Tax Credits

On 26 October​ the House of Lords considered the government’s new tax credit regulations. A motion to reject them was defeated, an unremarkable event, but then the Lords went on to delay further consideration of the regulations until transitional protections for adversely affected low-income families had been adopted. Suddenly we had a ‘constitutional crisis’ provoked, according to the Daily Mail, by ‘egos in ermine who gave two fingers to democracy’. In an allusion to the 1909 People’s Budget crisis, the Tory MP Edward Leigh claimed that ‘not for a hundred years has the House of Lords defied this elected House.’ This claim was trumped by the insistence of Leigh’s fellow Tory MP, the ‘keen constitutional student’ Jacob Rees-Mogg, that the motion to delay undermined a privilege of the Commons ‘codified as long ago as 1678’. Rees-Mogg had a solution: the prime minister must create 150 new peers to make absolutely sure that the Conservatives could pass whatever legislation they wanted.

This crisis stems from the Conservatives’ election pledge to make a further £12 billion of unspecified cuts to the welfare bill. Given their commitment to protect pensioner benefits, tax credits – despite David Cameron’s earlier promise not to cut them – were pushed to the front of the queue, and in the July budget Osborne announced that tax credits would be cut by £4.4 billion. This amounted to 15 per cent of the total tax credit budget, and meant that more than three million of the poorest in-work households would on average lose more than £1000 annually. The political issues are stark, but the Lords’ action raises a constitutional question: does its motion amount to a breach of constitutional propriety?

These cuts are welfare measures, and were not implemented in the Finance Bill but by regulations made under the Tax Credits Act 2002. Was this a short cut? It would appear not: this is the standard mechanism for adjusting the thresholds and tapers on tax credit payments. The regulations were available for consideration by the Lords because they were not a manifesto commitment and didn’t have the protection afforded a ‘money bill’ under the Parliament Acts. Although confrontational, there was nothing unprecedented in the Lords’ vote and, as John Bercow, the Speaker of the Commons, has stated, no procedural impropriety. If the clamour were confined to Tory MPs it could easily be dismissed. But a gaggle of retired law lords, who now see themselves as constitutional guardians, also registered concern by voting against the motion to delay. And Lord Butler, a keeper of precedents when he was cabinet secretary, declared that the decision generated a constitutional crisis with parallels to the crisis of 1909.

That crisis stemmed from the election in 1906 of a progressive Liberal government that faced an intransigent, Conservative-controlled hereditary House of Lords. By 1910, the Lords had rejected the Liberals’ legislative proposals 113 times. The crisis was brought about by the defeat of the 1909 budget, which had sought to fund pensions through increased taxation. That defeat caused the dissolution of Parliament and the subsequent return of a Liberal majority pledged to limit the Lords’ powers. Faced with this mandate, the Lords allowed the budget to pass but baulked at a bill to replace their veto power with a power to delay – for a period of one month only for designated ‘money bills’ and two years for other legislation. When Asquith petitioned the king to create sufficient Liberal peers to permit the passage of this bill, the king asked that the support for it first be tested in yet another general election. After the Liberals were again returned, the Lords – faced with the prospect of being ‘swamped’ – allowed the Parliament Act 1911 to pass.

The preamble to the 1911 Act stated the intention to replace the Lords with a ‘Second Chamber constituted on a popular instead of hereditary basis’. But no reform proposal got anywhere until the House of Lords Act 1999, passed as the first stage of an intended comprehensive reform, reduced the more than six hundred hereditary peers to 92, elected by the hereditary peers themselves to represent them. By this point the Lords also contained life peers, as a result of reforms enacted in 1958, since when party leaders have packed it with patronage appointments of the good, the bad and the downright ugly. Various efforts have been made to complete the reform of the House of Lords since 1999, but all of them, thanks mainly to Tory backbenchers, have produced a stalemate.

It’s this motley group of Lords that has now voted to delay the tax credit changes. In their defence, most of them are Lib Dem and Labour peers who since the 1999 reforms have been advocating an elected House of Lords – only to be blocked by the Tories. This places the governing party in an intriguing position. Cameron has launched a ‘rapid review’ to deal with the constitutional implications. By entrusting the task to Lord Strathclyde, a hereditary peer who served for 25 years on the Conservative front bench, he is sending a message that the objective is to put the Lords in their place.

Ever since the 1911 Act, Conservatives have been complaining that the progressive erosion of constitutional restraints is leading to ‘executive despotism’ and ‘elective dictatorship’. The constant refrain is that popular government without constitutional checks imperils the prosperity of the state and enables a single political party to usurp the sovereignty of the nation. But what have they done to address this? Despite having held power for most of this period, the short answer is precious little. They entered the last government in a coalition agreement that formally acknowledged that ‘our political system is broken’ and that ‘we urgently need fundamental political reform.’ And they left it with a truly dismal record of constitutional reform. In such circumstances appeals to ‘the constitution’ are the scoundrel’s last refuge.