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  • Published in Analysis

This Wednesday's spending review will see the Tories wriggle their way out of the impasse created by the Lords' decision to delay the tax credits cuts, argues Joanne Land

Whatever the result, this is an issue that will run and run, as despite the government’s defeat on Tax Credits, the Welfare Reform Bill is still making its way through parliament unimpeded.

It is only to be expected that the Tories will attack the working class. But as far to the right as Labour have lurched over the past several decades, the inability of Harriet Harman as interim leader to oppose the Welfare Bill at its second reading was a line that many believed Labour would not cross. It created a fracture in the Labour party that contributed to Jeremy Corbyn’s victory in the Labour leadership contest.

Many on the left of the Labour Party were shocked that all of the leadership candidates bar Corbyn decided to #Labstain when the Tories were attacking a reform that New Labour introduced.

There has been a shocking failure on both sides of the House of Commons to comprehend the impact that these cuts would have on working families. Just witness Dave from Witney’s incredulity about the impact of cuts caused by the reduction of the local government grant.

After the humiliating vote in the House of Lords to delay the tax credit cuts, this Wednesday’s Autumn Statement gives George Osborne the choice of back-pedalling to some degree, or pushing it through regardless, declaring himself not for turning and risking a Poll Tax moment. The latter is unlikely – yet – as Osborne has already indicated his intention to soften the blow. But how and to what extent remains to be seen.

Claimants of Working Tax Credit are very diverse – from single parents and struggling couples who repeatedly lurch from out-of-work benefits to minimum-wage and zero hours contracts, the precariat trapped in the ‘low-pay, no-pay’ cycle – to those in more secure full-time employment, up as far as those on the median wage and beyond, who may nevertheless be struggling with housing and travel costs. When every penny of your household budget is accounted for and there is nothing left over, the average cut of £1,300 a year that would be exacted by these proposals is a huge amount to lose.

Working Tax Credit was Gordon Brown’s flagship scheme of in-work benefits, introduced when he was Chancellor. Unlike its forerunner Family Credit, workers without children became eligible for assistance. If you work more than 30 hours a week, or 16 hours if you have children or are disabled, you could claim Working Tax Credit. In addition, Child Tax Credit is paid to all qualifying persons regardless of employment status – but the Welfare Reform Bill would reduce the number of children that can be claimed for to two.

The choice of name is most interesting as the amounts received don’t necessarily correspond too closely to a person’s tax bill. It sounds as if the taxpayer is credited with some of the money they will pay in tax, but it is what is known as a refundable tax credit – the claimant keeps any amount in excess of the amount they owe in tax.

It is almost as if the government doesn’t want people to realise that they are on benefits. And there’s no poverty-porn TV programmes called Tax Credit Street or Tax Credits Britain, either.

Working Tax Credit is worked out by calculating the allowances applicable to claimants given their circumstances – more for couples than singles, more for people with children or disabilities, for example. These allowances are then gradually withdrawn above the earnings threshold, at a ‘taper rate’ of 41p in the pound, which the new regulations would increase to 48p in the pound, in addition to lowering the earning threshold.

Working Tax Credit is currently vital for workers to reproduce themselves, but it reduces the demand that employers pay living wages – thus ultimately subsidising the profits of the bosses. Make no mistake, it is absolutely wrong for the government to cut tax credits, yet it is another one of the projects of New Labour, like PFI, that conceal a ticking time-bomb.

With PFI, shiny new hospitals and schools could be built without the borrowing costs showing up on the nation’s books – with tax credits, workers are financially assisted, but in the long term, the people who truly benefit are the 1% who get a lower wage bill.

In a fragmented and ‘flexible’ labour market, tax credits are the glue of social cohesion. In order to have these attractive flexible labour markets, someone has to pick up the cost of workers reproducing their labour. Why strike for higher pay if you have tax credits picking up the shortfall in the true cost of your labour and the flexible labour market means that everything is precarious enough as it is?

In the last parliament, the policies behind the rhetoric of ‘making work pay’ were the cuts and sanctions regimes in Job Seekers’ Allowance and Employment Support Allowance. It should not come as a surprise to anyone that they have now come for the working poor.

The media’s ‘scrounger’ narrative has encompassed the claimants of Working Tax Credit for some time now, without explicitly stating it up front. Having run this up the flagpole and seen people salute it, it was time for the Tories to get to work, if you’ll pardon the pun.

In Lisa McKenzie’s book about austerity and council estate culture, Getting By, she explodes the myths of the benefit scrounger... the ‘“low-pay, no-pay cycle” (is) causing the most harm, and misery, in poorer communities, rather than the government’s false rhetoric of “welfare dependency”, “broken families”, and bad behaviour’.

One only has to see the Tory voter on Question Time expressing her desperation to see that many believed they would not be hit by welfare cuts. These workers did not see themselves as being ‘on benefits’.

The Tory leadership made the calculation that this was a demographic they could afford to lose – but in many marginal constituencies, the number of families getting tax credits is greater than the Tory majority. Anyone following the Universal Credit debacle, with the project ‘reset’ after hundreds of millions of pounds of investment in now useless IT infrastructure, could have expected it to come to this.

Universal Credit is intended to fully replace Jobseeker’s Allowance, Housing Benefit, Working Tax Credit, Child Tax Credit, Employment and Support Allowance and Income Support. But given the painfully slow roll-out far, there are only 54,000 claimants out of the eligible millions.

By trying to cut tax credits, the government have clearly become even more cocky than usual and pushed ahead with the kind of savings they plan to make with Universal Credit – but without any of its proposed transitional protections – and if the government gets in nice and early with tax credit cuts, less transitional protection will be payable.

It seems likely that the Spending Review will extend some kind of transitional protections to Tax Credits. But if the Universal Credit project is a success, the Tories will ultimately get where they are going anyway. Claimants may be better off in work and better off working more hours under the new Universal Credit system, but that won’t prevent them ultimately being worse off than they would have been under the old system.

Austerity has already had devastating consequences for millions of people. Tax credit cuts will drag more people into this nightmare. More will face the choice between heating or eating – or at least of kissing goodbye to any semblance of a healthy diet. Educational prospects and social mobility will be shattered. People will have to move away from the area they work in because they can’t afford the rent, or may no longer be able to afford transport to their place of work. The working poor are beginning to use food banks. How much worse for them then, if the tax credit cuts are implemented?

These cuts will not be fully mitigated by the National Living Wage, nor by the raising of the tax threshold. The figures simply do not add up for most tax credit claimants. Osborne could of course press on with the tax credit cuts but announce further measures to mitigate them by raising the National Living Wage or the tax threshold even further. Neither are likely given the potential costs of a policy that applies to the general population.

The Spending Review could mark a watershed from which the flood rolls forth. Osborne has the option of standing firm and could force the tax credits legislation through in 2016 using the Parliament Act, but he has already indicated that he will soften the blow of the cuts in some way. It looks highly likely that he will have to perform some kind of U-turn on tax credits – most unlike Thatcher, the heroine he wept for.

He will have to make alternative cuts, or face raising the welfare cap for total spending. Some form of transitional protections are likely, and there is also the possibility of further cuts to Housing Benefit – but approximately one-fifth (over 1 million) of these claimants work, so just like tax credit claimants, they are not the ‘soft target’ that the unemployed or disabled are. Many workers claim both benefits.

None of this is really about balancing the books, but the ideological principle of dismantling the welfare state. In the inexorable pursuit of greater profit by the 1%, they will come for the whole of the 99% eventually, not just the poor. The better off tax credit claimants – junior doctors, those who rely on local government, everyone who relies on the NHS – be assured, they will come for us all.

There are promising signs that those who have been lulled into acceptance or helplessness by the austerity narrative are moving into anger and action. Cameron’s Tories have limited room to manoeuvre before they reach their Poll Tax moment. Could Project Austerity finally be becoming unstuck? 

Joanne Land

Joanne Land

Joanne Land is a founder member and Secretary of 999 Call for the NHS, the group who organised last year's People's March for the NHS, which retraced the steps of the Jarrow Crusade.

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