Tag: Policy in Practice

Government signal move to curb the powers of the House of Lords after tax credit defeat


Following the government’s embarrassing defeat on the proposed tax credit cuts in the House of Lords yesterday, the Conservatives are planning to curtail the powers of the Peers. Both the chancellor and David Cameron said the defeats have raised a “constitutional issue” which they were determined to tackle.

A Downing Street spokesman has said: “The prime minister is determined we will address this constitutional issue. A convention exists and it has been broken. He has asked for a rapid review to see how it can be put back in place.”

Yet even Lord Lawson, the former Conservative chancellor, voiced that he was struggling to support the tax credit cuts and he called on Osborne to do more to help low-income earners. He said: “Here a great deal of the harm is at the lowest end, and that is what needs to be looked at again. That is what concerns me.”

He added: “It is not just listening which is required [from the government] but change.”

The Clerk of the Parliaments has confirmed that Commons financial privilege does not extend to statutory instruments. Many Peers pointed out throughout the debate that welfare policy isn’t “budgetary.”

But on Tuesday, Downing Street will outline plans for a “rapid review”, which will examine ways to secure the “supremacy of the House of Commons on financial matters and secondary legislations, after the prime minister accused peers of “breaking a constitutional convention.” A furious Cameron is planning to set limits on the power of the House of Lords after George Osborne suffered a major and humiliating blow yesterday, when Peers voted to delay tax credit cuts in order to protect those who would lose out.

The Upper House voted in favour of a motion by the former Labour minister Lady Hollis to halt the cuts until the government has responded to new evidence regarding the likely negative impact of the cuts on protected social groups, and produces a scheme to compensate low-paid workers for three years. 

Baroness Lister pointed out that no impact assesment was carried out regarding the cuts, and said “the Bill is an example of none evidence-based policy making. She said “It betrays lack of understanding of policy and people’s lives,” and added “getting an impact assessment from the government is like pulling teeth”.

Lord Campbell observed during the debate that because of the Conservative’s pre-election lies, and because the public were deliberately mislead by several statements from the Tories, saying there would be “no cuts to tax credits,”  that “constitutional convention and niceties are not a priority.”

Meanwhile, George Osborne has indicated he will seek to calm tensions by softening the impact of the planned cuts which have been put on hold by the vote in the Upper House. In language that reflected some of the motion, he told the BBC he would help people struggling in the “transition” period when he delivers his autumn statement on 25 November.

He said: “Unelected Labour and Liberal Lords have defeated a financial matter passed by the elected House of Commons, and David Cameron and I are clear that this raises constitutional issues that need to be dealt with. However, it has happened and now we must address the consequences of that. I said I would listen and that is precisely what I intend to do. I believe we can achieve the same goal of reforming tax credits, saving the money we need to secure our economy while at the same time helping in the transition. That is what I intend to do at the autumn statement.”

The “rapid review” will establish ways of guaranteeing that “financial measures” cannot be overturned by the House of Lords despite the fact that Labour successfully argued that because the tax credits were being introduced through a statutory instrument and had not been declared as a formal financial measure, the move in the Upper House was justified. The review will examine ways of guaranteeing that statutory instruments cannot be overturned by the Lords, who have only done so on five occasions.

Downing Street and Treasury officials spoke after Hollis’s motion was passed by 289 to 272 votes. Peers also voted in favour of a milder motion by the crossbench Peer Lady Meacher – by 307 to 277 votes – that also declined to support the cuts until the government responds to the Institute for Fiscal Studies analysis of the negative impacts of the Bill. A fatal motion, tabled by the Liberal Democrat Peer Lady Manzoor, would have halted the Bill, but it was defeated by 310 votes to 99.

During the Lords debate, Baroness Smith said that 60% of the population want to see a u-turn on this policy. She also points out that the original Labour tax credit legislation wasnt subject to financial privilege. She also said that the government truncated the legislative process to introduce a wide reaching and radical change of policy, to avoid a degree of scrutiny. Baroness Hollis urged peers to support the working poor, not government. She argued that the Commons votes were taken based on incomplete evidence.

John McDonnell, the shadow Chancellor, said: “George Osborne has got to think again. He has been defeated twice in the House of Lords tonight, but there are a large number of Conservative MPs as well who have been telling him very, very clearly he has got to think again.”

Just hours before the Lord’s debate, fresh evidence emerged of the potential impact of the tax credit changes on low-paid employees.

Policy in Practice, a welfare-to-work consultancy, calculated that some workers will be able to keep just 7p in every extra £1 they earn, effectively putting them on a 93 per cent marginal tax rate.

The report concluded the overall package of measures – including raising the national minimum wage and increasing the tax allowance – would leave two-thirds of claimants worse off and warned that owner-occupiers would be worst affected.

The calculations were revealed by the Conservative-supporting Spectator, which has urged a rethink of the policy that has been likened to the poll tax.

4-38-degrees-get.jpgA 38 Degrees campaigner outside the Houses of Parliament. An online campaign sought to drum up support among members of the Second Chamber to vote against motion.

Courtesy of Getty images.

Five reasons the Lords should vote to block tax credit proposals today – Policy in Practice

Policy in Practice was asked to pull together a briefing note on the changes to tax credits ahead of the showdown today in the House of Lords.

We work with our local authority partners to carry out detailed, household level analysis on the impacts of reforms now, all the way through to 2020. We take into account a sample of over 100,000 working age households, and assess the cumulative impact of tax and benefit reforms on household income.

Our findings were put succinctly by a benefits manager in a Conservative constituency:

‘The government wants people to work, but this goes against that’.

Policy in Practice is working with local authorities to map the impacts of welfare reforms on each low income household. To understand more about how we can help you to understand how people in your local authority will be impacted, click here.

1. Two-thirds of Working Tax Credit recipients can expect to be worse off in 2020

Based on analysis on over 100,000 households of working-age in receipt of Housing Benefit and Council Tax support, and taking into account the impact of the National Living Wage at £9.00 per hour, and a personal tax allowance of £12,500, we find that 67% of Working Tax Credit recipients will still be worse off in 2020, compared with today.

* Analysis update: We have updated our analysis this morning to take into account the 30 hours of free childcare that will be available to three and four year olds. If we assume that all households with children age three to four will be better off (which may not necessarily be the case) we find that half of all Working Tax Credit recipients within our sample will still be worse off in 2020.

2. Owner-occupiers will be among the hardest hit when the reforms first land in April 2016

Tax credit savings will be partly offset by higher Housing Benefit and Council Tax Support payments. Because tax credits reduce entitlement to other benefits, 57% of tax credit savings will be offset by increased Housing Benefit and Council Tax Support.These savings will not by spread evenly. Many owner-occupiers, who do not receive Housing Benefit, will not have their tax credit cuts mitigated and may find themselves pushed into crisis.

Some in receipt of Housing Benefit and Council Tax Support will see their support increase by up to 85p for each pound lost in tax credits. This support, which offsets the some of the impact of the cuts, will erode over time due to increased earnings under the National Living Wage. Higher earnings cause tax credits, Housing Benefit and Council Tax Support to be withdrawn, often simultaneously.

3. Work incentives will be weakened within tax credits and Universal Credit

A higher withdrawal rate will make it harder for people that try to earn their way back to their original standard of living. Working Tax Credit recipients that choose to counter the loss by increasing their earnings will lose up to an additional 7p for each pound earned. Effective tax rates may increase up to 93p in the pound.

4. Higher effective taxes make it harder to respond by increasing earnings, while people on low or no earnings will not be affected

To qualify for Working Tax Credit, households have to work a certain number of hours to be considered in remunerative work: 16 hours per week for lone parents and disabled people, 24 hours for couples with children and 30 hours for people without children. The option to increase their working hours may be limited, and will be penalised by a higher withdrawal rate of tax credits.

Tax credit recipients who are not in work and the lowest earners, including self-employed households (some of whom are thought to under-report their earnings) will not be impacted by these changes. Those that contribute most to the economy will be hardest hit.

5. The government was elected to reform the welfare system to make work pay

Low effective tax rates within tax credits and Universal Credit reward enterprise and endeavor, help lower earners, and aid progression in work. They ensure that more of the benefits of a National Living Wage and a lower tax threshold reach lower earners. Protecting the lower withdrawal rate within tax credits would send the message that this government is the party not only of low taxes, but of low effective taxes.

Identify which households will be impacted in advance

We find that frontline advisors within local organisations want to work with the government to support people toward greater independence, and to deliver on the policy intent. However, too often they don’t feel they have enough information to properly advise their customers.

To avoid leaving advisors on the back foot, local authorities including Birmingham, Newcastle, North Hertfordshire and Hounslow, are working with Policy in Practice to map the impact of welfare reforms on each individual household on a low income within their local authority.

This article was originally published today on the Policy in Practice site. You can read the original here.