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Urgent inquiry to probe effects of tax credit cuts after heated Commons debate and Lords threats

The Commons Work & Pensions Committee is set to hold an urgent inquiry into the effects of the proposed tax credit cuts, as the government threatened constitutional retaliation against the House of Lords should they block the measure.

The news also follows a heated debate in the Commons yesterday (20 October), after the opposition called on chancellor George Osborne to pull the plug on its decision to cut tax credits by April 2016.

Opposition came even from within the Conservative party, with Heidi Allen MP saying the cuts were “too hard and too fast” and would tell the poor and vulnerable that “we [the Conservatives] do not care”.

During the Commons debate, she said: “As these proposals stand, too many people will be adversely affected. Something must give. For those of us proud enough to call ourselves compassionate Conservatives, it must not be the backs of the working families we purport to serve.

“It is right that people are encouraged to strive for self-reliance and to find work that pays for their independence from the state. But I worry that our single-minded determination to run a budget surplus is betraying who we are.”

And Johnny Mercer, another Tory MP, urged Osborne to do “something, anything” to ease the effects of cuts on the poorest workers.

Commenting on Allen’s maiden speech at the debate, Labour’s Seema Malhotra MP, shadow  chief secretary, said: “Even Tory MPs are now beginning to see the full extent of David Cameron and George Osborne’s tax credit cuts, which will leave their constituents around £1,300 a year worse off.

“This issue transcends narrow party lines. It’s time the prime minister and chancellor listened to the wide opposition to this cruel policy and reversed these cuts to tax credits.”

Malhotra and Owen Smith MP, shadow work and pensions secretary, have also written to non-Labour MPs inviting them to back a Labour motion calling for the proposed cuts to be reversed.

But despite much controversy surrounding the Conservative plan, Labour was defeated by 317 to 295 in the Commons.

Cameron threatens Lords blockage

Labour’s leader, Jeremy Corbyn MP, brought the issue back to the table in today’s Prime Minister’s Questions, during which Cameron reiterated his support for the cuts and showed no signs of backing down.

Jonathan Ashworth MP, shadow minister without portfolio, claimed that Cameron showed the “true face of the Tory party” during the questions when he expressed his delight over the proposed cuts – which he claims will be balanced by moving more people into work and raising their pay.

But Ashworth said: “It’s shameful that David Cameron is delighted the cuts were voted through the Commons again last night. Despite his rhetoric, yet again we see the Tory party is not the party of the common ground.”

And Cameron also took advantage of a question from Conservative MP Jacob Rees-Mogg to launch a warning towards members of the House of Lords intent on blocking the tax cut policy.

“Clearly under the Act it’s supposed to be that issues of finance are decided in this House. This House now has decided twice in favour of this measure. Once when voting on the statutory instrument – again last night in a vote put forward by the opposition.

“I think the House of Lords should listen to that very carefully and recognise it is for the House [of Commons] to make financial decisions and it is for the other House to revise other legislation,” he said.

According to the Telegraph, it is understood that Downing Street is looking into flooding the House of Lords with Conservative peers, whom Cameron has the power to appoint, over the coming months in a bid to turn the tides on blockage threats – or even suspend the House entirely.

And Ken Clarke, former Conservative chancellor, said the House of Lords would provoke a “constitutional crisis” if it tried blocking the government’s reforms. He said peers would be overstepping their role if they defeated the government during the vote, expected to occur on Monday.

Inquiry into government analysis and wider effects

Much of the controversy around tax credit cuts is based on figures published by the Institute for Fiscal Studies in September showing that the “best case scenario” for those in paid work who are eligible for benefits is a return of just 26% of their losses from changes to taxes, credits and benefits through the new living wage.

It also indicated that millions of unemployed households eligible for benefits or credits would see a drop of more than £2,000 in their yearly earnings due to cuts. This would have no offset compensation from the new national living wage.

Although other bodies have published similar reports, including Unison, the IFS has been the most cited – and, as a result, will be the subject of the urgent Work and Pensions Committee investigation on Monday (26 October).

The inquiry will call forth witnesses from the IFS and the Resolution Foundation to assess the impact of the planned tax credit cuts, both in isolation and in the context of other welfare measures in the Summer Budget, and the national living wage.

It is expected to outline the ‘winners and losers’ and their characteristics, including the extent to which the living wage will compensate those receiving lower tax credit payments.

The scope of the investigation will cover the scale of financial gains and losses and the distributional impact of measures, all broken down individually and combined, and the implications for work incentives and wider Whitehall objectives in welfare reform.

And, perhaps most importantly, it will look into the quality of the government’s analysis produced to support its own proposals.