The chancellor was under growing pressure to think again on sweeping cuts to tax credits for low-paid workers last night after it emerged that peers were plotting to derail the plan.
The move to save £4.4 billion is part of George Osborne’s welfare cuts, designed to balance the books while protecting health and defence spending.
However, urgent discussions across government were under way yesterday as the possibility grew of a defeat in the House of Lords on Monday — an outcome that would force the Treasury to restart the push for approval of the bill in the Commons.
News of the rebellion came as the former Tory chairman Lord Tebbit became the latest senior figure to stoke dissent in the Lords, urging for more “transition” measures to help the poorest and calling on the Treasury to say more clearly who would lose what.
Lord Bilimoria, a crossbench peer and one of Britain’s most successful businessmen, indicated that he would vote against the measures. The Bow Group, a Conservative think tank, also came out against the changes.
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The Conservatives sought to rebrand themselves as the “workers’ party” before their election victory this year, but stand accused of turning their backs on families by cutting means-tested tax credits. The party says that most cuts will be offset by the end of the parliament.
The Lords could throw out the tax credits plan because the Treasury has chosen to introduce changes using a statutory instrument rather than including them in the Finance Bill, which does not have to be voted on or considered line by line in the same way as it does in the Commons.
Labour sources suggested that, if a motion were agreed tomorrow, it would be almost certain to result in a government defeat because there was no Tory majority in the upper house.
Fatal motions are rarely used, as peers are unwilling to undermine the supremacy of the Commons, but opponents will argue that the usual conventions do not apply because the tax credit plans did not feature in the Tory election manifesto.
A crossbench peer — possibly the former social worker Baroness Meacher — is likely to put the motion to derail the bill to maximise support. Labour will seek to maintain the focus on the issues in an opposition day Commons debate today.
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The Treasury attempted a fightback by releasing data showing the cumulative impact of changes made to tax credits since 2010. It indicated that the total bill for tax credits would be £25.3 billion next year, as opposed to a projected £40 billion if no reforms had been undertaken by the coalition or Tory majority government.
Ministers have claimed that 80 per cent of households would be better off by 2017-18 as a result of tax and benefit changes including the national living wage. However, a recent Commons briefing paper showed poorer families losing out. Single-earner couples with two children, working 35 hours a week on the minimum wage, would see income of £21,699 fall to £20,322 in 2016-17 and fail to recover until 2020-21 and then in cash rather than real terms. Mr Osborne is facing pressure from within his own ranks over the £4.4 billion cuts, which are due to come into effect in April. Andrew Mitchell, the former cabinet minister, warned that he may have to “tweak” them in next month’s spending review.
Downing Street was forced to deny claims by Boris Johnson, the London mayor, that the tax credit changes were under “intensive review”. “Let’s see what they come up with,” Mr Johnson told the BBC yesterday. “I’m sure that they are working on it now.”
Lord Tebbit told The Times that he supported the principle of tax credit reform, but “it depends how far and fast you want to go with this”. He added: “Clearly there should be transitioning. We are all agreed about that. Nobody is pulling the whole lot in one shot. The difficulty is to decide what is right, because there isn’t surety about the figures.”
The former cabinet minister said he could not attend a vote on Monday for personal reasons but would not have given unconditional backing.
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Lord Bilimoria, founder and chairman of Cobra beer, said: “You cannot say that the living wage will compensate those who lose out with these changes. I’m all for getting the deficit and borrowing down, but it’s got to be done in a humane and compassionate way. I know people in the Conservative party who are saying it’s too harsh.”
Chancellor’s reforms: change in annual intake by 2020
Low-earning couple with two children (minimum wage), renting: -£1,400
Medium-earning couple with two children (£9.35 per hour): +£50
High-earning couple without children (one earning £35 per hour, the other £15): +£800
Source: Resolution Foundation