It all ended so badly. Following his 2015 November Autumn Statement, Conservative MPs petitioned the Prime Minister for George Osborne’s head. His position was totally untenable. His crime? Being a Conservative chancellor extending the socialist measure of subsidising big employers through tax credits to pay poverty wages. His decision to abandon his proposed tax credit changes was labelled ‘totally unacceptable’ by one outraged Conservative MP. ‘The Chancellor is building a client state for pure political gain’, he went on.
OK, I jest. But the silence of those politicians who had vociferously defended the cuts to tax credits as a principled retrenchment of welfare is deafening. One Conservative MP told me at the time that I was in favour of ‘corporate subsidies’ by opposing the particular reforms. Another prominent conservative thinker lamented that the free-market think tanks favoured Gordon Brown’s benefits state. To be honest, they probably felt confident in the measures – coupled with the national living wage –given the euphoric reaction of the Conservative-leaning press in the aftermath of the budget.
Now, ultimately, the decision to abandon the changes was the right one. Many groups, newspapers and politicians are wise after the event and seek to take credit for their abandonment. Others genuinely changed their view when they realised the tax credit changes would be politically difficult or when they studied the detail.
This is all history. But it should not disguise the broader truth: the tax credit changes were always based on bad economics. And bad economics leads to bad policy. There is little to no evidence tax credits ever ‘subsidised’ employers, and withdrawing tax credits sooner and with a steeper withdrawal rate will dampen work incentives, whether changes are introduced now or later through Universal Credit.
Whilst politics is of course a team sport which demands loyalty with the aim of getting elected, Conservative MPs who backed this policy should recognise that in the end popular policies are those whose results are popular, and the tax credit cuts were never going to be so given the faulty thinking they were based upon.
If I were a Conservative MP, rather than taking to the airwaves to back every new measure announced yesterday, I’d be thinking hard about the wisdom of wholeheartedly supporting the apprenticeship levy, new housing subsidies and self-defeating increases in stamp duty rates.