Stumbling and Mumbling

Tax credits: the Bubble's failures

chris dillow
Publish date: Wed, 21 Oct 2015, 01:38 PM
chris dillow
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An extremist, not a fanatic

Despite winning last night's Commons vote, George Osborne is still under pressure from many on the right to reverse his cuts in tax credits. This highlights two failures of the Westminster Bubble.

The first failure was that it misjudged July's Budget in which Osborne announced those cuts.

The initial reaction to that Budget was generally favourable. It "gives Britain a pay rise" said the Telegraph. It "stole Labour's clothes" said the Guardian's Jonathan Freedland. And Jeremy Warner welcomed "the best Labour Budget in a long while". Even the BBC got in on the act. Tory stooge Robert Peston wibbled about the extent to which cuts in tax credits would be offset by the higher minimum wage but omitted to tell viewers that this offset would be only partial.

Such cheerleading simply misread facts which were available at the time.The NIESR, SMF and Resolution Foundation immediately spotted that the cuts to tax credits would inflict hardship - and, in fairness, one or two journalists did too.

What we saw in July was yet another example of the big gulf between reality and the Bubble. What we're seeing now is the fact that reality, inconveniently, refuses to go away.

To see the second failure of the Bubble, recall why Osborne thought cuts in tax credits were necessary. It's because his original plans to cut departmental spending were simply not credible. He felt he had to cut tax credits because he couldn't sufficiently cut other forms of spending. His announcement of cuts in tax credits in July was accompanied by increases in plans for other spending - a £21.3bn rise in non-welfare spending for 2019-20.

But why were his original plans incredible? One reason is that he had failed to provide any political foundation for them; he hadn't created an ideological climate conducive to a small state, nor mobilized the dispersed fragmentary knowledge of workers who could identify efficiency savings.

He failed to see that big political change requires more than bums on seats in Whitehall. It rests upon broader social conditions. The Bubble, with its focus upon Westminster, under-estimates this fact. In this sense, some Corbynistas - who see that there's much more to politics than Westminster - know something the Bubble is keen to deny.

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