Osborne Dealt Blow as Lords Vote to Delay Tax-Credit Cuts

George Osborne, U.K. chancellor of the exchequer, delivers his speech at the Conservative Party's annual conference in Manchester, U.K. on Oct. 5, 2015.

George Osborne, U.K. chancellor of the exchequer, delivers his speech at the Conservative Party's annual conference in Manchester, U.K. on Oct. 5, 2015.

Photographer: Simon Dawson/Bloomberg
  • Upper house backs motion calling for three-year delay to cuts
  • Curbs would cost low-paid families an average of 1,300 pounds

U.K. Chancellor of the Exchequer George Osborne suffered his first major setback since the general election after the unelected House of Lords voted to block his cuts to payments for low-wage families, provoking a constitutional dispute and forcing him to suggest he may soften the measures next month.

Parliament’s upper house voted Monday by 289 to 272 to effectively delay by three years reductions in tax credits paid to working people that would have cost affected families an average of 1,300 pounds ($2,000) a year. Conservative ministers had warned that the Lords would exceed their powers by overruling a financial measure passed in the lower house. Osborne, whose pitch to voters at the election was that the Tories were on the side of working people, said late Monday he’d use his Autumn Statement on Nov. 25 to soften the impact of the welfare changes.

George Osborne
George Osborne
Photographer: Jason Alden/Bloomberg

“I said I would listen and that’s precisely that I intend to do,” he said. “We can achieve the same goal of reforming tax credits, saving the money we need to save to secure our economy, while at the same time helping in the transition.”

The vote leaves Osborne with a hole in his deficit-elimination plans, as the cuts are set to contribute 4.4 billion pounds of the 12 billion pounds of welfare savings pledged by Cameron’s government. It is also a political blow for the chancellor, whose role in helping mastermind the Tories’ election victory in May positioned him as the favorite to succeed Prime Minister David Cameron. Bookmaker William Hill Plc lengthened the odds on Osborne becoming Tory leader and being the next prime minister.

‘Definite Setback’

“It’s a definite setback for his political ambitions,” said Wyn Grant, professor of politics at the University of Warwick. “It reminds you that a week is a long time in politics. These cuts are targeting the working poor, which is the group the Conservatives are seeking to identify with. It’s an error of political judgment.”

The tax-credit cuts -- which affect around 3.3 million families -- have been criticized by organizations such as the Institute of Fiscal Studies for hitting working families the hardest. The IFS also said increases in the minimum wage wouldn’t be enough to offset the impact of the reductions.

The breadth of opposition to the measures was reflected in the 3 1/2--hour debate, which saw the cuts attacked from all sides. Christopher Foster, the Bishop of Portsmouth, called them “morally indefensible.” Former Tory Chancellor Nigel Lawson suggested Osborne should reconsider.

‘Think Again’

"Somebody had to tell the government to think again," David Davis, a Conservative lawmaker who voted against the cuts, told BBC Radio 4 on Tuesday. "The simple truth is this was an incredibly important, possibly harmful thing for 3 million people."

Osborne also suggested the vote would lead the government to review the role of the House of Lords, which traditionally has steered clear of opposing the government on finance issues.

"Unelected Labour and Liberal Lords have voted down a matter passed by the elected House of Commons," he said. "That raises constitutional issues and David Cameron and I are clear they have got to be dealt with."

Labour’s finance spokesman, John McDonnell, said after the vote that this was a "huge blow" to Cameron’s Conservative government.

"George Osborne needs to now go away and consider the only reasonable option open to him," he said in an e-mailed statement. "If he U-turns fairly and in full on his tax-credit cuts then I will support him on it, and so will the public."

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