Tax credits reform: how badly wrong could this go?

From the moment that the Conservatives announced their plans to reform the tax credits system, there was a sense that they either didn't understand the implications of what they were doing, or simply didn't care, lost in a reverie of ideology. However, as it becomes clearer that this might not be popular, and we are all aware that politicians prefer to be popular rather than unpopular, there have been increasing signs of nervousness among the serried ranks of Conservative MPs.

Compassionate Conservatism surely means that, in the search of the mythical centre ground, they can't be uncaring, can they? So, let's see if we can't dig a little deeper. The Social Security Select Committee in the House of Commons is a good place to start, perhaps. After all, they scrutinise that sort of thing, right?

Paul Gray MP, writing to David Gauke, the Financial Secretary to the Treasury, noted;

... we were disappointed that HM Revenue and Customs officials were not in a position to share with us their observations on:

• the potential impact the introduction of the national living wage might have on the proposals;

• whether there were likely to be any behavioural impacts brought about by the proposals;

• the degree to which the proposals are likely to impact upon the successful transition of Tax Credits to Universal Credit;

• the likely or actual effects of the policy on people of ‘protected characteristics’ and the evidence considered in reaching that view; and

• the evidence that had resulted in a view that the proposals will have no impact on charities or the voluntary sector

You might, not unreasonably, be hesitant to proceed in the absence of that data. Unless, of course, you assume that tax credit claimants probably don't vote Conservative in any great numbers and that with Labour at war with itself, you could get away with it anyway.

You might also think, if you were George Osborne, that the announcement of a national Living Wage might muddy the waters so much that you could slip this through without much debate. It seems that this hasn't been as effective a strategy, if strategy it is.

Next Tuesday, there is a Motion of Regret on the Order paper of the House of Lords, in the name of Lord Kirkwood of Kirkhope. Archy, for it is the former Liberal and then Liberal Democrat MP for Roxburgh and Berwickshire, has been a doughty campaigner on social security issues for some years, and I suspect that he will not spare the Government in his remarks.

Will it persuade the Conservatives to give the matter rather more thought. I hope so, but have no great expectations...

Labour placate the Conservative supporting media. For the love of God, why?

I am not a radical. My best friends wouldn't call me a radical. But, for pity's sake, when a piece of legislation is up for debate which will make your supposedly core voters much worse off, people who are likely to have no financial resilience and won't easily be able to make up the proposed loss of income, it seems like a no-brainer to oppose it. 

So, what the hell are the Labour Party doing, proposing to offer up the gesture of an amendment which includes the phrase;

a benefits cap and loans for mortgage interest support are necessary changes to the welfare system

and bemoans the impact of cuts in tax credits in the most hand-wringing way imaginable?

All of the evidence is that the Conservative proposals will make a lot of vulnerable people considerably poorer in the short term, in the hope that, in four years time, they won't be quite as impoverished in four years as they will be next year. Hell, I oppose them, and I'm a middle-class, comfortably off, bureaucrat.

It seems that Labour Party strategy (and I note that many Labour activists are as aghast as I am) is to demonstrate that they are 'fiscally responsible', regardless of how many poor and vulnerable people, many of them in work and therefore not 'skivers' (and I hate that word), will be thrown under the bus as a result.

Yes, we need to do something about the size of the welfare budget. Frankly, I wonder if we haven't gone too far with pensions, guaranteeing as we now do that pensioners will be better off in real terms every year through the triple lock. But even if you think that tax credits are too generous, you need to give those affected some time to adjust their spending, seek more work and make necessary arrangements.

And, in some places, finding additional work will not be that easy. The opportunities are still not there in some parts of the country, and not everywhere is like Mid Suffolk, with its 2.7% unemployment rate.

But who are Labour trying to impress? The right-wing media? George Osborne? Perhaps I ought to explain. They don't want you to win. You could propose the sacrifice of the first-born from migrant families and they would still rather have a Conservative government. Instead, you have to at least make sure that those who have put so much faith in you for so many generations have someone to stand up for them.

I am proud that Liberal Democrats will be voting against the proposals this evening. I am pleased that they will be standing together with the SNP, the Greens, Plaid Cymru and even the Democratic Unionists. I hope that Labour MPs will join them, defying a whip which deserves ridicule.

As a Liberal Democrat, I sat by over five years, watching our MPs cast votes that I truly wish they hadn't had to cast. Coalition is like that - you get some of your stuff, and they get some of theirs. And, if there are more of them than there are of you, they get more than you do.

But if you aren't bound by a coalition agreement, why for the love of God would you put party discipline above the views of your own members? Is it that gaining power is more important than remembering why you wanted it in the first place?

I pity Labour Party activists this evening, I really do...

Mid Suffolk: what does cutting tax credits mean here?

Amidst all the talk of cutting the welfare budget by £12 billion per annum, the focus has been on tax credits – after all, given that pensions have been fixed through the ‘triple lock’, there is less scope for reductions otherwise. But, whilst there is a general acceptance that we need to ensure that benefits follow need, the actual impact on families, working or otherwise, can easily be lost in a snowstorm of statistics.

So, what is at stake for residents of Mid Suffolk? The average number of families (rounded to the nearest hundred) claiming either Working Tax Credit (WTC), or Child Tax Credit (CTC), or both, was as follows in 2013-14;

• 1,100 out-of-work families
• 1,800 in-work families with children, claiming WTC and CTC
• 1,500 in-work families with children, claiming CTC only
• 500 in-work families with no children, claiming WTC

Of the 3,300 families with children claiming WTC and/or CTC, 1,200 of them were single parent households.

The average amount received per household was;

• £6,291 - out-of-work families
• £8,601 - in-work families with children, claiming WTC and CTC
• £3,513 - in-work families with children, claiming CTC only
• £2,447 - in-work families with no children, claiming WTC

The average amount received, per household, was £5,951.

Given the suggestion that an average of £1,400 will be lost per household through the cuts, one might assume that the biggest blow in cash terms will fall upon in-work families with children, ironically, the very group of people that politicians of all hues have been saying need to be focused on most.

There is no doubt that, here in Mid Suffolk, we’re relatively fortunate. Unemployment is low - 2.7%, compared to 5.3% across the county, and 6.4% in England (Q4, 2014) - and earnings relatively good. But, for those people who have come to rely on the top-up to their income that tax credits provide, and who are unlikely to have much in the way of financial resilience - low (or no) savings, little scope to increase earnings immediately - any cut will lead to, at the very least, transitional hardship, and in some cases, to domestic crisis.

Yes, we need to ensure that we develop a social security system that is sustainable in the long-term and which protects the poor and vulnerable, but Iain Duncan-Smith, George Osborne and their Conservative colleagues need to understand that government is not just about numbers, it's about people.

* Interested in the data, either for MId Suffolk or for your own area? Here's the data...

Osborne thinks outside of the box. But has he got the wrong end of thestick?

The suggestion that George Osborne is thinking about cutting £5 billion from the social welfare bill by reducing tax credits to their 2003/4 level (in real terms) is an unexpected turn in some ways. That's partly because there will be many who wouldn't have suspected that they had risen by more than the rate of inflation in the first place, but also because everyone has been going on about 'hard working families' and how important it is to provide an incentive to work.

There is no doubt that the growth of tax credits as a way of 'making work pay' has had some impact, but it is interesting to note the words coming from the Conservatives that tax credits have, effectively, subsidised employers. They have, at least, spotted the dilemma that Gordon Brown's tinkering has created. However, they have done drawn a conclusion which demonstrates the difference between Liberal Democrat thinking and Conservative thinking.

The Conservative approach appears to be that it is perfectly acceptable for employers to pay salaries that require state intervention to bring them up to a sufficient level, and that the solution is to make the relatively poor somewhat poorer. But why not instead raise the minimum wage by something above inflation (not too much, and perhaps over a number of years), and raise benefits by just a little less than inflation? That way, you can reduce the tax credit bill at both ends, whilst retaining the incentive to work.

And perhaps, whilst you're at it, you could do something about the pensions triple lock, which is looking increasingly generous towards a group of people who disproportionately vote Conservative. After all, their real term increases are one of the reasons why such large cuts are needed from the rest of the social welfare budget. I suspect that I may have answered my own question in the first sentence of this paragraph...

And yet, despite this, George Osborne is being made to look moderate relative to some of the thinkers within his own party. Kwasi Kwarteng is suggesting that the young should be paid their benefits in the form of a repayable loan, suggesting as he does that, even if they remained unemployed for the entire period between 18 and 25, the amount would still be 'less than a student loan'. Might I point out to him that if someone is unemployed for significant periods at that point in their lives, they are highly unlikely to ever earn the sort of salary that would allow them to repay such a loan.

I have a nasty feeling that it's going to be a very difficult five years...

A budget for whom, exactly?

Given my interest in matters financial, I was listening to the Budget Statement whilst wrangling a technical problem with my computer (I won in the end, thanks to a colleague). And, in terms of rhetoric, it was an interesting forty-five minutes or so. Lots of references to the Leader of the Opposition and his kitchen, his family issues, his personal tax affairs - anything to wind him up, although you would need to be either inside, or a keen observer of, the Westminster bubble to have gotten all of the jokes.

And, there is little doubt that some of the measures are probably a 'good thing'. Continued efforts to take more of the 'working poor' out of income tax should be applauded, although as the noble Lord Greaves of Pendle rightly pointed out two years ago, we're not actually doing that much now for those who were taken out of income tax by earlier increases in the personal allowance. We could, and should, have addressed the threshold for National Insurance Contributions - swapping the threshold per discrete job for a higher overall threshold, perhaps? - and the logic of subsidising low wage employers by giving their staff tax credits to make up the gap between subsisting and living.

It does strike me as perverse to allow such a obfuscation of the cost of employing people to do tasks. I require, for example, someone to stack the shelves of a supermarket so that I can find the things I want to buy. The price I pay for an item is therefore not the entire cost if I am paying taxes to subsidise the shelf-stacker's salary. Perhaps it would be better if I paid more for the item in the first place, therefore gaining a clearer understanding of the actual cost of my purchase.

And, of course, we need to address the issues surrounding those who want to work but can't, for whatever reason. At the moment, we seem to be happy to allow those in receipt of benefits to run the gauntlet of a system of sanctions for failures that may, or may not, be deliberate. Stuff happens, buses run late or are cancelled, meetings are missed because of ill-health or conflicting demands of childcare or personal crisis, and the system of sanctions kicks in without consideration of the impact.

Don't get me wrong, there should be a sanctions regime in place, but it needs to be considerate of its impact on individuals, not punitive and impersonal. We are, after all, trying to help bring people back into the productive economy, not driving them towards hunger and despair.

And, with Labour offering merely more pressure on benefit claimants, which undoubtedly means more sanctions (and please don't patronise me by trying to explain how you can be tougher on benefits without being more intrusive and more draconian), there is a space in British politics for anyone wanting to explore how you can focus DWP compliance and investigation work so as to enable those genuinely wanting to do their bit to focus on seeking work, and those who are playing the system to be tackled. That should be the Liberal Democrats, but if at present it is, we need to be more vocal in making the case.

"Hey, mister, wanna buy a prepaid benefits card?"

The announcement at the Conservative Party Conference by Iain Duncan Smith that he is planning to initiate a pilot scheme whereby prepaid cards are given to benefit claimants instead of money is one of those slightly uncomfortable proposals that make me think, "On one hand...".

The idea that the prepaid cards could only be used for a restricted range of purchases is superficially appealing, especially if you are the sort of person who believes that people should be appropriately grateful for what they receive. Such a person, and there are many of them out there, would claim that the purpose of welfare benefits is to pay for "essentials", whatever that might mean. They might go on to mutter their discontent over those whose benefit payments appear to be converted into profit for the pub trade.

And there is a legitimate, if difficult, debate to be had here - what do we believe a benefits system is for? What level of provision are we trying to achieve, and do the recipients of that provision have some obligations in return?

So, when Iain Duncan-Smith says;

I have long believed that where parents have fallen into a damaging spiral – drug or alcohol addiction, even problem debt, or more – we need to find ways to safeguard them – and more importantly, their families, their children, ensuring their basic needs are met.

he sounds reasonable, indeed caring. The catch is that his aim is to reduce the social security bill, and he gives the impression that he doesn't care much about the impact of his decisions. Indeed, he often finds ways of taking quite good ideas and finding ways of making them punitive.

This is not necessarily one of those good ideas though, and other, more knowledgeable people than I have pointed out issues relating to technology and cost and inconvenience to retailers and their customers, not to mention the likely impact on market stalls or rural claimants. And, of course, that is before you turn to the moral and ethical implications of deciding what is appropriate to people for them.

 

As Liberal Democrats, we need to be extremely cautious about this. Finding new ways of targetting financial support more efficiently and preventing the emergence of perverse disincentives to seek paid work are inevitable if we are to get the best use out of government spending, yet stigmatising the poor and the vulnerable any more than their status already does runs contrary to our belief that preserving the dignity of human beings is part of ensuring that they are not enslaved by conformity or poverty.

 

Trusting the majority of people to act responsibly is surely the right thing to do, and restricting their freedom through state action is hardly encouraging anything other than increasingly resigned dependence on others to run their lives.

 

And, on the whole, when the technological and moral complexities of any course of Government action suggest that something is both difficult to deliver and unlikely to have much, if any, positive impact, my feeling is that it isn't worth doing at all.

 

Unless, of course, your aim is to make a gesture. You wouldn't do that, would you Mr Duncan-Smith?...

The 'Bedroom Tax' - a predictable flesh wound, when all is said and done

There is a certain relief in reports that the Liberal Democrat leadership have finally seen reason with the 'bedroom tax' - 'sinners repenteth' and so forth. After all, the concept that a policy might be implemented, tested in the field and, if found wanting, changed or scrapped, is a good one.

The problem is, and always was, that they were warned at the very beginning by those with experience of local government - predominantly in the Lords - that you couldn't introduce such a penalty unless there was sufficient social housing availability to allow tenants to downsize easily and provision made for the disabled, neither of which applied. The rebellion in the Lords, which included a number of Liberal Democrat Peers not amongst 'the usual suspects', didn't get much attention, but then there is an impression given that the leadership don't give much credence to many people beyond their immediate circle.

As I've noted previously, the concept of providing incentives to encourage those in social housing to downsize if possible is a sound one - we need to use our limited stock of social housing as efficiently as possible, even if we build more. The way that this was done, however, smacked of punitive action against those less able to protect themselves.

Has it been as vicious as has been suggested by some? Probably not, although it has been mean-spirited. Have Labour authorities applied it in such a way as to create anger against the Coalition? Possibly, there are some deeply unpleasant, highly cynical people out there, but not many, I suggest. But, regardless of any such considerations, the current policy is pretty idiotic and does not reflect well on the competence and compassion of those involved in its introduction.

Sadly, the response has been pretty cynical, with suggestions that Labour should use this as a means of causing division amongst the Coalition, and even some Conservative commentators calling for David Cameron to call Nick's bluff. I wouldn't object to discussions between the Labour and Liberal Democrat front benches to agree a line and put it to the Conservatives - it might be a useful trust-building exercise prior to possible Coalition negotiations in the future. And if it were to lead to a better policy, than it could only be good for our democracy, demonstrating that political parties don't have to be confrontational.

So, the challenge to both Labour and Liberal Democrat politicians is this, do you want to win, or do you want to help?...

Ros in the Lords: Social Security (Maternity Allowance) (Participating Wife or Civil Partner of Self-employed Earner) Regulations 2014

Occasionally, as a member of a Parliamentary Party, you need someone to step in at short notice to deal with a piece of legislation - perhaps the usual spokesperson is ill, or absent, or double-booked, and yesterday saw one of those days, as Ros was asked if she could speak for the Liberal Democrats on a piece of secondary legislation. As you can see, she was able to demonstrate her versatility here... 

Baroness Scott of Needham Market (LD): My Lords, I support the social security regulation which we are debating today - not just because it avoids an €11 million fine. I think it is a good thing in its own right. For once, we have a welcome change to the benefits system in that it is beginning genuinely to reflect the diversity of people’s lives and the lives of women in the workforce. That is a very good thing indeed. It is bringing a new group of women, predominantly from the very small, micro-business sector, within the ambit of maternity benefit. I just wish that the gold-plating had been left in place just on this one occasion so that they could have had a benefit more in line with everyone else.

I want to ask two questions. The first is about disseminating information, because this is a very difficult group to reach. They do not tend to be members of chambers of commerce, and that sort of thing. I do not have a particular answer, but I wanted to put in the plea that all efforts are made to ensure that women who are likely to benefit actually know about it and are able to. We hope that the Government’s new enterprise allowance scheme will be successful, so we could have even more very small businesses starting up in the coming year or so, so we need to get on top of how we can ensure that women know that these benefits are available.

Secondly, I welcome the discussions on shared parental leave - I know that the Deputy Prime Minister has been very keen on this and it has some support within government. It would provide welcome flexibility, but I am curious as to how these arrangements might work if we have shared parental leave. With those questions, I welcome the instrument.

From the Labour benches, Maeve Sherlock, a former NUS President and one of their social security experts, was kind enough to describe her contribution as one of "excellent questions", which is nice. You couldn't really imagine that sort of courtesy in the Other Place, could you?

Written ministerial statement on the Universal Credit Migration Strategy

Yesterday, the Government issued a statement on the timetable for the transition from the current welfare framework of multiple benefits to the new Universal Credit. 

"Today the Department for Work and Pensions announces its strategy for moving 12 million working-age benefit and credit recipients on to Universal Credit by 2017.

Universal Credit is intended to provide a streamlined welfare system which makes the financial advantages of taking work or increasing hours clear to claimants. We recognise that the move from one welfare system to another needs to be carefully managed to ensure social outcomes are maximised and no one is left without support.

The transition from the old benefit system to Universal Credit will therefore take place in three phases over four years, ending in 2017 with around 7.7 million households receiving more support to find more work and be more self-sufficient.

Between October 2013 and April 2014, 500,000 new claimants will receive Universal Credit in place of jobseeker's allowance, employment support allowance, housing benefit, Working Tax credit and Child Tax Credit. At the same time, a further 500,000 existing claimants (and their partners and dependants) will also move on to Universal Credit as and when their circumstances change significantly, such as when they find work or when a child is born.

From April 2014, the second phase will give priority to households who will benefit most from the transition, such as those Working Tax Credit claimants who currently work a small number of hours a week but could work more hours with the support that Universal Credit brings. Overall, 3.5 million existing claimants (and their partners and dependents) will be transferred on to Universal Credit during this second phase.

The last and final phase, which begins at the end of 2015 and runs through to the end of 2017, will see around three million households being transferred to Universal Credit by local authority boundary. This phase will have the flexibility to respond to the circumstances of particular local authorities as they change and will focus on safeguarding financial support, such as housing benefit payments, to claimants as the old benefit system winds down.

The Department for Work and Pensions will continue to work with HMRC and local authorities to settle on a precise timing schedule of the move to Universal Credit. Once agreed, the schedule will be kept under regular review."

Iain Duncan-Smith

Secretary of State, Work and Pensions

It must be borne in mind that this isn't the only big project underway at the moment, as HM Revenue & Customs are preparing to unleash 'Real Time Information', which will provide DWP with up to date information about claimants' employment income.

But, if it all works, it will reduce the administrative costs of our benefit system significantly, and make it easier for those eligible for benefits to get what they are entitled to.