British Chancellor George Osborne is facing the biggest challenge in his political career as the House of Lords rejected his proposals to impose tax credit cuts on ‘hardworking families’
The defeated chancellor, heir apparent to Prime Minister David Cameron, said he will act on the concerns expressed by the Lords. He promised “transitional help” for those affected after his party was defeated twice in the House of Lords.
The unelected Upper House voted by a majority of 17 to back opposition Labour party’s calls for the government to provide full financial redress to the millions of tax credit claimants who will be affected when their entitlements are reduced.
Peers inflicted a second defeat by backing a delay in the cuts until an assessment of their financial impact is carried out.However, they stopped short of blocking the changes entirely, by rejecting a so-called “fatal motion” tabled by the Liberal Democrats.
Tax credits are a series of benefits introduced by the last Labour government to help low-paid families. There are two types: Working Tax Credit (WTC) for those in work, and Child Tax Credit (CTC) for those with children.
Under the government’s original proposals, the income threshold for Working Tax Credits – £6,420 – will be cut to £3,850 a year from April. In other words, as soon as someone earns £3,850, they will see their payments reduced. The income threshold for those only claiming CTCs will be cut from £16,105 to £12,125.
The rate at which those payments are cut is also going to get faster. Currently, for every £1 claimants earn above the threshold, they lose 41p. This is known as the taper rate. But from April, the taper rate will accelerate to 48p.
There will be similar reductions for those who claim work allowances under the new Universal Credit.
Shadow chancellor John McDonnell said the policy was “unacceptable” to the public and called for Mr Osborne to make a statement to Parliament when he attends Treasury Questions on Tuesday.
“George Osborne has got to think again,” he told Sky News. “He has been defeated twice in the House of Lords 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 on this one.”
“The Chancellor needs to understand that cutting on average £1,300 a year from over 3 million working families is not a sensible plan, and people are waking up to what Labour has been warning on this for months.
“George Osborne needs to now go away, and consider the only reasonable option open to him. If he u-turns fairly and in full on his tax credit cuts then I will support him on it, and so will the public.
“But if he continues down his path of tax cuts for for the rich paid for by Tax Credit cuts for many hardworking families, then he will be putting the interests of his party before the interests of those working families who just want to pay their bills and get to the end of each month.”
Downing Street has signalled a review of Lords conventions to address what it says are “constitutional issues”.
Conservative MPs reacted angrily to the defeats, accusing the House of Lords of over-stepping the mark in blocking measures backed by elected MPs.
Commons leader Chris Grayling said full details of the transitional tax credit relief would be announced at the end of November in the chancellor’s Autumn Statement – the government need to find up to £4.4bn to cover the cost of the climb down.
Mr Grayling told BBC Radio 4’s Today programme the government “mustn’t be distracted from our overall economic strategy”.