The Lords and tax credits: fact and myth


The power of the House of Lords over ‘delegated legislation’, and financial matters, has become a hot topic due to threats to defeat the government’s planned cuts to tax credits. There have been claims and counterclaims about the conventions governing these matters, and also some fairly wild claims about how the government might retaliate if defeated. Here Meg Russell provides some factual background.

The current question over tax credits

The current argument concerns the Tax Credits (Income Thresholds and Determination of Rates) (Amendment) Regulations 2015, published on 7 September, which significantly limit people’s eligibility for tax credits. This is a piece of ‘delegated legislation’ (a ‘statutory instrument’) meaning that it is subject to an expedited parliamentary process, much less onerous than the process for passing a bill (see summary here). The government is seeking to use powers delegated to it under the Tax Credits Act 2002, which allows for regular updating of rates and bands. This kind of delegated power is commonplace, to ensure that a new bill is not required every time there are small changes to the implementation of policy. Delegated legislation may be either ‘affirmative’, meaning that it requires the explicit approval of both chambers of parliament, or ‘negative’ meaning that it will pass into law automatically unless one of the chambers objects. This is an affirmative instrument, which was agreed by the Commons on 15 September, and is due for debate in the Lords on Monday. Notably, delegated legislation cannot be amended, only rejected or agreed.

The Lords and delegated legislation

The House of Lords has a formal veto over delegated legislation. The rapid growth in such legislation postdates the Parliament Act 1911 which placed limits on the Lords’ power over ordinary bills. Many hundreds of instruments are now placed before parliament each year. Negative instruments are not routinely debated but the House of Lords Secondary Legislation Scrutiny Committee, which sifts all such measures carefully, may explicitly choose to ‘draw the special attention of the House’ to such a measure, which can spark a debate. Affirmative instruments such as this one are debated, and the committee will first report. On this occasion it drew the tax credits proposal to the House’s attention, and expressed concern about the lack of detail on the likely impact of the changes.

If the House of Lords used its veto power on a regular basis this could be very disruptive. In practice it has treated such matters with caution. If peers have concerns about a statutory instrument they will often table a  ‘non-fatal’ motion, ‘regretting’ the government’s action, rather than seeking to block the instrument altogether. The alternative is to table a ‘fatal’ motion, refusing to pass it. The House of Lords Library have collated useful data on such motions. These show that in the period 1999-2012 the Lords voted on 27 fatal and 42 non-fatal motions, which resulted in 17 defeats – just three of them on fatal motions. The details of these defeats are in my book: two occurred in 2000 over arrangements for the London mayoral elections, and another in 2007 over the Manchester ‘supercasino’.

Prior to this there had been only one such fatal defeat of a statutory instrument, in 1968, leading to claims of a convention that the Lords should not vote on such matters. In 1999, following the reform whereby most hereditary peers were removed from the chamber, then Conservative Leader in the House of Lords Tom Strathclyde made a bold speech stating that ‘I declare this convention dead’. It was shortly after this that the London mayoral regulations were defeated. Subsequently matters settled down, and the Joint Committee on Conventions (which considered the relations between the two chambers in 2006) noted that ‘the House of Lords should not regularly reject Statutory Instruments’ (para 227) but ‘There are situations in which it is consistent both with the Lords’ role in Parliament as a revising chamber, and with Parliament’s role in relation to delegated legislation, for the Lords to threaten to defeat an SI’ (para 229). These situations included when the Secondary Legislation Scrutiny Committee had drawn it to the attention of the House (as summarised here, pp. 9-10).

It is hence not unprecedented for the Lords to use its veto power, but it is unusual. Two other political points are important. First, the threat of a Lords defeat on a statutory instrument can result in compromise. While they cannot be amended, the tabling of a motion, or even the threat to table a motion, occasionally results in an instrument being withdrawn by the government and replaced by an amended version. A vote, and possible defeat, only occurs when these informal processes fail. Second, it is a far greater threat to the government than it is to the Lords if the existing convention breaks down. If it became routine for statutory instruments to be rejected, a great deal of government business could grind to a halt. The maintenance of the system depends on some give and take on both sides.

The Lords and financial matters

Tough limits apply to the House of Lords’ involvement in financial decisions. The 1911 Parliament Act included a definition of ‘money bills’, over which the Lords has a much reduced delaying power. In practice, by convention, money bills and certain other pieces of financial legislation have an expedited passage through the Lords, with little debate. In addition, the House of Commons can claim ‘financial privilege’ over amendments from the Lords – rejecting these purely on the basis of their impact on costs. However, as we outlined in a report published last year, these arrangements have become increasingly controversial, and there are pressures for more clarity and/or actual procedural change. Controversy occurred particularly over the coalition’s Welfare Reform Bill, which was heavily amended in the Lords.

The current controversy therefore relates not only to the Lords’ power over delegated legislation, but over financial matters – as the savings from the tax credit change will be very large. The Commons Speaker yesterday hinted at concerns about this aspect (which were reported as disapproval). This takes us into relatively uncharted territory. Previous defeats on delegated legislation have certainly had far lesser financial effects. The Lords’ primary defence will probably be that this is a very major policy change to implement via delegated legislation – and that the government could choose to implement it via a bill instead.

The importance of politics

The broader politics matter a great deal here as well. The House of Lords will rarely go out on a limb on a controversial policy matter where there is not widespread political concern elsewhere. Although unelected, peers are aware of the wider political mood, including public opinion and media responses. In particular, the chamber will tend to act with greater boldness where there is clear unhappiness on the government benches in the Commons. Although MPs approved this statutory instrument, some concern was expressed on the Conservative side on 15 September (notably by Andrew Percy). Such concerns have since become increasingly visible, with the speeches by Heidi Allen and Johnny Mercer in a debate sponsored by Labour this Tuesday widely reported. The government emphasises that Labour’s motion was defeated, and no Conservatives actually voted against the whip. But as Philip Cowley’s research on the Commons shows, rebellions on opposition motions are quite rare. To soften the blow, two of the four motions tabled for debate in the Lords (from Crossbencher Baroness Meacher and Labour’s Baroness Hollis) are couched in terms of delay to allow for more consultation, not outright opposition. These fall into an intermediate category as neither strictly ‘fatal’ (like the motion from Liberal Democrat Baroness Manzoor) nor ‘non-fatal’ (like the motion of ‘regret’ from the Bishop of Portsmouth).* They would prevent the proposal being approved, but leave the option open for the Lords to pass it on a future date following further debate and analysis – which is a new procedural innovation by the Lords. But even straightforward fatal motions can have fairly temporary effects. The London mayoral proposals in 2000 returned to the Lords shortly afterwards, and were approved. If the Lords backed Baroness Manzoor’s motion the government could rapidly reintroduce very similar proposals – the tricky part is that these would have to be debated and agreed again in the Commons. The Hollis/Meacher motions would meanwhile allow more time for MPs to lobby ministers for change. This illustrates how the Lords’ job is usually in effect to throw things back to the Commons asking ‘are you sure?’. Where the government has clear and unequivocal Commons support the Lords tends to back down. It is thus the Commons that ministers really need to worry about.

Bizarre threats to ‘suspend’ the Lords

Over the past week there have been various stories about possible retaliatory action by the government against the Lords, including a spate of claims that if it defeats the government it will be ‘suspended’. These began in an article in the Huffington Post, which cited ‘government sources’ as having stated that ‘one option is to simply suspend the Lords’ entire business, and process bills purely through the Commons’. Although this appears to be in the realm of pure fantasy, the idea was also given prominence in the Independent, and even got a mention on the BBC website. That government insiders believe that such things are possible shows a worrying lack of constitutional literacy; that journalists repeat such claims without questioning their credibility seems pretty worrying too. It is not in the government’s powers to suspend parliament. Even procedurally, the government cannot control what gets discussed in the Lords – this is subject to agreement between the ‘usual channels’ (i.e. primarily whips) in an environment where the government has no majority.

Could the Lords’ powers instead be cut?

A slightly more realistic prospect, which has been suggested in some media outlets, is that the Lords’ power (perhaps specifically its power over delegated legislation) could be cut. It has long been recognised that the chamber’s veto power over statutory instruments is somewhat disproportionate, and there have been suggestions that this could perhaps be reduced to a delay power of three months. However any such change would require primary legislation, which would need to pass through both chambers. If resisted by the Lords such a bill would need to be passed under the Parliament Acts, meaning it could take two years to reach the statute book (assuming Commons approval). There are political dangers here for the government. First, attempts to make such a change could easily get bogged down in wider debates in the Commons over Lords reform. Second, retaliatory action by the Lords – in terms of voting down further statutory instruments until its powers were curtailed – could be very disruptive.

Are threats to ‘flood’ the Lords with Conservative peers realistic?

A final suggestion floated by the Huffington Post and others is that the government could neutralise House of Lords’ opposition by ‘flooding’ the chamber with new Conservative peers. Such claims have long historical precedent. They were made at the time of the 1832 Great Reform Act, and at the start of the last century during the row over Lloyd George’s ‘People’s Budget’ – in both cases, of course, by Liberal governments wishing to overcome a Conservative-dominated House of Lords. There have been plenty of claims already of David Cameron ‘flooding’ the Lords, given his level of peerage appointments, but he has appointed to all benches (albeit more to his own than others), meaning that the Conservatives remain significantly outnumbered. In theory, there is nothing stopping him making as many appointments as he wants, since appointments to the Lords remain completely unregulated – which is a very serious problem. In practice, however, there would be a major outcry if he did this. Not only would it break with all convention in terms of need for balance in appointments, it would also push the chamber towards 1000 members, having already grown by 150 since Cameron became prime minister in 2010. For the PM to propose large numbers of partisan appointments in order to rebalance the chamber could prove awkward for the monarch (in whose name all such appointments are officially made) – drawing her into the controversy in a very uncomfortable way, as occurred in both 1832 and 1909/10.

* This post was amended on 25 October to account for changes to the motions tabled, and to acknowledge that the Hollis and Meacher motions fall into a new intermediate category – being ‘fatal’ inasmuch as they would prevent the policy being approved, but also ‘non-fatal’ inasmuch as they would allow the Lords to subsequently pass it without the need for the measure to return to the Commons.

About the author

Professor Meg Russell is the Director of The Constitution Unit and author of The Contemporary House of Lords: Westminster Bicameralism Revived (Oxford University Press, 2013).

20 thoughts on “The Lords and tax credits: fact and myth

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  8. A very interesting piece.

    The observation “It is not in the government’s powers to suspend parliament” should maybe be rephrased. The Queen-in-Council can prorogue Parliament. But that would mean that the Commons would be suspended along with the Lords, and the government of the country would grind to a halt.

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  12. Section 66 of the Tax Credits Act 2002 expressly requires the approval of the Lords for tax credit regulations and allows for tax credit regulations to be annulled by a resolution of either House of Parliament. This, relatively recent, legislation expressly envisages the Lords vetoing such regulations, having an unfettered power to do so, and -by implication- keeping an open mind about whether to do so, and voting in good faith for proper reasons.

    Using a statutory power infrequently does not mean that its non-exercise is a ‘convention’. Particularly where, as explained in the Joint Committee’s report, their Lordships have positively resolved, “That this House affirms its unfettered freedom to vote on any subordinate legislation submitted for its consideration”.

    So to argue that there is some constitutional impediment to their doing so in relation specifically to tax credits, or that hoary old conventions apply to this particular statutory scheme, is fundamentally misconceived.

    The Joint Committee itself accepted a convention that SIs would not ‘regularly’ be defeated, but it is worth quoting their cogent reasoning as to why such rejection is perfectly proper:
    ‘The Government appear to consider that any defeat of an SI by the Lords is a breach of convention. We disagree. It is not incompatible with the role of a revising chamber to reject an SI, since (a) the Lords (rightly or wrongly) cannot exercise its revising role by amending the SI or in any other way, (b) the Government can bring the SI forward again immediately, with or without substantive amendment, as described by the Clerk of the Parliaments, and (c) the power to reject SIs gives purpose and leverage to scrutiny by the Joint Committee on SIs, and by the new Lords Committee on the Merits of SIs. The Government’s argument that “it is for the Commons, as the source of Ministers’ authority, towithhold or grant their endorsement of Ministers’ actions” is an argument against having a second chamber at all, and we reject it.’

    Essentially what they were saying is that otherwise the process of the Lords debating and considering SIs (which certainly *is* a convention although it is also a statutory procedure) would be pointless.

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  19. Cameron stated quite definitely during a question time election debate that he had no intention of cutting tax credits

  20. Worth adding it was not in Conservatives Manifesto either although they are now making spurious claims about it “was discussed” before the election so they have a “mandate”, of sorts, maybe.

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