Monday, 26 October 2015

The Lords and the Low Pay Subsidy.

Way back in the 1960s we Liberals campaigned for what we then called Negative Income Tax. - if your income was high you paid tax to the state, if it was low then the state paid you.  It seemed a good idea.

Calling it Working Tax Credit Gordon Brown introduced it in the early 2000s.  The chaos of the initial introduction is amply described in Chapter 10 of King and Crewe's " The Blunders of our Governments,"  but most of the initial teething troubles have now been sorted out.  However, what we now realise is that, rather than being a clever way of administering a vital part of the social security safety-net, working tax credits are in practice a massive subsidy to employers to enable them to pay wages below the market rate.

So George Osborne is quite right to try to move  employers away from a state subsidy to paying decent wages.  The obvious and humane way to do this is to raise the wages first and then gradually lower the subsidy.  Typically Osborne has chosen to effect the process in reverse: the subsidy is to be reduced now and the (very slightly) improved wages are to come later, if at all..  All independent sources say that some three million of the lowest paid people, already on the breadline, will lose out, some of them to the tune
of over £1 000 a year (maybe peanuts to the well heeled, but a crucial £20 a week to those on a tight budget.)

With its Conservative majority, the Commons has already approved the proposals, but this afternoon the House of Lords has a chance to stop it.

The Tory Perception management machine is already in spate expressing outrage.  Former Tory leader Michael Howard (he of something of the night) says that Lords' interference in financial matters  upsets 350 years of tradition. (His own party blocked regularly Liberal financial proposals right up to Lloyd George's People's Budget in 1910.)  Nicky Morgan had a better perception of history (fortunately, as she's Education Secretary) when she brought down the period of non-interference to 100 years.

However, the truth is rather different.

First , the Tories were quite explicit in the general election campaign that thy would not reduce tax credits.  Michael Gove, then and now a senior minister, is on record as saying in the election campaign that they would be frozen for two years.  David Cameron said there were no plans to reduce them.  So there is no question of Lords frustrating the elected government  on a policy for which they have a mandate.  Rather the reverse - to prevent their breaking an election  pledge

Secondly, Osborne is hoist with his own petard.  The constitutional principle is that the Lords will not interfere with a Finance Bill.  But Osborne did not include his Tax Credits proposals in the Finance Bill, but , in order to avoid too much scrutiny and opposition in the Commons (even some Conservatives have their doubts about the wisdom of the policy) introduced the measure by a Statutory Instrument.

The Lords have every right to kick this out.  Lets hope they do

PS (added Tuesday 27th October)   Hurray, they did!


  1. The Lords don't have the power to delay bills relating to taxation. But Tax Credits aren't taxation. They're expenditure!

    1. According to Wikipedia (which I admit many not be authoritative):

      "In the Westminster system (and, colloquially, in the United States), a money bill or supply bill is a bill that solely concerns taxation or government spending (also known as appropriation of money), as opposed to changes in public law."

      So expenditure seems to be covered, but only if it is certified by the Speaker of the Commons as a Money Bill, and , probably for the reasons expressed above, Osborne avoided this by submitting the measures as a Statutory Instrument.