The Lords reject the Government’s Tax Credit changes

The interior of the House of Lords

The Government lost more than 50 votes in the House of Lords in the first year of the 2015 Parliament – but by far the most significant, both in terms of the money involved and of the constitutional aftershocks, was the Peers’ rejection of controversial plans to cut tax credits – the benefits used to top-up the incomes of low-paid workers.

Peers are not supposed to meddle in financial matters but this measure was not part of a finance bill. Instead it was put forward in an order, or statutory instrument, issued under existing legislation, which meant it was both un-amendable and subject to a one-off vote.

Faced with claims that the order would cost the poorest families thousands of pounds a year, the Lords passed a Labour motion calling on ministers to postpone the cuts and provide extra support for those affected, for a three-year transitional period. The result was to throw the Chancellor’s financial strategy into chaos, because it removed £4.4bn of savings.

George Osborne immediately warned that the vote raised constitutional issues and shortly afterwards the Government commissioned Lord Strathclyde, a former Leader of the House of Lords, to review the powers of the Upper House.

The debate began with the Leader of the House, Lady Stowell, defending the plans. She said spending on tax credits had risen from £4bn to £30bn and the bill was no longer sustainable, warning that interference in a key budget measure would overstep the conventions which prevent the Lords from overriding the tax and spending decisions of the elected Commons.

‘In our manifesto, my Party made it clear that reducing the deficit would involve difficult decisions, including finding savings of £12bn from the welfare budget. The regulations that we debate today deliver no less than £4.4bn of those savings next year alone,’ she explained. That argument was challenged by Lord Campbell-Savours, a Labour peer and former MP. ‘When the Prime Minister said at the last general election that an incoming Conservative government would not cut tax credits – child tax credits – was he telling the truth or was he deliberately misleading the British people?’ Lady Stowell retorted that the Conservatives had been very clear in their manifesto that they would aim to make welfare savings of £12bn and that working-age benefits would be targeted.

There were four amendments in front of Peers: the Liberal Democrat Lady Manzoor had put down a ‘fatal motion’ which would stop the changes; the second and third introduced delays. The fourth – from the Bishop of Portsmouth – simply expressed regret at the policy. All but the last, Lady Stowell warned, would challenge the primacy of the Commons on financial matters.

Lady Manzoor said 4.9 million children would be affected by the cuts to tax credits. ‘We have a duty in this House to consider our constitutional role but we also have a duty to consider those affected by the decisions we make and the votes we cast.’

She went on to say that it was wrong to enact such a major change via ‘a statutory instrument, a tool designed for minor changes to processes and administration, being used to implement a substantial change in policy that will affect millions of people’s livelihoods. That is not my decision but I hope that we will do everything we can to stop it’.

The second amendment was from the crossbencher, Lady Meacher, who wanted to delay the changes. ‘The lowest income families, stand to lose more than £20 a week. For one of us this can mean a meal in a restaurant. For a poor working family it can mean a pair of shoes for a child who comes home from school crying because their toes are hurting in shoes that are too small, or money to feed the meter to keep the family warm.’

The Labour former Work and Pensions Minister, Lady Hollis, proposed the third amendment which would postpone the cuts for three years while transitional protection was brought in. She dismissed talk of constitutional crisis. ‘We can be supportive of the Government and give them what they did not ask for – financial privilege – or we can be supportive instead of those three million families facing letters at Christmas telling them that on average they will lose up to around £1,300 a year.’

The Conservative former Chancellor, Lord Lawson, supported the changes and insisted peers had no right to reject them but he wanted reform of the whole tax credits system because too much money went to well-off families. ‘It is perfectly possible to tweak it to take more from the upper end of the tax credit scale and less from the lower end,’ he said.