Tag: budget surplus

Conservatives plan stealth raid on in-work benefits and the long-term phasing out of child benefit

 

Tory UK

Picture courtesy of Tina Millis

The respected Institute for Fiscal Studies (IFS) has warned in a recent Green budget report that George Osborne’s plan to achieve a budget surplus will result in 500,000 families losing child benefit and tens of thousands having to pay a higher tax rate. More than half a million families will be stripped of child benefit over the next five years under a series of “stealth” tax raids by the Chancellor to help “balance the books.” Fuel duty will also need to be be significantly raised over the next five years or Osborne will face a £3billion black hole in his surplus plans.

Currently those earning £50,000 will lose some benefit and those earning £60,000 or more lose it all. Eventually, the report concluded, even those earning modest wages and paying the basic rate of tax will start to lose their child benefit entitlement.

The authors of the report concluded that Mr Osborne’s tax plans “lack any coherent principle” and called for more transparency, adding: “If the desire is for these tax rates to apply to a greater fraction of individuals than is currently the case, it would be better for politicians to state this clearly, rather than achieving the outcome through stealth using fiscal drag.”

Osborne’s promise to deliver a budget surplus from 2019-20 is “risky” and could have a long-term impact on the UK because the Government refuse to borrow money to fund large-scale infrastructure projects, despite low inflation.

Total public spending, excluding health, will be at its lowest level since 1948 as a proportion of national income.

The authors said: “If continued indefinitely, child benefit would be received by fewer and fewer families over time.

“But if this is the government’s intention, it would again be better to state this clearly rather than achieving it by stealth.”

Tim Loughton, a former Conservative education minister, branded the IFS findings a “double whammy” for families who are already paying the 40p higher rate of income tax.

He said: “This was inevitable. It inevitably means more and more families suffer a double whammy of having to pay higher rate tax because of the freezing of the threshold and losing out on all or most of their child benefit at the same time.

“This is hardly helpful for hardworking families trying to do the right thing for their children – if you don’t index up the rates and if you have very complicated formula that doesn’t accurately reflect household income … it’s a double unfairness.”

The Treasury has declined to comment on the IFS criticism of the Office of Responsible Budget (OBR) charter, which Osborne has committed to. But a spokesperson has said: “There may be bumpy times ahead – so here in the UK we must stick to the plan that’s cutting the deficit.”

That will invariably mean further austerity cuts. Up until recently austerity targeted those claiming out of work benefits, particularly those who are unemployed because they are sick and disabled. But increasingly, austerity is being aimed at those in low paid or part-time work, and the middle classes are set to lose further income, under the Conservative plans, too.

Despite being a party that claims to support “hard-working families,” the Conservatives have nonetheless made several attempts to undermine the income security of a signifant proportion of that group of citizens recently. Their proposed tax credit cuts, designed to creep through parliament in the form of secondary legislation, which tends to exempt it from meaningful debate and amendment in the Commons, was halted only because the House of Lords have been paying attention to the game.

The use of secondary legislation has risen at an unprecedented rate, reaching an extraordinary level since 2010, and it’s increased use is to ensure that the Government meet with little scrutiny and challenge in the House of Commons when they attempt to push through controversial and unpopular, ideologically-driven legislation. The Shadow secretary for Work and Pensions, Owen Smith, has pointed out that cuts to benefit in-work entitlements being introduced through Universal Credit mean controversial tax credit reductions have been simply been “rebranded” by the government rather than reversed.

In the Spending Review last November, George Osborne announced that tax credit reforms, which were set to almost halve the income level at which support is withdrawn from £6,420 to £3,850, would not be enacted, an analysis of the changes published by the Office for Budget Responsibility (OBR) highlighted that cuts to work allowances in Universal Credit, which set the level at which benefits will begin to be withdrawn under the new system, have not been reversed. Furthermore, people claiming Universal Credit needing in-work benefit because of low pay and  part-time hours will be expected to increase their wages and working hours, or controversially, face losing their benefit.

The Chancellor has cut in half the amount people can earn before their working tax credit starts to “taper” (reduce) – down from £6,420 to £3,850 from April 2016. Restrictions to eligibility for child tax credit means that families with more than two children are set to lose a significant amount of weekly income from April 2017. whilst the flat £545 “family element” paid before the amount for each child will also be removed completely. This will affect people in work, the think-tank Resolution Foundation said that working mothers would be worst hit – accounting for 70% of money saved by the Treasury, but overall the cuts will hit those out of work the hardest.

Many of us recognised the Tory “making work pay” mantra for what it was in 2012, when the first welfare “reforms” were pushed through parliament against widespread resistance, on the back of “financial privilege.” It was and always has been a diversion to allow the Conservatives to dismantle our welfare state, and reduce the value of labour, in much the same way as the 1834 Poor Law principle of less eligibility, which fulfilled the same purpose. The Poor Law Committee also wanted to “make work pay.” Since 2012, steadily rising in-work poverty has shown that having a job no longer provides a route out of poverty.

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The IFS report conclusions simply confirm what many of us have suspected since 2012: that the government have a secret long-term aim to completely dismantle the social gains of our post-war settlement: the welfare state, affordable social housing provision, the National Health Service and access to justice through legal aid.

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Picture courtesy of Robert Livingstone

Jeremy Corbyn confronted the Tories with the poverty they’re creating at PMQs – and all they could do was laugh – Liam Young

Originally published in the Independent by Liam Young.

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The Tories seem to forget that they were the last government – at some point they will have to take responsibility for their handling of the nation.

As Jeremy Corbyn stood for his second PMQs today, the mocking Tory laughs told us everything we need to know about their enduring Bullingdon Club-style politics. Old habits die hard, it seems. But Corbyn opened strongly, with an issue that unites the Labour party: the cuts to working tax credits which penalise the lowest earners, known colloquially as the Tory work penalty.

Again, the Tories laughed at the name ‘Kelly’, so apparently unbelievable do they find the first names of Corbyn’s constituents; they soon fell silent, however, as they heard of her struggle as the mother of a disabled child earning minimum wage in a 40.5-hour-per-week job. Corbyn tackled the bullyboys by pausing at their laughter this time. ‘Some may find this funny,’ he said, as he continued to talk about mass inequality and the housing problem in London. It was a subtle highlight of something glaringly obvious: for millionaires protected by Tory policies, inequality bolstered by unfair taxes and buy-to-let properties really is hilarious.

Cameron’s reply to the work penalty issue was the same old line: apparently a £20-a-week increase in wages will magically solve the problem. This is not true, of course, as Corbyn promptly replied: working families are set to be £1,300 a year worse off as the Conservative government hammers the working and middle classes so as to give to the super rich.

Cameron claimed that Corbyn’s figures on poverty were wrong, but perhaps that is something to do with the fact that the Work and Pensions Secretary fixed the definition of ‘poverty’ recently. You don’t feed and clothe homeless children by changing a definition, and the government should be ashamed. The fact that 50 per cent of wealth is in 1 per cent of hands globally is shambolic, and reports today that inequality is growing in the UK even as our country now has the third most ‘ultra-high net worth individuals’ in the world put paid to Cameron’s claims to have driven opportunity. There could be no bigger proof that his policies continue to squeeze the middle and punish the poor.

Jeremy Corbyn probably had a headache even before PMQs started. George Osborne’s proposal of a ‘fiscal charter’ has been causing problems for Labour over the last few days, not least because it was once a Labour policy rubbished by Cameron himself. It seems strange, then, that Tories are so desperate to implement it now, considering that the Governor of the Bank of England has not endorsed its proposal and no economist has come out in support of it. Most commentary has focused on how it is unrealistic to try and tie the hands of future governments – almost as though Osborne is trying to make an ideological (and erroneous) point about how Labour ‘caused the recession by their overspending’, rather than the truth about rich bankers running wild without regulation. Of course, it also gave Osborne an excellent opportunity to personally ask Labour MPs to rebel – little more than a cynical attempt to ruffle some feathers.

In June, over 70 economists published a letter that clearly noted that the charter has ‘no basis in economics’ and that permanent surplus would increase the debt of households and businesses. The policy is not about protecting the British economy; it is an attempt to bury the Labour party under the same message of the last government. The Tories seem to forget that they were the last government – they have been in power now for almost six years, and at some point they will have to take responsibility for their handling of the nation.

Despite all this, PMQs today were the best moment of Corbyn’s leadership of the Labour party so far. Osborne’s attempt to destabilise the Labour party and force Labour MPs to rebel spectacularly failed, while Corbyn asked if he could bring the Prime Minister back to reality as Tory rhetoric failed against his grassroots facts.

Cameron wants to get Britain building houses, he wants to alleviate poverty, and he wants to rebuild the economy – or so he’d have you believe. In the last five years, house-building has stalled, poverty has increased, inequality appears to be rising and the national debt has doubled. At some point, the Tories have to stop blaming Labour for their own disastrous record. Corbyn is now attacking their mythology head-on – and he might just be getting somewhere. 

Liam Young is a freelance political journalist studying international relations at the LSE