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It’s the Autumn Statement next week, when Chancellor George Osborne sets out his economic plans to Parliament. All eyes are going to be on tax-credits, which is a benefit for people who are in work but get paid peanuts. The existing plans are to scrap it. That would mean that 3.3 million families would have been £1,300 worse off from April this year – pushing an estimated 200,000 children into poverty. It wouldn’t even be a shower of “scroungers” getting hit – the work-shy, like people who claim benefits because of some sort of chronic disease – but people who have jobs that pay them too little to live on. In other words the sort of “hard working families” that the government says it likes to help “get on in life”.
Those plans were so controversial when they were first announced. They caused such an uproar that even the people at the Sun – usually government fan-boys – was campaigning against them. Then the Lords blocked the plans, which was pretty embarrassing for the Cameron, Osborne and their chums. So, next week Westminster is gearing up for a pretty big U-turn – or “adjustment” in politics speak – from a government trying to back-peddle because it knows it’s pushed public opinion too far.
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How is Osborne going to attempt to row back on tax credits without looking like he’s doing the biggest volte-face since Christopher Hitchens went from anti-Vietnam campaigner to Iraq War Cheerleader? I spoke to David Finch, senior economic analyst at leading think-tank The Resolution Foundation to find out.
OPTION ONE: THE SLOW FADE IN
This isn’t really much of a change – you do the same thing, only slower. David Finch explained: “the cuts could be phased in over a period of time so you slowly reduce the amount of tax credits over this Parliament.” This means your tax credits would be reduced gradually, year on year, rather than being slashed overnight from April 2016, as the Government was originally intending to do.
In practice, “it could be that you lose £200 in 2016, £400 in 2017 and so on”. No matter how the Government tries to spin this, this won’t be a good option for working families. David told me, “people would still be worse off – 2.7 million families by £1,000 a year in 2020. And extra wage growth in the economy won’t be enough to lift people’s incomes back to what they are today, so they’ll still be poorer”.
OPTION TWO: FUCK YOUNG FAMILIES
Another option is to only apply tax credits cuts to new claimants. So, if you’re currently receiving the full range of tax credits to which you are currently entitled, your income levels would remain the same. This would only screw new claimants to the tax credits system. Of the 300,000 families a year who are new claimants to tax credits, most are young families – as you tend to start claiming tax credits when you have children.
The Tories have form in slashing the welfare budget for young people whilst protecting blue-rinse, blue voting pensioners, so we shouldn’t be surprised if this is what they decide to do. David explains: “this would push back the full extent of the cuts into the longer-term.”
You’d also end up with people in the exact same situation receiving different levels of support from the Government – depending on when they started needing tax credits – which seems pretty unfair.
OPTION THREE: JUNK THE POLICY
In this scenario the Chancellor does a mea culpa, scraps the tax credits cut and instead looks to make his welfare savings from elsewhere. David points to tax reliefs, income tax, or pensioner benefits as potential areas that the Government could make savings instead. Alternately, another big area the Government could look at is housing benefit, which costs £24 billion a year annually.
Although some commentators are saying that the Government might bring in a proposed income tax cut (the personal allowance is set to rise to £12,500 by 2020) early, to offset the damage caused by tax credits cuts, David of says this isn’t realistic, as income tax cuts are hugely expensive. Also this would involve George Osborne having to admit he fucked up pretty openly, which I can’t really see happening.
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At the end of the day, none of the options outlined above are all that great. What’s certain, though, is that many of us are going to end up worse off. It’s just the question of whether we feel it now, or later, and how much of a tit Osborne looks on Wednesday.
