Tag Archives: tax credits

Labour Clears The Way poster from 1911 general election

The anti-people’s budget and the constitutional crisis that isn’t

The government rhetoric about the House of Lords’ threat to derail their cherished plan to cut tax credits has been extraordinary over the last few days. To believe it, you would have to think that we are in the deadlocked position Parliament found itself between 1909 and 1911, when the then Liberal government attempted to force through David Lloyd George’s so-called “People’s Budget,” which established the foundations of the modern welfare state and, less successfully, sought to introduce a new system of taxation based on land values. It resulted in a constitutional showdown and eventually the Parliament Act 1911, which limited the powers of the Lords and sought to eventually replace it with a chamber “constituted on a popular basis”.

Then, the landed gentry clubbed together in the Lords to thwart a popular mandate for a more caring system of welfare for the working poor. Now, the Conservative government (which includes a number of members of the landed gentry) are throwing a hissy fit because our semi-reformed House of Lords is threatening to block an attempt to penalise the working poor. We aren’t talking about legislation here, which the Parliament Act prevents the House of Lords from being able to block, but an unamendable and thus unscrutinisable statutory instrument, which the government could retable the very next day if it wished to. In the past, governments have got extremely frustrated by the parliamentary ping-pong which has necessitated when the House of Lords and House of Commons disagree. Here, the government is losing its shit before the first serving volley has been fired.

I suspect this rather shrill reaction has more to do with George Osborne’s insecurities – possibly related to him seeing his future Prime Ministerial career retreating into the sunset – than it has to do with any true constitutional outrage. It was therefore extraordinary to hear this morning that Corbyn’s Labour have already capitulated. Of course, it is reasonable for Labour and the Lib Dems to have a fall back position to support if the crossbenchers are not prepared to support the fatal motion to kill the SI; but to go one step further and adopt the Tory position on constitutional sclerosis is bizarre. This puts Jeremy Corbyn in the odd position of a man who won’t bend the knee before the Queen but is all too eager to prostrate himself before the Prime Minister.

It should not be too hard to see that the Tory position on this is all bluff and bluster. The Tories can’t unilaterally suspend the Lords, as they were suggesting a few days ago. To change the powers of the Lords would require a new Parliament Act and re-open the can of worms on Lords reform, which they insisted was not a priority three years ago. To stuff the Lords with Tory peers would be an act of political suicide; it would make democratic reform of the Lords almost inevitable and make Cameron and the Tories look like the most corrupt administration in parliamentary history; don’t forget that even the Liberal threat to do the same in 1911 was part of an electoral pledge in the face of an overwhelming majority of flagrantly self-serving hereditary peers sitting in the Lords. Even Cameron cannot believe he is in the same position, not matter how great his powers of wishful thinking might be.

If this is their threat, I say bring it on. Fortunately, so does Tim Farron. I’m baffled that Jeremy Corbyn isn’t similarly energised at the prospect; just what is the point of him?

Why Zoe Williams’ tale of Tesco subsidies only tells half the story

Zoe Williams makes a good point in the Guardian when she questions why the taxpayer effectively subsidises companies like Tesco by paying out tax credits which would be unnecessary if they paid decent wages, whilst executives reward themselves massive bonuses from the profits they make as a consequence. There is clearly something wrong here.

But she only tells half of the story.

Yes, allowing highly “profitable” companies pay low wages is a scandal, but so is artificially increasing those wages by imposing income taxes on low incomes. This is effectively a dead weight cost on labour; neither the employer or employee benefits from it. It artificially raises the minimum wage which, in turn, strengthens the hand of those who would have you believe that the national minimum wage is an unacceptable burden on employers. And it undermines Zoe’s argument; that subsidy she alleges is at least in part coming out of the very low wages she is so critical of.

For this reason, it is absolutely crucial that personal allowance is raised to ensure that, eventually, no one on a living wage should be paying income tax. The coalition government has already made a start on this, and should be encouraged to move as swiftly as possible.

It would be nice to think that such a policy measure would be entirely uncontroversial; sadly it is not. In 2010, Left Foot Forward teamed up with the Fabian Society to produce a series of articles designed to prove that such a policy was one of the least fair and most regressive policies ever devised. On the narrow point about higher income earners gaining more from the policy than lower income earners, they had a point – although their manufactured outrage rings hollow in light of the new Labour orthodoxy about sticking up for the “squeezed middle”. In any case, this could e easily solved merely by lowering the higher tax rate bracket by the same amount as the personal allowance increase, which is indeed what George Osborne has done.

But it represents a wider failure of imagination on the part of Labour thinkers; that is to restrict their definition of fairness to purely one of income distribution. I strongly agree this is an important factor, but it would be a profound mistake to make this the only fairness test in public policy. Any tax policy which has the effect of making it more affordable for employers to pay people a decent wage should be championed; the public purse should indeed be used as a safety net, but it is simply madness to create a system such as the one built by Gordon Brown in which money unduly paid out on low incomes is recycled to top up the pay of people on low incomes. This is Alice in Wonderland economics – and that is even before you consider the billions in unclaimed benefits that this shockingly complex system effectively deprives people of each year. Surely even the most staunch statist cannot rationally argue against the inland revenue butting out at this point?

In short, we have a right to expect corporations like Tesco to pay decent wages to their employees – but Tesco have a right to expect the state not to have policies in place which actively discourage them from doing so. Both the government and corporate sector need to take action here, while Labour needs to decide which side they are really on.