28 October 2015

Brown and Blair messed up on tax credits and the Lords


A statutory instrument is a relatively minor form of legislation. Around £4 billion – the sum at stake over tax credits – is little more than half of one percent of public spending. So it might seem that the headline writers were turning a melodrama into a crisis. But that would be a mistaken interpretation. During Monday’s votes in the House of Lords, great issues were at stake: financial, constitutional, and political.

The trouble arises from the malign confluence of Gordon Brown’s megalomania and Tony Blair’s frivolity. As Chancellor and Prime Minister, Mr Brown put the ‘freak’ into control freak. He often seemed to want to run every single government office in the land, not to mention every classroom, every business – and every family’s finances. When tax credits were introduced, the annual cost was £1 billion. But Gordon Brown wanted to ensure that as many families as possible became clients of the State. After he had expanded the system, almost ninety percent of British families were eligible. If the Brown measures had not been modified, the cost would now be £40 billion. Because of changes introduced under the coalition, and leaving aside Monday’s proposals, the bill is now £30 billion and fewer than 7 in ten families are eligible. Monday’s measures would cut that to 5 in 10.

George Osborne believes that it is necessary to change for two reasons: pressure and principle. Back in 2010, the Government was set to borrow ten percent of national income every year. Looking at those figures alone, there was nothing to distinguish the UK from Greece and the other distressed members of the euro-zone. Even so, the Treasury was able to sell all the gilts necessary to cover the debt, and at low interest rates, because the markets did not lose confidence in the British Government, or Sterling.

Much of the credit for this belongs to George Osborne. He set a course and made it clear that there would be no plan B. (On that, he had a personal interest. If there had ever been such a plan, the first item would have been “sack the Chancellor”.) He took political pain, especially with the cuts to child benefit, which fell largely on Tory voters, as many of their MPs pointed out. The Daily Mail went berserk, for weeks. George just stood his ground.

There are legitimate grounds for questioning his record. He announced his intention of eliminating the deficit, but that is taking far longer than his early forecasts assumed. This financial year, the Government will still be borrowing over 4 percent of national income, at a time when the economy is growing steadily. Even a Keynesian should be alarmed by such a high borrowing requirement while the economy does not need a counter-cyclical stimulus. To be fair to Mr Osborne, he has tried. Keynes said that wages are sticky downwards. The Chancellor has discovered that the same is true of public spending. But the markets retain both their confidence in him and their appetite for British government bonds.

It may be that they are more relaxed than the Chancellor. Mr Osborne is fully aware that the battle is only half won. He will not accept that it is healthy for the Government to borrow £70 billion a year, so the squeeze will continue.
But even if the public finances were in better shape, Mr Osborne would still argue that there was a moral case for the changes. He believes that people should be able to live on their wages. On that matter of principle, he is on the side of the Whig reformers of the 1830s, who replaced the so-called Speenhamland system of supplementing the wages of the poor -outdoor relief – with the new Poor Law. This does not mean that he would be in favour of the workhouse: merely of work.

That is why the Chancellor is so keen to raise the minimum wage, and of encouraging employers to offer pay-rates above the minimum level. That is also why he has frozen council tax and petrol duty while increasing personal tax allowances. At a time when real wages are rising, all this helps to make the tax credits less necessary. Mr Osborne’s goal is a society in which work pays, taxes are low and welfare is used to succour real need, not to subsidise idleness.

Those are laudable objectives and would help to create a healthier society. But it may be that the current plans for tax credit were too drastic. Mr Osborne has agreed to look again and phasing may be required.

Apropos of phasing, the vast majority of Tory MPs have a target – large numbers of peers, for phasing out. This is where Tony Blair comes in. Back in the 1990s, he simply found it unaesthetic that hereditary peers still formed part of the legislature. If he had given the matter some thought, he would have realised that these were deep waters. Wise and learned men had been considering the composition of the House of Lords for most of the Century, without arriving at anything like a consensus.

Unfortunately for the constitution, Mr Blair was never a devotee of hard thinking. He had a huge majority, so why bother? Bagehot wrote about the brute force of a Parliamentary majority. That force was never deployed so irresponsibly as by Tony Blair over the House of Lords. He embarked upon radical change without any idea as to where he was going. Letting him loose on the constitution was like inviting a group of toddlers to play in the crockery cupboard.

As Charles Moore put it, we have ended up with an ermine slum. In the old days, new peers arrived in the House in smallish numbers. This made it easier for them to absorb the ethos: to learn to appreciate the House’s charm, its courtesies, and its seriousness. Back then, Governments would almost inevitably be defeated if a Minister lost the argument on the floor of the House. Peers turned up to listen, and if they did not like what they were hearing, then it would not matter which party they belonged to: the government could not count on their vote.

Now, everything is different. Messrs Blair and Brown stuffed the Lords with mediocrities who had no interest in ethos. They have imported House of Commons habits such as jeering and refusing to give way to interventions. Because of the coalition, the Liberals were also allowed to nominate large numbers of Peers, a majority of whom are unimpressive. In order to pass their Bills, the Tories had to counter all this by swelling the noble ranks. Most of their recruits are at least acceptable. But at 800 peers, the House is now far too large.

It may have to become larger still. Since the Second World War, there has been a convention that the House of Lords will not obstruct major government legislation. It was originally negotiated by Lord Addison, the then Labour Leader of the Lords, and Lord Salisbury, his Tory equivalent. Until the removal of most of the hereditaries, this was crucial for Labour governments. Now, the Tories need it.

Lord Strathclyde is now examining the whole matter. Care is called for, as he well knows. The PM is angry, but anger is a bad counsellor when such important issues are at stake. There are three steps which ought to be taken.The first is to ensure that the House of Lords can no longer interfere with financial Bills. The second, to try to re-affirm Salisbury/Addison. But that will almost certainly fail. The Liberals seem determined to make nuisances of themselves at every opportunity. If Tom Strathclyde can make them see reason, he deserves a Nobel Prize for psychopathology. Assuming that he has to report failure, there would be no alternative to creating at least a hundred new Tory peers.

That would cause mayhem in Westminster. But the wider public would not care. For most voters, it is still the economy, stupid. It is also interesting that George Osborne has not come under much fire – yet – from Tory MPs. There is an obvious point: that as the Chancellor is going to have to make some concessions, he should have anticipated the need by making them in advance. But most Tory MPs accept that there is a public spending problem and that a sound Chancellor is a man who often says “no”. Their anger is directed at the Lords.

That said, the Government must do more to make its own case. If voters could be made aware that the Government is spending £12,000 a year for every man, woman and child in this country, the charge of austerity would lose its force. If voters knew that the richest one per cent of the population pay almost thirty percent of all taxes, the Corbynista cry of ‘make the rich pay’ would surely meet the obvious retort: ‘but they do’. Both profoundly rational men, Messrs Cameron and Osborne often give the impression that good news can make its own case. If a politician believes that, he is in danger of confusing rationality with naivety.

Bruce Anderson is a political commentator