POLITICS

Tax Credits: Tory Commentator Says George Osborne Could Lose His Job Over Welfare U-turn

05/11/2015 13:19 GMT | Updated 05/11/2015 13:59 GMT
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George Osborne, U.K. chancellor of the exchequer, delivers his speech at the Conservative Party's annual conference in Manchester, U.K. on Monday, Oct. 5, 2015. Osborne will urge the 89 local-council pension funds in England and Wales to consolidate in an effort to improve their investment strategies and reduce costs. Photographer: Simon Dawson/Bloomberg via Getty Images

George Osborne could be forced to resign if he tries to "get away" with only a partial U-turn on tax credits as he faces a "massive rebellion" from his own party, a Conservative commentator has warned.

Tim Montgomerie, a columnist for The Times and founder of the Conservative Home website, said he believed the cuts to the benefit for working families were "dead" in their present guise, and called the policy "terrible politics".

He was speaking at a Resolution Foundation think-tank event on how the Chancellor can get himself out of a hole after the humiliation of the House of Lords torpedoing his welfare crackdown.

At the Westminster meeting, Labour MP Frank Field, also the chair of the welfare select committee of MPs, said ditching a taxpayer subsidy for low-paid workers and asking firms to pick up the slack via a National Living Wage "tears up" a welfare pact first formed to help the Elizabethan poor.

Mr Montgomerie said Mr Osborne "re-setting the rules of the game" by improving pay and ending the state welfare prop was an "admiral project".

"You cannot fight an election saying you are standing up for hard-working families then you cut benefits for hard-working families," he said.

He went on that since the The Sun, Boris Johnson and a series of right-wing backbenchers had aired their disquiet at the cuts he had a "massive rebellion on your hands".

"I don't think George Osborne will tweak," he said. "If he does just try to get away with this, he will not just be defeated in the Lords, he will be defeated in the Commons.

"That's not just the end of his leadership ambitions, it's the end of his Chancellorship and he would have to resign."

Mr Field, who like the think-tank mapped out his alternatives, said: "Many of us have been slow to take on board the National Living Wage strategy.

"It tears up a welfare agreement that goes back to the Elizabethan poor. (The argument is) appalling wages should not be dealt with by taxpayers, but should be born by capitalism itself. It changes the whole welfare debate."

He argued the proper role of welfare is to "take on those costs no capitalist system would be able take on".

TAX CREDITS: THE IMPACT

Tax credits are welfare payments to families raising children and working people on low incomes.

More than three million families will lose an average of £1,300 a year from April

The cuts will deliver £4.4bn of the Chancellor’s planned welfare cuts by reducing the earnings level at which tax credits start to be withdrawn from £6,420 to £3,850.

The Government says eight out of 10 would be "better off" overall from a package which also includes increases in the minimum wage for over-25s, rises in the income tax threshold and extended free childcare.

The Resolution Foundation today published a five-point plan over how he can find £4.4bn without cutting tax credits.

The organisation suggests phasing in the cuts would still leave 2.7 million families worse off and simply extend the political pain for the Tories.

Only imposing the cuts on new claimants would only make modest savings and will undermine the Government's Universal Credit single benefit, they say.

Instead, it offers a menu of changes to taxation thresholds and pensions.

“If the government is serious about providing more help to working families, its only option is to reverse the cuts," said David Finch, senior economic analyst at the Resolution Foundation.

"Fortunately there are plenty of ways to fund this move – such as cancelling tax cuts targeted at better off households.

"And with a surplus of close to £12bn pencilled in for the end of the parliament, the Chancellor can afford to cancel the tax credit cuts and still eliminate the deficit.”

  1. Slow down the increase in the threshold where workers start to pay income tax

    Increasing the income tax personal Allowance in line with inflation, rather than accelerating it towards £12,500, would raise £4.9bn by 2020.

  2. Or look to find it from higher rate tax payers

    It suggests increasing the basic rate of income tax limit to rise in line with inflation, rather than accelerating it so the higher rate threshold reaches £50,000, saving £1.3bn by 2020.

  3. Osborne could claw back inheritance tax hand-outs

    Reversing the increase in the inheritance tax threshold and cuts to corporation tax would save £3.4bn by 2020.

  4. Raid the state pension coffers

    Clawing back the over-indexation above earnings of the state pension - it was put up by more than its legal obligation - from the last Parliament by limiting pension rises in this Parliament would save around £6bn.

  5. Reverse various tax breaks

    Returning spending on tax reliefs to 2010 levels by 2020 – and thereby reducing the UK’s current £100bn spend on around 1,000 different reliefs – would save around £10bn.