Clash of Comments: Should the government cut tax credits?

Yes- Oliver Wilson

For a relatively minor reduction in the grand scheme of George Osborne’s continued swinging cuts to the public sector, the particular point of contention that is the cuts to the tax credit scheme continues to rumble on.

As we have been reminded over the last few days, rhetoric must align with policy. It would all be well and good to say that we have reached the centre, but with cuts that affect those earning the least in the country, we must explain clearly why the policy is the right one.
One of the main factors of this as a continued issue with the electorate is because it has critics on all sides. In his summer budget speech, Osborne gave us a new political tongue-twister: “A low-wage, high-tax, high-welfare society to a high-wage, low-tax, low-welfare society.” But some say that the cuts proposed by the government to tax credits are an effective tax rise, and a tax rise for the lowest paid.

Jonathan Isaby, the head of the Tax Payer’s Alliance, responded by saying that the concept of tax credits merely takes people’s money, jumbles it around the Treasury, and then to the DWP, picking up cost and time along the way, and then simply pumps it back into the pockets of those who paid it in the first place.
Removing the convoluted system of tax credits means that ultimately more, not less, of one’s earning stays in one’s account. Despite initial apparent backwards thinking, the cuts to this specific way of receiving state funds are actually entirely in line with Osborne’s promised low-tax economy.

On to the more vocal argument, and the one that is more widely heard – that these cuts are placing the relative tax burden on the poorest, not the richest. The cynic in me would say that yes, Conservative votes come predominantly from the wealthier end of the spectrum, and cutting taxes for the rich ultimately yields more blue votes than cutting them for the poor – and the money has to come from somewhere. But to say that the Conservative party are not engaging in raising incomes for those worst off is completely disingenuous. Two key policies announced in the May manifesto, and already well on their way to implementation, show that as clear as day. First, the further raising of the threshold at which one pays income tax beyond its limit in the previous parliament at £10,600 to £12,500, benefiting 30 million people.

Furthermore, the Conservative’s commitment to a legally enforced national living wage – £9 an hour by 2019 – and its support for those companies that wish to go above and beyond that minimum will guarantee a secure income to many who were previously exploited by unscrupulous employers. That’s not to mention Osborne’s commitment to a budget surplus by the end of this parliament, which, coupled with all round growth, will leave this brief cut to some incomes a distant memory.

Of course, this does hang on the veracity of economic forecasts, and I will be the first to call for an increase in all round benefits should the economy begin to sour.  However, the cuts to tax credits are entirely consistent with the moderate rhetoric we’ve seen from David Cameron in the last few days. If only he were better at explaining that.

 

No- Jacob Miller

George Osborne announced in the summer budget that cuts to tax credits would be made as part of the £12 billion of welfare savings. It is a budget which will have a devastating impact on the lives of the poorest families right across the country.

The description of those who claim the government are “not engaging in raising incomes for those worse off” as “completely disingenuous” is ridiculous. It is the Chancellor’s budget which is disingenuous. Can there be anything more disingenuous than David Cameron pledging not to cut child tax credits during the election, and then doing so when he returned to power? Isn’t a National Living Wage below the rate of £7.85 outside London disingenuous?

Indeed, the tax credit cuts do not align with David Cameron’s rhetoric that the Conservatives are “the party of working people”, since Working Families tax credits are in-work benefits, and many rely on them to top-up low pay.

Nor is he encouraging young people to earn money, as the new National Living Wage does not apply to those under 25.

Cameron’s assertion that he will launch “an all-out assault on poverty” is also fragile.

The government claims that the loss of tax credits is compensated by the increase of the minimum wage. This is simply not true. The Institute for Fiscal Studies (IFS) has calculated that 13 million families will lose £260 a week from the freeze to most benefit rates for four years. Three million of those families will be another £1,000 a year worse off due to tax credit cuts.

This is hardly going to alleviate the predicted rise in household debt, which the Office for Budget Responsibility expects to reach 184 per cent of personal income by 2019. This is higher than the 169 per cent at the time of the crash in 2008.

Cameron claims that studies such as that of the IFS do not take into account the positive effects of some of the policies the government have implemented, such as childcare benefits and cuts to social rent.

However, the IFS found that when they included these factors, it still did not make up for the loss of tax credits. Childcare benefit is worth £700 million a year, compared to an £8 billion shortfall from the combined minimum wage and tax credit policy.

Money can be saved from the welfare bill, but not by taking away the support families need to survive. Instead, let’s invest in social housing to provide cheaper homes, and therefore bring down the housing benefit bill.

The solutions are by no means simple but for the sake of the poorest and most vulnerable in society, the problems must be solved without swinging cuts. The idea that this situation is acceptable because it will soon be a “distant memory” is an insult to the 200,000 children who will be dragged into poverty next year as a result of these policies. Their life chances will potentially be blighted by the cuts. The NASUWT has claimed this year that they encountered “Victorian conditions”, with pupils arriving at school hungry and lacking correct clothing. These are not conditions conducive to a successful education. For the security of our future, the potential of the succeeding generation cannot be undermined by cutting back the support which defends them against the scourge of poverty.

 

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