Osborne plays chicken with business over tax credits

Weaning the nation off working tax credits is important and necessary. But most Brits receiving working tax credits cannot afford for the Government to play chicken with businesses -- hoping that businesses’ moral fibre will increase their pay to replace the lost income

George-osborne-580_29367a
Budget of responsibility? George Osborne's test
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Kate Baldwin
On 5 July 2015 20:37

The ‘post-election emergency budget’ sounds explicitly urgent, and I’m sure to Osborne it is. After 5 years as the Chancellor of the Exchequer in the coalition government, finally he has freedom from the Liberal Democrats and his chance to make his mark and build his legacy budget.

The extremity of some of these announcements sound like these proposals have been brewing up for a long time. The astounding £12 billion that’s to be carved out of the welfare budget has a significant amount of the country in a bit of a flap, with many who’d previously felt a little more secure suddenly fearing what’s to come and how it’s going to affect them.

But why the surprise? We cannot fault Osborne’s response when questioned for stating that the Conservatives are just doing what they said they’d do, after they openly announced the figure in the run up to the election and then successfully formed a majority government.

However, whilst the sum has remained the same, one thing has changed in the Tory rhetoric. Where they affirmed they’d make lives better for working people, the expected extensive cuts to working tax credits looks to hurt exactly who they promised to protect.

The policy of weaning the significant number of Brits off working tax credits is not a bad proposal in itself, when considering that 3.13 million working people were awarded tax credits in 2013-14.

And Cameron is right to wish to end the the “merry-go-round of tax credits”, whereby the Government are effectively subsidising businesses by £11 billion per year for paying low wages.

But the Government does have a duty to do this responsibly, without plunging “hard working families” (as Cameron so often endearingly calls them) into debt and poverty.

The irresponsibility of the Government’s plan is that many businesses have made it very clear that they do not intend to increase their employees' wages to counter the real cut to their overall income.

And whilst for some small businesses this may genuinely be the only way to maintain a particular job as they struggle in a post-recession economy, many large organisations have ample means to restore the balance (for instance, Next, who’s employees received over £67K worth of tax credits whilst the store made over £695 million in annual profits).

And despite calls from within the party, by Steve Hilton and Rohan Silva to name a couple, Osborne and Cameron refuse to increase the minimum wage to a living wage -- with Osborne offloading any responsibility to the Low Pay Commission on Sunday’s Andrew Marr show.

On the same show he avoided suggestions that the Government would refuse contracts to companies paying beneath the living wage as, ‘encouragement’.

With 1 in 5 people in the UK officially living below the poverty line -- many of whom are in work and relying on tax credits -- such a reckless decision could plunge yet more families into poverty.

Britain has already faced an explosion in demand for food aid and still boasts 2.3 million children living in relative poverty (according to the 2010 definition which Labour promised to eradicate by 2020), and this is only set to rise if the cuts are implemented without a sensible plan to replace this income.

Weaning the nation off working tax credits is important and necessary. But most Brits receiving working tax credits cannot afford for the Government to play chicken with businesses -- hoping that businesses’ moral fibre will increase their pay to replace the lost income.

Osborne is surely excited by the prospect of his ‘very own budget’, and seem to be taking the line of ‘go big or go home’. But if the expected cuts to working tax credits are made the Government is failing the working families whose interests they claimed to have at heart.

It’s not a bad idea. But this is a terrible plan.

Kate Baldwin is a political activist and communications professional based in London @KateBaldwin18

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