Promised tax cuts dropped to fund welfare

Higher personal allowance abandoned as Hammond gives ground on universal credit

PHILIP HAMMOND plans to scrap a promised income tax cut to pay for a climbdown on universal credit, The Daily Telegraph understands.

The Chancellor is under pressure to find an extra £2billion to ease the troubled roll-out of the benefit scheme after ministers admitted some people would be worse off.

Esther Mcvey, the Work and Pensions Secretary, is reported to have warned Cabinet colleagues that some recipients would be £2,400-a-year poorer under universal credit (UC).

Sir John Major, the former prime minister, yesterday warned that the Government could trigger “the sort of problems that the Conservative Party ran into with the poll tax” if it did not urgently address the problems. Both he and Iain Duncan Smith, the architect of UC, said the Government needed to reverse a £2billion cut to UC made by George Osborne in 2015.

It is thought the extra money would be used to counter some of the former chancellor’s changes. No10 hinted at a climbdown, saying: “We are listening to concerns and we are taking a test-and-learn approach to universal credit, improving the system as we roll it out.”

The Daily Telegraph understands that Mr Hammond plans to scrap a manifesto pledge to raise the personal allowance for income tax in order to put more money into UC. The Tories promised to increase the level at which workers start paying income tax from £11,850 to £12,500 by 2020.

The higher rate income tax threshold was meant to rise from £46,351 to £50,000 over the same period, according to the Tory manifesto pledge. The Chancellor is already under pressure to raise taxes at the Budget following the Prime Minister’s pledge to give the NHS a £20 billion funding boost by 2023. He must also find another £1.8 billion to pay for a freeze on fuel duty and more money for housing. UC replaces a range of existing welfare payments and is designed to encourage claimants back into work by ensuring that getting a job will always make them better off.

However, workers on the lowest incomes can find themselves out of pocket when they start earning more.

Ms Mcvey said: “I have said we made tough decisions – and some people will be worse off.” Mr Duncan Smith, who quit as work and pensions secretary over the £2billion cuts, said they must be reversed for the system to operate as planned.

Sir John told the BBC: “You need to look at those people who in the short term are going to lose, and protect them, or you will run into the sort of problems the Conservative Party ran into in the late Eighties.” Nigel Mills, the Tory MP, urged ministers to slow down the roll-out until payments were made accurately and on time.

Reports last night also alleged the Government had inserted clauses into contracts with charities and companies working with universal credit claimants to prevent them criticising its work.

A government spokesman said UC was “based on the sound principles that work should always pay and those who need support receive it. We are listening to concerns about achieving these principles, improving the benefit, and targeting support to the most vulnerable, including for around one million disabled people who will receive a higher award under universal credit.”

When Sir John Major and Gordon Brown agree on something, it’s worth paying attention. As prime ministers, both had serious flaws. But as retired politicians, they know how to use their status to put neglected issues on the political agenda, as they have over universal credit. Both have this week suggested that the painful implementation of the new benefits system will result in a “poll tax moment”, with people taking to the streets to protest in a show of anger that would sign the death warrant for Theresa May and the Conservatives.

The comparison is unconvincing, but only in its detail. The poll tax was a mistake that affected almost everyone; universal credit’s problems will only be directly experienced by a minority of the electorate. That might limit the potential for civil disturbance, but it won’t lessen the political danger for the Conservatives. For the problems of universal credit are just one more chapter in a story the Conservatives have long struggled to change. That story tells of a party of rich people that governs for other rich people, and neither understands nor cares about the poor.

The Conservative rebuttal is to refer – accurately – to record levels of employment and the millions of people who are in work today. Isn’t an economy that provides plenty of jobs the best way to help poor people? And indeed, that is the promise at the heart of universal credit: work will always pay more than inactivity, giving the poor a chance to earn their way to a better position in life. The problem with that argument is that work isn’t working. For many people, work is not a ladder to a better life, merely a way to spend their time while living in poverty.

New analysis by the independent Social Metrics Commission shows there are 14.1 million people living in poverty in the UK. Over half – 8.3 million – have jobs, or live with people who do. Strikingly, 2.8 million people officially live in poverty even though every adult in their household works full-time. Those figures should leave Conservatives angry and embarrassed. These people are doing the right thing, working for themselves and their families, yet they’re still poor.

Worse, many stay poor over long periods. The Government’s own Social Mobility Commission found last year that a quarter of low-wage workers had remained at that level for 10 years. Women and part-time workers find it even harder to climb out of poverty.

A party truly dedicated to the cause of people working their way up the ladder, to making Britain one nation with a fair economy, should regard ending in-work poverty as its number one domestic priority. Yet too many Conservatives see no need to make their rhetoric about supporting “hard-working families” into reality. Some even implement policies that make things worse.

It’s common to argue that universal credit is a good idea being implemented badly. That’s true but also overlooks some very deliberate choices ministers made to make the scheme poorer. In 2015, for example, George Osborne cut more than £2 billion from the “work allowance” part of universal credit, reducing the sum claimants can earn before they start losing benefits. Even after trashing much of Mr Osborne’s other work, promising to end the “burning injustices” of modern Britain and talking of an end to austerity, Mrs May has stood by that cut. If universal credit does burn her Government down, Mrs May should remember she had the chance to douse the flames.

Some Tories do recognise this problem and the need to address it. Iain Duncan Smith’s management of universal credit as a minister was far from perfect, but he’s right when he says that Osborne’s cut should be reversed. More broadly, backbench MPS such as Robert Halfon and Kevin Hollinrake have argued tirelessly for a better Tory offer for low-wage workers. The pensions minister Guy Opperman is a “living wage” campaigner who helped push Mr Osborne into announcing substantial increases to the minimum wage in 2015.

Geography matters here. Halfon is MP for blue-collar Harlow in Essex, Opperman for rural Hexham in Northumberland. Both seats have substantial numbers of low-wage workers. If last year’s general election proved anything, it was that the Conservative path to a real Commons majority runs through seats where in-work poverty really matters.

The same election also proved that the Tories cannot simply rely on taking a harder line on Brexit than Labour to win over lower-income voters. Mrs May’s conference speech last week said as much, tacitly accepting that the Government badly needs to bring about a new economic settlement after we leave the EU that starts to address the hardships and struggles that helped drive the vote to Leave.

Theoretically, the full implementation of universal credit and the next general election are due in 2022. Whenever that election comes, whoever leads the Conservatives into it will need a much better story to tell about work and poverty.