The government’s reaction to Monday night’s vote on tax credits was to institute a review of the Lords’ powers. The temptation to take a swipe at those who had thwarted them is understandable. But the real problems lies less with the Lords than the way we make budgets.
The day after his July budget, the Chancellor was lauded by many. Not only had he pulled off an unlikely election victory, he had produced a budget which delivered a surplus, introduced a living wage, met the manifesto commitment to cut inheritance tax, raised tax thresholds and the 40 per cent starting rate – all with seemingly little pain. This was a budget rabbit of epic proportions.
It was only when the external commentators started exposing the arithmetic that the government’s claims about winners and losers started to fall apart at the seams.
Even to this day, it is not clear that fellow Cabinet ministers fully understand the extent to which the other measures – extended free childcare, a National Living wage and raised tax threshold – fail to compensate for the tax credit cuts on the poorest working families.
Nor is it clear how much the DWP - which is paid to understand the poor in a way the Treasury and HMRC simply do not – has been involved in the decision-making. What we can be certain of is that the Cabinet had no advance knowledge or chance to discuss before the Chancellor informed them of his budget arithmetic – and then, unless they combed through the Red Book themselves, they would have simply relied on Treasury presentation.
In the old days of coalition, this would have been the subject of heated discussion in the Quad. Governing alone now means the freedom to decide without those debates – which is not always a blessing.
For other policies, a change of this magnitude would have been the subject of internal collective agreement and external consultation. The Chancellor might have found himself challenged on alternatives. He would have been able to mount a tactical retreat. Indeed when the Chancellor first got the keys to No.11, he promised no major changes that had not been the subject of earlier consultation.
The Treasury exempts itself from all these normal disciplines of government policy making. The excuse of the need for budget secrecy has long been blown, as selective pre-briefing has become the norm not the exception. The truth is that chancellors resist normalising tax policy because it would rob them of their moment of surprise – their opportunity to wow their backbenches and wrong-foot the Opposition. But too often their great budget coups de theatre end up exploding in their faces. They pay a political price. But we all pay a policy price for the absence of a proper debate on the fiscal choices available.
When George Osborne reflects on the lessons of the last week, he should decide that his legacy will be not a reformed Lords, but a better way of making budgets.
Jill Rutter is programme director at the Institute for Government