16 October 2015

Tax credit cuts are turning toxic for the Tories


Politics, like some of the odder elements of physics, operates under some strange rules; but rules they are and they are as insurmountable as E=MC2. One of those rules is that a given policy or position can have a political impact vastly out of scale to its actual significance if other factors conspire to make it so. For the Tories, this is what is now happening on looming cuts to tax credits.

Working tax credits are part of the UK government’s welfare programme and act as income top-ups for the low paid. The government plans to reduce the earnings threshold for these tax credits from £6,420 to £3,850 and increase the so-called “taper rate” from 41% to 48%. According to the Institute for Fiscal Studies, these changes will result in 3.2 million families losing an average of £1,350 a year.

The political antennae of those of us who’ve spent too long in Westminster are beginning to twitch. All roads are beginning to lead to tax credits. The biggest give-away for political hacks that this is building to be a disaster for the government is the way debates about almost anything can now be turned in to an argument about tax credits by the opposition parties.

Employment rising? What about tax credits for those in work? Wages improving? Tax credit cuts negate the impact. Housebuilding to provide affordable homes? Why clobber those trying to get on the ladder by removing tax credits?

Take David Cameron’s widely admired conference speech just over a week ago. In the immediate aftermath, many, including on the Left, were openly saying that here was the progressive political agenda for the next decade; delivered not by Labour but by an old Etonian Tory PM. Labour was reeling.

And yet, within days, the momentum behind this political land grab, the heart of George Osborne’s long term strategy, has totally stalled. Why? Tax credits. Everything Cameron said could be, and was, undermined by the simple response of: “Yes, all well and good to say that but what are you actually doing?” And then by the details of how many poorer people would be losing out.‎

This is is how damaging it is. Jeremy Corbyn won Prime Minister’s Questions this week. I’ll just give you a moment to let that sink in. How? He went on tax credits.

There are legitimate arguments for changing tax credits (including progressive ones), as well as solid arguments against. As ever in politics, though, it is less whose complex, difficult argument is right which matters than whose simple, easy explanation of their argument can be swiftly and repeatedly delivered.

Voters now think, rightly or wrongly, that tax credit changes will lower the incomes of millions, including those who can least afford it. Arguments about rising employment, off-setting legislation and so on make little difference. Plenty of Tory backbenchers share the distaste for the policy and some of them are happy to say so.

This is a policy which has turned toxic. It’s a miniature Poll Tax, in that even the name of the thing delivers a negative emotional response amongst voters.

The political rules say there are only two options when this happens.

One: assess the damage and, if you think it’s bearable, or that in time people will see the policy isn’t bad for them, stick to your guns and attempt to win plaudits for at least being consistent and honest in backing the thing. And do so loudly.

Two: if it’s long enough until an election, do a handbrake turn and hope nobody remembers in a few years’ time.

But the Tories’ have competing problems here. ‎So polluted is the concept of tax credit changes that it now threatens to undermine vast elements of their wider policy agenda, making a managed U-turn look increasingly attractive.

Yet changing the policy now risks presenting the new Labour leader with a huge, undreamed of, win in his first weeks in office. Do the Tories want Corbyn to remain leader? Of course, because he is incredible (in the old fashioned sense of the word – he lacks credibility), but Corbyn being able to tell millions of families across the country that he has already saved them from losing cash, and that this is evidence that austerity can be challenged, is a Tory nightmare and a Labour dream.

More cynical people than me might think shoring up Corbyn is worth that pain in the minds of Tory strategists, but my years around politics tell me pride comes before a strategy and being seen to “lose” so spectacularly to Corbyn would stick in Tory gullets.

Cameron and Osborne need to come up with a story that works on tax credits, or dump the thing in a whirl of smoke and mirrors; and they need to make that choice soon. The longer this goes on the greater the damage to the credibility of Tory strategy and, in the event of a U-turn down the line, the greater the victory for Corbyn.

This is a policy which has crossed the toxicity event horizon, sucking all else with it into a reputational black hole.

James Clark is a communications consultant and journalist.