27 October 2015

10 ways to clean up the Tory mess on tax credits


Let’s be clear: Tuesday’s defeat on tax credits was not a small matter. When George Osborne experienced his omnishambles budget debacle more than three years ago he was not defeated in parliament on one of his flagship deficit reducing measures. On Tuesday, he was defeated on something he had invested a great deal of political capital in. More importantly the job-creating, income-tax-threshold-raising, petrol-duty-freezing, welfare-capping Tories have undermined one of their key electoral strengths: that they were the champions of those fabled “hardworking families”. The Downing Street machine had instructed key ministers – included Harlow MP and blue collar champion, Robert Halfon – to go out and defend the policy which involved cutting help for working people. Bloodcurdling – and frankly absurd – threats to flood the Lords with new Tory peers were made and the Upper House rightly ignored those threats. Emboldened by Tuesday’s votes – with a smell of blood in their nostrils – there must now be a greater likelihood that peers will keep rebelling unless relations with the executive improve.

We’re only six months into the government’s time in office and so there is plenty of time to put everything right but changes do need to be made. Here are ten suggestions for Downing Street:

1. Retreat from tax credit cuts properly: I’ve been struck by the number of Tory MPs (and ministers) who have told me privately that they think the tax credit cuts are hard to justify. If the Treasury tries to ignore the House of Lords verdict and puts through a largely unchanged set of cuts there is a danger that they won’t get through the Commons and if MPs defeat the cuts then high level resignations will be necessary. Raising the National Insurance threshold – or accelerating the raising of the personal income tax allowance – may be the right things to do for other reasons but they aren’t the right solution to the tax credit problem. They won’t help the poorest workers affected by tax credit cuts – or those with children. The Chancellor must go back to the drawing board and find other ways of saving this money. That won’t be easy because of the huge areas of state activity that are now ringfenced…

2. Think again about ringfencing ahead of the next election: Part of the reason that the Treasury has targeted tax credits is that so much other government spending or revenue-raising measures have been ruled off limit by manifesto and campaign trail undertakings: Fuel duty, for example. Health. Pensions. Schools. The aid budget. Child benefit (a middle class entitlement). Now defence. Britain is swapping one big problem (a large deficit) for a different kind of big problem (an unbalanced state where half of departments are suffering famine and the other half is still partying). A Labour Party that is led by Jeremy Corbyn can be defeated at the next election without repeating unaffordable promises to, for example, better off pensioners at the next election. The triple lock for pensioners can survive but in a more modest and targeted form.

3. Follow the Peter Lilley approach to welfare savings: The Tory MP and Secretary of State for Social Security succeeded in saving many billions of pounds by cutting the entitlements of future rather than present claimants. He did this with reforms to pensions and housing benefit – and he didn’t incur a fraction of the political pain that George Osborne has incurred. The Chancellor won’t get savings so quickly but he can still make a giant leap towards his savings goals by ensuring that new claimants for tax credits are put on the much less generous terms he has been proposing for existing claimants. Delaying help for 40p taxpayers and inheritance tax cuts would be the “one nation” way out of his problems. New council tax bands for high value properties could and should also be introduced.

4. Listen more widely: It was obvious that the policy was heading for trouble from the very beginning. Some of us predicted that these cuts were going to be hugely controversial at the end of May. Boris Johnson MP, David Davis MP (spectacularly), (Lord) David Willetts, Andrew Percy MP, Andrew Tyrie MP, Guto Bebb MP, Stephen McPartland MP, Zac Goldsmith MP, Johnny Mercer MP, Ruth Davidson MSP, Andrew R T Davies AM, Heidi Allen MP, (Lord) Nigel Lawson, The Sun and The Spectator have all issued various kinds of warning. While Mr Davis might be a “usual suspect” the others are not serial rebels. And it could have all been much worse. Number 11’s original plan was for the cuts to be rolled out much more quickly. Imagine!

5. Govern like you won 37% of the vote: Because that is all you won. Less than a quarter of eligible voters supported the Tories on 7th May – and many didn’t support the Conservatives but voted against  Ed Miliband and the prospect of an SNP-Labour administration. Other than Louise Mensch – who seems to view the government like many teenage girls view One Direction – this is not yet a loved government. It will become a loved government if it delivers on the exciting one nation vision that David Cameron set out in his speech to the Manchester Tory Conference, only a few weeks ago. It’s hard to look like a one nation administration when people who are doing “the right thing” were facing cuts to their income of £1,000 and sometimes more.

6. Pursue cross-party projects: One way of acknowledging that 63% of the country did not vote Tory is to pursue projects that those in other parties can support. Work with Labour, for example, to deliver HS2 and airport expansion. With the Liberal Democrats on council tax reform. With the SNP on moves towards federalism. A greater sense of cross-party activity will recognise the divided nature of the electorate and may help calm tensions with the Lords.

7. Hire a Lynton Crosby figure: It is no accident that the omnishambles budget happened after Andy Coulson had left Number 10 and before Lynton Crosby was hired: the “AC/BC period”. This tax credits fiasco has occurred since Mr Crosby left Downing Street to spend more time with his money – and commercial clients. Downing Street still seems to lack a tabloid radar. You don’t want advisers like Coulson and Crosby running the show but it does seem that Numbers 10 and 11 need more help to avoid pasty tax-style traps. I was worried by Andrew Cooper’s Tweeted suggestion that the government was doing the right thing. Mr Cooper has many qualities but his time at Number 10 in charge of strategy was not a great success. I hope he’s not back influencing things.

8. Double down on one nation conservatism: David Cameron’s “Manchester Agenda” was the right one. The right one morally and the right one politically. Voters know the Tories can take tough decisions and can run the economy reasonably well but they worry that the party is still a party of and for the rich. A new generation of Tories – notably Stephen Crabb and Ruth Davidson – are passionate about making this one nation Conservatism happen. Open the Downing Street machine and the grid to their constant input.

9. George Osborne deserves to quickly recover from this: The Chancellor has been a key architect of many of the most progressive acts of the Cameron era. Gay marriage. Hitting the 0.7% overseas aid target. Devolving power and opportunity to the “northern powerhouse”. Trying to kickstart housebuilding by planning reform (an, er, unfinished task). Balancing the budget over two parliaments rather than one. He has slipped up on tax credits but he can get back on track and I expect he will. I’m sure his friend Peter Mandelson will be able to give him some advice.

10. The reform of capitalism should be your mission: The last parliament stabilised the economic system. Use this parliament to get rid of the tendencies – in monetary, housing, welfare and regulatory policy – that helped cause the 2008 crash. The anger at bankers and the crash hasn’t gone away as the elections of Jeremy Corbyn and Justin Trudeau both demonstrate – in different ways. I’ll be writing more about this next week.

Tim Montgomerie is a columnist for the The Times, a Senior Fellow at Legatum Institute and co-founder of the new website The Good Right. His “reform of capitalism” report for the Legatum Institute is published on 4th November.