The 101st dayPosted: August 16, 2015
The Conservatives must be pinching themselves after 100 days in government. What can possibly go wrong?
For three months they’ve been able to do pretty much as they like. The Liberal Democrats are humiliated, Labour is demoralised and distracted and the opposition that has come from the SNP is a comforting reminder of the Scottish card that won the election. Thanks to all of that, plus expectations formed by inaccurate opinion polls, a government with a tiny majority elected with just over a third of the vote can behave as though it’s won a victory on a par with 1945, 1979 and 1997.
Yet the Tory luck cannot hold for ever. The obvious cloud on the horizon is Europe, with no sign that Brussels will hand David Cameron concessions meaningful enough to sell to his sceptical party ahead of the election. Economically, it’s far easier to start with a recession turn it into a recovery than it is to manage expectations in improving times.
But could the Conservatives turn out to be most immediately vulnerable where they seem strongest: on the ground they’ve staked out since the election to be ‘the real party of working people’? As Cameron put it in an article for the Telegraph on Saturday:
‘On the challenge of delivering an economy that supports working people, it is Conservatives who believe that a free enterprise economy is an ally not an enemy in generating wealth and extending opportunity. By cutting taxes, reforming welfare and increasing minimum wages we are showing we are the real party of working people.’
Yet in the second half of his Today programme interview on Saturday, Cameron sounded as uncomfortable as I’ve heard him since the election when he was asked in detail about the cuts in tax credits that are on the way next April. ‘The effect will be that people in work will be poorer, won’t it?’ asked Justin Webb.
Cameron deflected the question by arguing that the lowest paid will gain an extra £20 a week from the national living wage (in reality a welcome increase in the minimum wage) next year. But Office for Budget Responsibility analysis shows that half the gains will go to families in the top half of the income distribution (because second earners in families who are already relatively well off benefit). Cameron could have cited the increase in the income tax personal allowance but the same distributional point applies there too. And he had no answer to the figures from Citizens Advice quoted by Webb: a couple with two children, one working full time and one part time on £8 an hour will be £2,400 a year worse off from next April.
The other Tory message of making sure that ‘work always pays’ is equally vulnerable to detailed scrutiny following decisions in the Budget. To take one example, the work allowance under universal credit – the amount that households can earn before credit starts to be withdrawn – will be cut from £6,420 a year to just £3,850. That change alone will cost three million working families £1,000 a year each in tax credits. On top of that, the taper rate will be increased so that someone on the national living wage will lose 80p out of every extra £1 they earn. And they will also have to meet progressively larger shortfalls between their local housing allowance and their rent as the five-year freeze in working age benefits starts to bite. See my earlier blog here for more detail on the Budget cuts.
But the list goes on from there. People under 25 gain nothing from the National Living Wage but still lose everything from the cuts to tax credits. People under 21 already face losing automatic entitlement to housing benefit and tax credits could be denied to those under 22 as part of a Tory plan to deny them to migrants from within the EU.
The same is true for George Osborne’s army of entrepreneurs, the 4.6 million self-employed workers in Britain (up 700,000 since 2008). A study last year by the Resolution Foundation found that they earned just £230 a week but neither the minimum wage nor national living wage apply to them.
Prepare for a rash of enthusiasm for young workers and bogus self-employment as employers look to avoid the national living wage. And prepare for employers to use even more zero and limited hours contracts to manage their increased costs.
The Conservatives will hope that clear messages about what people will gain – £9 an hour by 2020 and being taken out of income tax – will drown out these more complicated ones about what they will lose. As things stand, cuts to tax credits can be implemented by statutory instrument without debate in parliament. And Labour’s inept decision to abstain on the Welfare Bill merely accentuated its divisions.
However, all this could change very soon. When Labour finally finishes debating whether its future lies in the 1980s or 1990s, its new leader will find that this assault on low-paid workers an obvious rallying point in the 2010s. Two Tory backbenchers have already questioned the scale of the changes to tax credits.
And all the rhetoric about being ‘the true party of working people’ has ramped up expectations that cannot be met. Millions of low-paid workers (and voters) will find out what that rhetoric amounts to when check their pay slips and bank accounts after next April.