This Monday’s Conservative party conference celebrates the brand-new ‘party of working people’ according to its conference plan. Indeed, in his speech, George Osborne will claim that the Conservatives have successfully shed their image of the party of wealth and inequality, and that they now serve the interests of the ‘workers’, however loosely defined.
The Conservative claim is founded upon July’s so-called ‘budget for working people’, specifically the further process of ‘taking people out of tax’ through the extensions of the ‘tax free’ personal allowance. However, this is rhetoric alone. The independent Resolution Foundation and many others have demonstrated why.
First, this extremely expensive policy is of much greater benefit to higher earners, who comparatively gain a greater tax cut. Second, the changes do absolutely nothing for the thousands of employees who do not earn enough to pay income tax in the first place. Third, the claim that the extended allowance is ‘tax free’ is wrong, as it is still subject to national insurance contributions, which is paid by 1.5m earners who do not earn enough to pay income tax.
The other apparent marker of change has been the ‘national living wage’ which will provide a higher minimum wage. But when studied, there is nothing radical or even celebratory in the changes. First, this is not a true ‘living wage’ and falls significantly short of the independently calculated official minimum needed to sustain a basic standard of living, despite its rebranding. Second, the changes will do nothing for under-25-year-olds who continue to be penalised by this government. And third, and most significantly, tax credit cuts will destroy any potential gain via these minimum wage changes. In fact, forecasts show that these huge cuts in in-work benefits will leave 24.4 per cent of all employees in the United Kingdom struggling on less than the living wage by 2020.
Let us be clear: the rhetoric of the Conservative party as the ‘party of working people’ is nothing but a hollow and deliberate mistruth. It craftily disguises the stark reality which is that, for the majority of people who rely upon an ever-decreasing income to get by, the Conservative party does not serve their interests. The party is slowly but surely eroding any security working people had and deserve, any safety net that guarantees even the most basic standard of living.
Yes, social security needs reform to ensure it properly serves the interests of those who truly need it. But Osborne’s tax credit cuts are hitting those that live honest lives, the very families who work to earn as much as they can to support themselves and lead independent lives. In fact, George Osborne’s changes hugely disincentivise families on low pay. Why work if you will never see the fruits of your labour? Why find a job if tax credit cuts mean your family can’t live full lives on your income alone, and therefore would be much better off on jobseeker’s allowance and subsequent housing benefits?
By displaying almost no practical understanding or experience of the mechanics of the welfare state, Osborne is doing exactly what he said he wouldn’t: ensuring that work doesn’t pay, and penalising those who work hard. The government’s changes demonstrate a fundamental disconnection between the Conservative party and ‘working people’, to use the party’s phrase.
If Osborne really cared about helping those in in-work poverty, he would know that income tax reform is of no significance as direct taxes make up a far smaller proportion of poorer people’s tax burdens. Statistics from the ONS demonstrate that while the wealthiest 10 per cent of taxpayers pay 35p in every pound of their income in all forms of tax, the poorest pay a staggering 45p, likewise.
This vast inequality will not be lessened by Osborne’s changes, nor could it be meaningfully bettered by raising taxes on the wealthiest alone. If we want to help those on the lowest incomes, we need to reinstate the value and eligibility of tax credits for working people, ensuring the incomes of the lowest paid are supplemented to provide them with decent qualities of life and the incentive to stay in work.
And in tax, government should work towards cutting the indirect tax burdens on the poorest, by reforming council tax, fuel duty and lessening the burden of VAT (which makes up 12 per cent of the tax burden on the poorest decile, but only four per cent on the wealthiest). There are a number of reports, including the Fabian Society’s recent Tax for our times, which demonstrate in detail how this could be done.
Tax cuts for multinational businesses and the wealthiest which serve to fund the continued poverty of those in work are not the markers of a party that serves the interests of working people.
Labour must do all it can to reassert that ground.
Siobhain McDonagh is member of parliament for Mitcham and Morden
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