Reform of Tax Credits

Having quite a few emails about Gov't's proposals to change the tax credits system. I've been concerned about this controversial issue since it was announced in the Summer Budget. Not made much public comment - mainly because I'm not clear in my own mind about what I think Gov't policy should be. So this post is me 'thinking aloud' as a way of clarifying my brainwork. The matter is certainly not yet settled.

The 'hustings' questions I found most difficult in May's election campaign were about reduction in welfare spending. The overall commitment was clear enough - a reduction in welfare spending of £12 billion. It was not clear to me where that reduction would be made, which is why I found the questions difficult. But the incoming Govt last May did have a clear mandate to reduce welfare spending by £12 billion. I know many disagreed with this policy. I also know many agreed. I suppose that's why we have elections.

Personally I thought there would be restrictions to the tax credits system. The cost to the Exchequer of income top-ups introduced by Gordon Brown had become unsustainable. It began at £1 billion a yr and it's expected to increase to £30 billion this yr, £40 billion next year. So it was no surprise to me that reductions were proposed. But I was taken aback by the scale and the speed of them. Since then I have made my concerns known to Govt whips, though I tend to do that privately. Different if asked directly in a public interview, but haven't been. Others, including colleague MPs have been much more vociferous. We all haveour different ways of working. I try to focus on best way to make a difference rather than best way to make a headline.

I read that next month's hugely important Spending Review may rein back back on scale and speed of tax credit reform. But certainly, tax credit reform will not be abandoned altogether. That would not be a credible demand to make without suggesting other ways of finding £12 billion reductions in the welfare budget. Not a single one one of the letters and emails I've received has made any suggestions about alternative welfare budget reductions. I also feel it cannot be right that the Govt should simply carry on subsidising employers who don't pay reasonable wages, which is why the Chancellor has introduced the National Minimum Wage alongside these changes - another controversial proposal. 

As I write this post, I don't know where debate on this issue is going to go. We may see further change in the Spending Review. It may even lead to significant reform of the House of Lords! In the end, what I hope for is that the cost of tax credits be reduced at a lesser scale and at a slower pace than currently proposed.