strongly in individual freedom, personal responsibility, and the power of free markets to eliminate poverty by encouraging wealth creation. Follow him on Twitter: @cjmanby1989

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The views expressed in this article are that of the author and do not necessarily reflect the views of Conservatives for Liberty

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