I beg to move,
That the draft Tax Credits (Income Thresholds and Determination of Rates) (Amendment) Regulations 2015, which were laid before this House on 7 September, be approved.
I confirm, as required, that the provisions before the House today are compatible with the European convention on human rights.
The aspects of tax credits we are voting on today are amendable by statutory instruments, as laid down in primary legislation in 2002 by the then Labour Government. These and other aspects of welfare reform have of course been debated at length in the Budget debate, as well as in departmental questions and elsewhere. The underlying issues will also be debated in the Welfare Reform and Work Bill. In a response to a request from the right hon. Member for Birkenhead (Frank Field), the Government have brought the vote on the statutory instrument measures to the Floor of the House to allow all hon. Members the opportunity to vote.
Will the Minister give way?
Allow me to make a wee bit of progress.
Reforming tax credits and other benefits forms the first of five pillars of the Government’s approach to supporting working Britain. The second is the increase in the personal tax allowance; the third is the national living wage, the fourth is the major extensions to child care provision; and fifth is the overall sound economic management that is delivering growth in the number and quality of jobs, earnings and living standards.
A couple with two children, in which one works as a senior schools admission official earning £26,000 a year, will be more than £2,500 worse off next year because of the measure the Minister is proposing. Does he recognise that it will wreck the solvency of that working family? What does he think they should do?
It is important we see these changes in the overall context. I outlined some of the additional elements that are relevant. I certainly accept that they do not all come into play at exactly the same time, but in the course of time they do and by 2017-18 eight out of 10 households will be better off.
I am most grateful to the Minister for allowing me to intervene at this early stage. A number of my constituents in Northern Ireland feel extremely aggrieved about the change to the income thresholds for eligibility for tax credits. Before I could support the measure, I have to urge the Minister to give some guarantees on how the Government plan to mitigate its worst effects for families throughout the United Kingdom—not just in Northern Ireland.
I have been talking about some of the other elements, but these are matters on which the hon. Lady has a long track record of campaigning. Northern Ireland has a particular situation with regard to welfare reform and I hope all parties will come together to get through that. Discretionary payments are designed for housing issues in particular and were increased substantially in the summer Budget. It is possible that local authorities can use some of those funds to help out people who find themselves in particular difficulty, but I am of course very happy to meet her to go through this in more detail.
How would families in my constituency be affected by a Government who went back to borrow and spend, who wrecked the economy, and who allowed unemployment to rise again? How would that affect the welfare of families working in Sherwood?
My hon. Friend is correct that everyone benefits from the economic security that comes from the country living within its means.
Several hon. Members
If Opposition Members will allow, I will take some time to set out the regulations.
The regulations make three changes to the tax credit system. First, they reduce the working tax credit threshold from £6,420 to £3,850 and the child tax credit threshold from £16,105 to £12,125. Secondly, they increase the taper rate from 41% to 48%, meaning that when a claimant’s earnings reach the new tax credit income threshold, their award will be gradually removed by 48p in the pound, rather than the current 41p, ensuring that state taxpayer help is focused on those who need it most. For recipients of housing benefit, the interaction between the two systems of support means the overall change in the withdrawal rate will be 2p, not 7p.
Thirdly, the regulations reduce the income rise disregard from £5,000 to £2,500, taking it back to its level between 2003 and 2006 and matching the rate of the income fall disregard. Following the introduction of real-time information, Her Majesty’s Revenue and Customs has much more up-to-date information on claimants’ earnings, so there is no good reason to have such a high disregard figure. These three changes form part of a wider set of welfare reforms, most of which are currently under consideration in the Welfare Reform and Work Bill.
The Institute for Fiscal Studies, following a request from the Treasury Select Committee, sent us a new analysis showing that lone parents earning less than £20,000 will have marginal deduction rates of either over 90%, if they are on the old legacy system, or 75%, if they are on universal credit. How does the Minister square that with his claims at the Dispatch Box?
I am afraid that high marginal deduction rates have long been a feature of the social security and welfare system. As many Opposition Members know, universal credit will change that by making a substantive change in the withdrawal rates.
The Minister knows that this is a serious matter, and Members on both sides are concerned about the work incentives and making sure we do not unfairly penalise people who want to get back into work. My hon. Friend the Member for Bishop Auckland (Helen Goodman) was right about the rapid increase in the marginal deduction rate to 93% from next April. He needs to address that specific point. How is it not a penalty to work?
For people in receipt of housing benefit, the change in the marginal withdrawal rate will be 2p in the pound. The changes do not reduce the incentive to work, and, as the hon. Gentleman knows, equally important are the incentive, ability and support to work more hours once in work and the fact that there are now more jobs offering more hours. Our reforms to childcare are another key part of our support for people who want to increase their hours.
The context to these changes is that, despite making great progress towards balancing the budget, we still ran a deficit of 4.9% last year and are expected to have the second-highest deficit in the G7 in 2015. We need to eliminate the deficit and start cutting the national debt in order to build up our resilience to global economic shocks.
Will the Minister confirm that when tax credits were introduced, they cost the Government £1.1 billion a year and this year will cost £30 billion, which is unsustainable, and that these reforms are necessary to balance the country’s books?
My hon. Friend is right about the rapid escalation in the cost of tax credits—it trebled in real terms up to 2010—and that we are in the business of getting the country back into balance, because when we lose control of the economy, the people who lose out the most are those on the lowest incomes and in the toughest circumstances.
The burden of eliminating the deficit has meant a bigger tax contribution from those on higher incomes and now calls for further reductions in departmental spending while protecting our national health service. A further £5 billion comes from addressing tax imbalances and £12 billion from the welfare budget. That is the mandate on which we were elected. With near record employment, rising wages and stronger business confidence, now is the time to put the welfare system on a more sustainable, long-term footing, moving our country to a higher wage, lower tax, less welfare-reliant economy.
Several hon. Members
What a choice!
I am grateful to the Minister. He talks about an environment in which wages are rising. Wages are rising in some areas, but public sector workers have seen a tremendous reduction in their income capacity, and many of them will be affected massively by what the Government want to do. The Government need to think more about public sector workers, whose wages are not going up.
The hon. Gentleman is absolutely right to note the hard work done by public sector employees. There are pay restraints going on in the public sector—I do not deny that for a moment—but wages are growing at 2.8% in real terms this year, which is pretty broadly based across the country, while output per head is growing more in the north than the south.
Several hon. Members
Time is short, so I am going to make some more progress.
For too long in this country—[Interruption.]
On a point of order, Mr Deputy Speaker. For clarification, will the Minister please explain that the wages of public sector workers are going up not by 2.8% this year, but by only 1%?
That is not a point of order.
For too long, low pay has been addressed in this country not by genuine reform and driving productivity, but by subsidising it through the tax credit system. In the decade to 2010, tax credit expenditure more than trebled in real terms. The changes introduced in this order will build on the last Parliament’s reforms and return real-terms tax credit spending to its 2007-08 levels—a decade into the Labour party’s tenure in government. It is not a stand-alone measure, but part of what my right hon. Friend the Chancellor called a “new contract” with working Britain. It says to businesses, “You will have to pay higher wages, but you will get lower business taxes and a stable economy”; it says to people, “You can get higher pay and lower tax, but with less benefit top-up”; and it says to the country, “We are going to spend less and live within our means”. These regulations are an important part of that, and I commend them to the House.
What we have just heard is a Government in denial about the impact these changes will have on what my right hon. Friend the Member for East Ham (Stephen Timms) has described as “wrecking family finances”. We are here today only because of the efforts of the Chairman of the Select Committee on Work and Pensions and of my right hon. and learned Friend the Member for Camberwell and Peckham (Ms Harman), who wrote to the Prime Minister in July to insist on a full debate on these cuts to tax credits, which were not included in the Tory manifesto. The original intention had been to implement these changes with the scantiest possible parliamentary scrutiny—through a statutory instrument not debated by the whole House, but considered by a short Committee session of no more than 15 MPs and without scrutiny in the House of Lords.
I am obliged to the hon. Lady for giving way so early in her speech. Does she not recognise that rebalancing the financial relationship between the state, employers and employees was in the Conservative party manifesto, which was voted on and led to the return of a Conservative Government?
The hon. Gentleman does not make it any better for his Front-Bench team, as what we have seen is a rise in child poverty. We absolutely agree that we need to find ways to encourage families to come off tax credits, but it should be done by a rise in income and through growth in the economy.
During the election campaign, the Prime Minister told the country that the value of tax credits would not fall. Does my hon. Friend agree that the Government’s behaviour is putting democracy in peril?
My hon. Friend is absolutely right, and it is shocking that a Government who profess to care about democracy should be so afraid of scrutiny.
Today’s changes are substantial and highly controversial, and we oppose them.
Will the hon. Lady give way?
I will in a moment.
These cuts in tax credits will hit working families in every constituency, and they were to be sneaked in through the back door. Indeed, when asked directly during the election campaign whether the Government would cut child tax credit, the Prime Minister said:
“No, I don’t want to do that.”
His statement was repeated on “Question Time” on 1 May. Today’s debate is about a political decision made by the Chancellor which is set to see more than 3 million families lose an average of £1,000 a year.
Will the hon. Lady give way?
I will in a minute.
This measure is ideologically driven, it is cynical, and it will directly increase levels of poverty in Britain.
Will the hon. Lady give way?
If the measure is passed, will it be Labour’s policy to reverse it?
I am unclear—[Laughter.] I am unclear about why the hon. Gentleman wishes to make this an issue about the Labour party, and not an issue about why his Government have presented the House with a measure that will have a negative impact on his constituents as well. He will have to account to his constituents for the decision that he chooses to make today when they come to his surgery, knowing that—[Interruption.]
Order. I certainly want to hear the shadow Minister, and I would expect Conservative Members to want to hear her as well. If they do not, I am sure that the Tea Room awaits them.
Thank you, Mr Deputy Speaker.
As I was saying, this measure is ideologically driven, it is cynical, and it will directly increase levels of poverty in Britain.
Several hon. Members
I will give way in a minute.
The measure is part of an ongoing attack on the incomes of some of the most hard-working families in our constituencies, the very strivers whom the Chancellor purported to support.
The Chancellor said that Britain deserved a pay increase and Britain was going to get a pay increase. The Tories over there cheered him to the rafters when he increased the national minimum wage, but we now know from a document produced by the House of Commons Library—I have a copy here—that the changes in tax credits will more than wipe out the increase in the national minimum wage. At the same time, the Tories are cutting taxes for millionaires. It is an absolute disgrace.
My hon. Friend is absolutely right. It is indeed shameful that we are seeing a cut in the incomes of the poorest people in our constituencies.
Will my hon. Friend give way?
I will in a moment.
This measure will attack families in which people are working hard to do the right thing and to achieve what we all want to see: a higher-wage economy in which people are less reliant on tax credits to make ends meet. What is before us today must be called out for what it is. According to the Office for Budget Responsibility, it amounts to what will be a cut of more than £3.4 billion annually by 2020—a cut that the Government have sought to slip through without even having the courage to carry out an impact assessment.
I welcome my hon. Friend to her new position. I am very pleased that we are taking such a strong stance on tax credits. After the Prime Minister said that he would not cut tax credits, we are seeing the most pernicious and unfair cut imposed on some of the poorest people in society. Is that not why it is right for us to stand up for them today?
My hon. Friend is entirely right. We are standing up for families who are doing the right thing: going out, working hard and trying to support themselves and their children.
As a founder member of the drive, initially in London, for the real living wage, may I ask whether my hon. Friend agrees that the phoney living wage of the Chancellor of the Exchequer will not begin to compensate for the tax credit cuts, which will hit those in work particularly hard and will therefore punish the very strivers about whom the Chancellor is always lecturing us?
I thank my hon. Friend for that intervention and for highlighting that the living wage will be lower than in any year since 2011. That is another example of this Government’s lack of transparency.
This move today amounts to a huge cut in the income levels of hard-working families.
Will the hon. Lady give way?
I will give way in a moment.
Effectively, these regulations, which come into force in April next year, will lower the level at which working tax credit starts to be withdrawn from £6,420 to £3,850, and increase the taper rate at which tax credits are withdrawn from 41% to 48%, meaning that for every £1 earned over the threshold there will be a 48p reduction in the level of tax credit entitlement. As a consequence of these changes to working tax credit, the level at which child tax credit begins to be taken away is lowered from £16,105 to £12,125. This change was not announced in the summer Budget, but is a consequence of steepening the taper for working tax credit.
Does my hon. Friend agree that the Government have created a new phenomenon regarding zero-hour contracts? Women cannot get tax credits because of those contracts, as they have no continuity of employment, which affects families in many different ways.
I thank my hon. Friend for that intervention. He highlights the collective impact of the decisions this Government are making on the income levels of many of the poorest families in our constituencies.
Several hon. Members
I will make a little progress, and then I will give way.
Far from increasing work incentives, these measures will reduce them. Reducing the work allowances or thresholds and increasing the taper rates mean families will have their incomes reduced earlier and more quickly than would otherwise have been the case.
Does the hon. Lady accept that the vast majority of Members in this Chamber probably agree that we would like to see Britain move away from being a low pay, low productivity economy to a more advanced, higher productivity, better paid one? Can she explain how she thinks we can possibly move in that direction, even now the economy is recovering, if we do not tackle the absurd level of taxpayer subsidy to low pay from the tax credit system?
Order. I want to hear the hon. Lady’s reply.
I thank the right hon. and learned Gentleman for his intervention. He may first want to explain why he voted against the national minimum wage when it was put to this House. We agree about people needing to come off tax credits, but we would do that through an increase in wages and in productivity.
The Government have sought to argue that working people will be compensated for the cuts by the increases in the minimum or living wage. That is contested by the Institute for Fiscal Studies, which says that it is “arithmetically impossible”. Although we welcome the increase to the personal allowance and the introduction of the so-called national living wage, as the Low Incomes Tax Reform Group has stated, any gains from those measures will not negate the impact of these tax credit cuts from April 2016. The IFS recently concluded that families will lose over £1,000 a year on average from cuts to tax credits, while they will gain between £100 and £200 a year at most from the proposed national living wage, and even that is seen as optimistic.
The IFS analysis has also shown that those on the lowest incomes are hit hardest by the Government’s tax and benefits changes. The reduction in annual income over the next five years is most marked for the poorest four income decile groups, highlighting the regressive nature of this Government’s fiscal choices.
I am grateful to the hon. Lady for giving way when there is such stiff competition. Does she agree with Alistair Darling that tax credits are a subsidy to unscrupulous employers who underpay their staff, and that by rebalancing our economy away from tax credits and towards higher pay, everyone will be better off?
The hon. Gentleman continues to miss the point. We cannot remove tax credits in that way without ensuring first that there is an increase in wages for families so that they can support themselves and not see an increase in household debt.
On that point, the Institute for Fiscal Studies figures that were given to the Treasury Committee show that the average gain is only £200 for the 8.4 million working age households who are estimated to lose £750 through this measure. Does that not show that the Conservatives’ claim of being the party of working people is a complete fraud?
My hon. Friend has made his point incredibly well. I now wish to make some progress.
The IFS has also shown that those on the lowest incomes are being hit the hardest by the Government’s tax and benefits changes. It is also of great concern that many tax credit claimants will not be aware of the cuts and will suffer additional hardship from April without any time to adjust their budgets. Cuts in families’ income will have wider economic impacts. For example, the changes will hit local businesses, and less will be spent in our local shops.
It is staggering that the Budget document did not include a distributional analysis of the impact of the Chancellor’s spending decisions. It is no wonder that people believe that that was deliberate and part of the intent to hide the impact of these changes. That pattern has continued today.
Was my hon. Friend as astounded as I was to hear the Minister say that these changes protect those with the least and are being paid for by those with the most? Not only have the London School of Economics and the IFS demonstrated that the Government have hit those in the lower half of the income distribution, but I have evidence of a real family in Merseyside who will be £32 a week worse off. Does that not prove that what the Government are saying is a falsehood?
My hon. Friend is absolutely right, and I can guarantee that all Members in this House will see more people with exactly the same problems in their advice surgeries.
The pattern has continued with no Government impact assessment for the statutory instrument that we are debating today. The Low Incomes Tax Reform Group has emphasised that fact along with the Social Security Advisory Committee, which complained in a letter last week about the lack of information that it was given on these regulations and the impact of the changes. It also said that more information should be made available to Parliament to allow for proper scrutiny. It said:
“In the case of the Tax Credits (Income Thresholds and Determination of rates) (Amendment) Regulations, which are affirmative, we would expect Parliament to want more detailed information that clearly explains the changes and potential impacts to ensure that they can be subject to effective scrutiny. We would encourage you to take those steps to make that material available for that purpose.”
The Members who are here today have no official information from the Government about the impact of the changes on which they are voting. I am talking about the impact that those changes are likely to have on their constituents. Instead, we have to use the IFS figures, which are the most authoritative figures available.
I will not give way.
These measures will hit families with children the hardest and impact on child poverty at a time when the Government are also abandoning their commitment to eradicating child poverty by 2020, and effectively abolishing the child poverty watchdog. The Social Mobility and Child Poverty Commission’s remit will now just be social mobility. Tax credits have played an enormous role in tackling child poverty. I hope that Government Members will think twice before they go through the Lobby tonight.
Will the hon. Lady give way?
I will give way to the hon. Gentleman.
I am very grateful to the hon. Lady for giving way and I congratulate her on her promotion and her new appointment. She is now more than quarter of an hour into her speech, but we still do not know where the £3.4 billion would be saved from, if not from this measure? The Opposition cannot be credible if they are still going to go for further deficit spending.
The hon. Gentleman’s constituents will certainly be pleased to hear him raising their concerns about the likely impact of these changes on their incomes. I hope that he will engage—[Hon. Members: “Answer!”] He has heard the answer before from the Labour party. We certainly would not give tax cuts to the very wealthy in this country, which his party has had a good record of doing over the past five years.
Around 10 million people—a sixth of the population—will be affected by these changes. Every Member in the House represents some of those who will be hit—around half the working families in our constituencies. However, it is heartening to read in media reports today that at least five Members on the Government Back Benches are planning to vote against the changes. We have also heard reports, cited by the Chair of the Work and Pensions Committee, that the Chancellor spent yesterday talking to anxious Tory MPs and urging them not to defeat him in the vote today, after they took him at his word when he said that the Government represented low-paid workers. I am sorry that Conservative Back Benchers feel let down by their Chancellor, but it is not too late for the Government to change their mind.
It is disappointing that the Government have failed to tackle the real drivers of welfare spending—notably, low pay and the high cost of rent. That failure caused the Department for Work and Pensions to overspend by £25 billion over the last Parliament. The Chancellor has slashed entitlement to housing benefit, including through the bedroom tax and the benefit cap, yet the number of working people being paid housing benefit has still risen by 400,000 since 2010 because working people are not bringing home enough money to pay the rent. The number of people paid less than a living wage has risen by 45% since 2009, with 4.9 million workers today being paid less than the living wage.
This week the Government also launched the most sustained attack on rights at work in 30 years. The Trade Union Bill amounts to a suppression of the democratic rights of ordinary people, and the Government’s cuts to tax credits are a disgraceful attack on the incomes of families up and down the country. Labour would bring down welfare spending not by punishing the most vulnerable but through supporting a higher wage economy, introducing a real £10-an-hour living wage, tackling high rents by addressing the housing crisis, and supporting trade unions to ensure fair pay.
The proposed changes arguably represent the largest single cut to family incomes ever implemented by a Government. I hope that Conservative Members will search their consciences on this issue and vote with their hearts and their heads by joining us in the No Lobby today.
Several hon. Members
Order. A lot of Members want to get in, so let us crack on with a four-minute limit on Back-Bench speeches.
I am not going to pretend that it is easy to stand up and speak in favour of something that is, as the hon. Member for Feltham and Heston (Seema Malhotra) has said, going to be tough on families, but this is none the less the right thing to do. We have heard a great many estimates of how families are going to be affected, with a variety being produced by the Institute for Fiscal Studies. The one that I have seen gives a figure of £750.
This measure will affect families, but it is worth bearing in mind the fact that there are mitigating factors that will make a difference for those families. We have heard about the tax threshold increases, and it is also worth bearing it in mind that many of those families are also small and micro-business owners who have benefited from reliefs on business taxes and small business rate relief. The economy is also a lot better, with very low inflation rates at the moment.
Would the hon. Gentleman like to reflect on the fact that someone working full time and earning £17,000 a year will lose close to £2,000 as a result of these measures? Why do the Government want to punish hard-working families in this way, at the same time as they are increasing the inheritance tax threshold? This is vindictive and nasty.
I am not sure I recognise the figure of £2,000 on a £17,000 income, and I do not accept that this Government are punishing hard-working people. I see a Government who are doing an enormous amount by reducing the threshold tax rates and by helping small businesses. We have seen more people come into work than there have ever been before. This Government have had a huge number of successes, so I do not recognise what the hon. Gentleman is describing.
There are two particular reasons why I support this measure, the first of which was highlighted by my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke), the former Chancellor, and my hon. Friend the Member for Croydon South (Chris Philp) in talking about the effect that tax credits have on employers. We do not know exactly the extent to which this has been the case, but without a shadow of a doubt some employers will have been not paying the right salary or pay, given that the Government are subsidising not necessarily those people on low incomes but the employers employing people on low incomes. We also know that if that did happen early on, it is much more difficult to unravel it now, which is why it is very important that we have the new national minimum living wage. It is there to ensure that wages do start going up, although I concede that this does not necessarily cover it all.
How can employers take account of the tax credits, given that the tax credits are paid according to family circumstance and the wage is not?
Because employees will work for a wage that they can afford to work at, and if the Government are subsiding those household incomes the employers can take advantage of that. It is difficult—I completely concede that—to unravel this.
Conservative Members are clear that the macro picture is absolutely right and we have to reduce the welfare bill. Does my hon. Friend agree that the Government could do one specific thing that would help enormously? The BBC has withdrawn its online calculator for people who want to know how much they will be affected by this, and online forums suggest that different calculations are produced by different newspapers. Could the Government produce their own calculator so that our constituents can find out—
Order. Mr Graham, you know you are pushing your luck. The hon. Gentleman has already given way twice and you are taking up your colleague’s time.
A very wise idea.
The second reason I am very supportive of these changes goes back to the old argument about reducing the deficit. Conservatives made it perfectly clear at the last election that we would seek to find £12 billion through benefit changes, and that was a manifesto pledge. We were elected with an increase in our number of Members of Parliament and a rise in the sitting MPs’ majorities. We have been asked by the country to deliver on our manifesto pledges, and this is part of that delivery.
We still have a budget deficit, and the tax credits system costs the taxpayer about £30 billion a year. The IFS this morning said that it expects these changes potentially to deliver £6 billion in savings. It is worth remembering that, as has been said, tax credits cost just £1.1 billion when they were first introduced, but that has now ballooned to the current level and that is simply not acceptable. It is also worth remembering that they ballooned in a period of so-called “high economic growth”. The then Chancellor, famous for many things but in particular for claiming to have ended boom and bust, was running a bizarre programme of increasing benefits at the same time as telling us that the economy was fine and growing steadily. Perhaps he knew something that he was not telling us, increasing benefits in anticipation of the collapse caused by the crisis—perhaps he knew it was coming. By 2010, 90% of families with children were receiving tax benefits. Do 90% of families actually need these tax credits, even after all those years of the Labour Government, when we would have thought that the families would be doing better? Apparently, they are not. These tax changes take us back to the real levels in 2007 and 2008.
I wish to finish by discussing one point. I was very struck, as were many Members, by the election whose result we saw on Saturday. I was particularly struck by the number of young people who were voting in that leadership election. They were voting in the name of voting against austerity. They were objecting to what they see as cuts being delivered to them today. In 20 or 30 years’ time, they will have to take responsibility for the mess that they find—we have to do something now. If we hand over the shop to them as we found it five years ago, austerity would not mean some managed cuts; it would mean devastating cuts that would be unbelievably painful. We have to take responsibility for the way things are now. I am not in the business of mortgaging the next generation’s future. I want to take responsibility for the problems we have today and not kick the can down the road. This is not austerity-heavy; it is common sense.
Let there be no mistake: this statutory instrument will mean drastic cuts in the incomes of families with parents in low-paid work. Across the UK, about 7.5 million children live in about 4 million families that are in receipt of tax credits, and the vast majority of those families are in work. The key impact of the measure will be to reduce the incomes of more than 3 million working families by an average of more than £1,000 a year. We have a very short time today to debate a statutory instrument that will, at a stroke, make dramatic cuts to the incomes and life chances of millions of our citizens, and it deserves a lot more scrutiny then we are giving it today.
The Government have tried to argue this afternoon that their changes to benefits and tax credits are part of a plan to encourage people into work, but this measure overwhelmingly affects people who are already in work. Far from providing incentives for parents to enter the workforce, it actively reduces work incentives and makes it harder than ever for parents in low-paid work to support their families.
This is a hugely regressive measure. Our poorest working families are set to lose a dramatic proportion of their income. If we pass the regulations today, tax credits will start to be withdrawn from any family earning more than £3,850 a year rather than from those earning more than £6,420 a year, as is currently the case. More than half a million families earning less than £6,420 a year will lose out disproportionately because of these cuts to work allowances. That is a massive reduction in the amount that families can earn before tax credits start be withdrawn. Combined with the lower level at which universal credit will be withdrawn it means that, for example, a single parent earning £6,410 a year—roughly 20 hours’ work a week on the minimum wage—will lose 48p in tax credits for every pound they earn above the new threshold, which will leave them about £1,200 worse off a year.
One hundred pounds a month probably does not sound like a lot to Conservative Members—[Interruption.] It might not be a lot to them, but for those on low incomes a drop in income of that magnitude will almost certainly mean very difficult choices about very basic things, such as the quality and quantity of the food they eat and how to heat their home. Many poorer families already struggle with heating costs in winter, especially in my part of the world, but it is not only people’s health that is affected by living in cold and damp conditions. This is also about whether children have an adequately heated place to study and do their homework and the long-term consequences if they do not.
I recognise that disadvantage takes many forms, and we have heard a lot of rhetoric lately about social mobility, but the harsh fact is that income poverty is the single biggest driver of long-term disparities in children’s outcomes. Children who grow up in income-poor households are likely to have poorer health throughout their lives. They attain fewer qualifications at school, end up in lower-paid jobs and die younger than their peer group.
The hon. Lady says that income-poor families have much poorer physical and mental health as well as educational attainment, but is that the case? The fact is that someone on benefits or welfare has poorer outcomes, so the route out is by gaining work and earning a decent wage.
The hon. Lady is making a ridiculous argument and once again trying to pretend that there are people on welfare and people in work whereas in reality—as illustrated by the tax credit system—many thousands and millions of working people are dependent on benefits because of low pay. That is the key issue in this debate. The Government are attacking low-paid workers, just as they have over the last Parliament, while giving tax breaks to the wealthiest people in our society. The deep cuts to the incomes of the poorest families that the Government are trying to enact today will only exacerbate the inequalities we already have in our society and push opportunities even further out of the reach of those who already lag behind.
The most bizarre claim that has been made for the Government’s austerity measures is that they will encourage people to work harder. I think that we should reject the rather insidious implication that people in low-paid jobs somehow do not work as hard as people in better paid jobs, because that is simply not the case. We must remember that those low-paid jobs are often far more physically demanding, and many people who are set to see their incomes cut under this measure are already working very long hours in exhausting and often pretty unrewarding roles.
Does the hon. Lady also reject the glib answer from those on the Government Benches that low-paid workers can somehow just take more hours, because clearly those hours are not available?
In various parts of the country unemployment is still unacceptably high. Whether someone can easily pick up extra hours depends on which part of the country they live in, which sector of the economy they work in and what caring commitments they might have, whether for children or other family members. It is not so straightforward when lots of parents are chasing part-time work between the hours of 9 am and 2.30 pm, when their children are at school. A lot of part-time work needs to be done outwith those hours, when parents have real difficulties accessing childcare.
The charity Gingerbread has today pointed out that some lone parents working full time on the minimum wage with one child will, by 2020, be no better off than non-working lone parents were in 2010. By 2020 many parents working full time will have fallen even further below the minimum income standard than they are at present, but essentially they will be no better off working full time than they would have been had they been out of work five years ago. Where is the work incentive in that? If we really want to incentivise work, we should be increasing work allowances, as my party proposed in the run-up to the general election, not cutting them. That would incentivise work and cut child poverty.
Once again, we have been told today that increases in the minimum wage will compensate for those losses, but the numbers simply do not stack up. Even if the Government proposed raising the minimum wage to the level of the current living wage, which is already £7.85 an hour—well above the Government’s proposed ceiling—the calculation of the living wage is based on not only the cost of living but the assumption that low-paid families are already receiving their full entitlement to tax credits at the current rate.
The Institute for Fiscal Studies, the Resolution Foundation, trade unions and others have all pointed out that the proposed increases in the minimum wage, and indeed the increases in the personal tax allowance, will not make up for the loss of tax credits. The crucial point is that if we cut tax credits in the way the Government are proposing today, the minimum wage would have to rise substantially further, to around £11 an hour, just to keep incomes standing still in real terms.
Has the hon. Lady considered the impact of the proposed changes on the housing benefit bill, particularly in the private rented sector?
The hon. Lady makes a good point, because the cumulative impact of a range of benefit measures is hitting the same people again and again. She makes a valid point, and one that I hope to come to in just a moment.
The bottom line is set out clearly in the OBR’s estimates, which indicate that the higher minimum wage is likely to increase earnings by around £4 billion in total by 2020, compared with social security cuts of £12 billion in the same period, a large portion of which will come out of tax credits. The figures just do not add up. No matter how they repackage their minimum wage and tax changes, the Government are giving a little with one hand but taking a whole lot more with the other.
At the same time as the Government are slashing the incomes of the lowest paid families, the wealthiest families are set to benefit from huge inheritance tax breaks on properties worth over £1 million. For me, that exposes their perverse priorities on families. It is not so much robbing Peter to pay Paul as robbing Peter to pay Rupert and Sebastian.
My colleagues and I were elected on a commitment to fight the austerity agenda being recklessly pursued by this Tory Government. Almost half of all families in Scotland will lose out as a result of these measures, pushing into reverse much of the progress we have made in recent years to reduce child poverty. Around 346,000 children in Scotland will be impacted by these cuts, and the Child Poverty Action Group estimates that 100,000 more children in Scotland will be living in poverty by 2020 as a direct result of the UK Government’s changes to tax and benefits.
The Scottish Government are attempting to mitigate the worst excesses of austerity, providing over £300 million between last year and next, but we need to remember that the people affected by cuts to tax credits are in many cases the same people already disproportionately affected by the freeze in child benefit, the freeze in housing benefit, as the hon. Member for Hornsey and Wood Green (Catherine West) noted, pay freezes and other austerity measures. Once again, other public services and the voluntary sector will be picking up the pieces from the collateral damage of the UK Government’s ideological crusade.
Finally, I want to address the removal of child tax credits for a third or subsequent child. This is just a further blow to poor families already struggling. This measure, along with the introduction of the two-child policy in the Welfare Reform and Work Bill, will push more families with children into poverty, pushing them further behind in health and education, potentially for the rest of their lives. Only about one in six of the families receiving tax credits in Scotland has more than two children. Larger families are a rarity nowadays. By contrast, the majority—more than half the poorest families in Scotland—have only one child. In Scotland, it is in the more affluent areas that people tend to have more children, but across every income group our birth rate is unsustainably low. We need to be supporting family life and encouraging people to have more children if we are to dodge the demographic problems coming up on the inside lane. We should not be putting barriers in the way of those prepared to contribute to our society by doing the essential job of raising the next generation.
This Government have got it very badly wrong. Cutting the incomes of working families will only make it harder to tackle the embedded inequalities that already blight the life chances of too many children. Work should be a route out of poverty for families, but here in the UK it really is not. This statutory instrument pushes that aspiration even further out of reach. That is why my colleagues and I will oppose it and continue to press for the power to make these decisions in Scotland, for Scotland, in the interests of our people and in line with our commitment to building a fairer society.
In laying this instrument before the House, the Government are pursuing the right strategic course of supporting working families through the tax system and encouraging earnings growth rather than doing that through the benefits system. For that reason, I shall support it, although I have serious concerns about the impact on working families in the short term over the next two to three years. I urge the Government to address these issues in the coming months before the measures come into effect next April.
The Government are right to be going in this direction. The current system is extremely expensive, and if nothing is done the cost will escalate to unsustainable levels. For me, it is wrong to be promoting what is, in effect, state dependency. It is also wrong that the Government are subsidising employers so that they pay low wages.
The hon. Gentleman talks about high productivity and high wages, and Labour Members would agree with him on that, but yesterday we watched him file through the Lobby and vote against trade unions. They are one of the key ways that we can raise people’s wages, and he is undercutting them. How does he explain that?
I thank the hon. Gentleman for making that point, but I am constrained specifically to the issues we are debating.
It is wrong that the Government are subsidising employers in this way. Moreover, the current system of tapering income thresholds and interconnectivity with other benefits is ridiculously complicated and opaque.
I welcome the Government’s proposals to increase the personal allowance and to introduce the national living wage. It is right that working taxpayers, especially those on low pay, should keep more of the money that they earn as an incentive to work. My concern is that in the short term, over the course of the next two to three years, those who will be hit hardest by these measures are working families, often with children, on low wages. These are the hard-working families—the people doing the right thing—that all political parties say they support and must support.
In my constituency, where the median wage is just under £24,000, many people will be seriously affected by these changes. As of May this year, 4,200 families were receiving working tax credits.
Representing a constituency where the median salary is even lower, at £17,500, I entirely concur with my hon. Friend’s concerns about this measure, and that is why I will not support it. Does he agree, though, that if it goes through, there is time between now and next year to make changes, be they to national insurance, emergency tax codes, or whatever, to mitigate the impact on the poorest?
I agree with my hon. Friend. I will come to that when I conclude.
Yes, the rise in the tax threshold and the introduction of a national living wage will help, but, as shown in research by the House of Commons Library, they will not on their own make up for what will be significant reductions in income.
My hon. Friend is making a powerful point. I also represent a constituency where wages are quite low. The Government must recognise that the living wage must be brought up so that people are not worse off as a result of the cut in tax credits. We have to drive up the living wage so that we do not take too much money away from them.
I thank my hon. Friend for that notable intervention.
In my Waverley constituency, the demise of traditional industries, high levels of unemployment, low wages, lack of skills and poor infrastructure have been brakes on growth and job creation for 40 years. Both the previous Government and this Government have taken decisive action to address those problems, to halt and reverse the seemingly never-ending downward spiral of decline: unemployment has fallen significantly since 2010; there has been notable investment in apprenticeships; an enterprise zone has been set up; assisted area status has been granted; and funds have been committed to upgrading the roads and railways. That support and investment is to be both applauded and welcomed, and it will bring new, well-paid jobs to the area. However, it will not do so overnight. In the meantime, a particularly vulnerable group of society will be left very much exposed.
As I said at the beginning of my speech, the Government are pursuing the right course, albeit through choppy waters, and for that reason I shall be supporting the proposals. However, there are real concerns that must be addressed, and I urge Ministers to ensure before next April—possibly in the autumn statement or the next Budget—that those on low incomes are not hit unfairly and disproportionately by the proposals and that they do not have the unintended consequence of undermining the incentive to work.
I wrote to the Prime Minister to ask for this debate on the Floor of the House for a number of reasons. First, this is the most important aspect of the first Conservative Budget for many years; I have forgotten how many. Yet, by the nature of how the authorities decide how we give or withhold authority, we were not able to vote on the biggest change proposed in that Budget. I therefore think it important that we have the opportunity to debate it, and I am grateful to the Prime Minister for giving the whole House the chance to debate the “crown jewel” of the first Conservative Budget.
The second reason has already begun to erupt on the Conservative Benches. Not only is this the most significant fiscal change a Conservative Government have made, but it affects disproportionately the poor. Many Members will want to put on the record their disquiet with the Government—not just Labour Members, as one would expect, but Conservative Members, too.
The figures speak for themselves. We are talking about people at the bottom of the income pile. Just one headline figure tells us that well over 3 million of the lowest paid workers in this country will lose in the region of £1,300 a year. That might affect the standard of living of MPs; it will certainly affect the standard of living of many of our constituents and the choices that they will be able to make, whether they are represented by Opposition or Government Members.
Will my right hon. Friend give way?
I will not, partly because I am anxious that other Members have the opportunity to contribute.
I am surprised that the Chancellor is not present—this was my main reason for calling for this debate—because he was clearly the architect of the Budget. He is the most political Chancellor I have known in my whole period in the House of Commons. In the lead-up to the last election, and during it and since, he managed to push Labour into a very unpleasant corner where we were the welfare party and the Conservatives were the party of the strivers. In one single move, he has destroyed his 2020 election strategy. We heard the Chancellor’s very powerful speeches saying that the Conservative party was in favour of individuals who, when they got up in the morning to do grotty jobs for very low pay, passed the windows with the curtains still drawn of their neighbours on benefits. Individuals in this country who still get up with the work motive, which is so important for both economic and human advance, will know as they pass the windows with the curtains drawn that they do so with, on average, £1,300 a year less in their pocket.
It is an advantage to debate this proposed change in the House. The Government may not be harmed that much in the vote, but this issue will rumble and then catch fire in Members’ constituencies when the cuts come through. If Mrs Thatcher would bend under pressure from her Back Benchers when they did not like what they were hearing in their constituencies, I would be very surprised if our most political Chancellor did not bend like her.
Thank you, Mr Speaker, for giving me the opportunity to speak in this debate. I will keep my remarks short, because several other colleagues wish to speak.
This Government were elected just over four months ago with a clear mandate to get our country’s books in order, balance our finances and run a surplus. Our manifesto included the commitment to make £30 billion of savings, including £12 billion in welfare. Although the deficit was halved in the last Parliament, Britain is still borrowing too much money, with a budget deficit of 5%. The sheer scale of tax credits is
“subsidising lower wages in a way that was never intended”.
Those are the words of the former Chancellor Alistair Darling.
Under Labour, spending on tax credits more than trebled in its 10 years in office. In fact, as my hon. Friend the Member for Havant (Mr Mak) pointed out, the original tax credit system cost just £1.1 billion in its first year, but will reach a cost of almost £30 billion this year. Reductions in spending are therefore vital to ensure that we are not burdening our children, grandchildren and great-grandchildren with more debt than they can ever hope to repay.
In 2010, 90% of families were eligible for tax credits, which was a disproportionate amount. After these Budget changes, that will be reduced to five in 10, which is a much more sustainable number. Ultimately, the changes will return tax credit spending to pre-crisis levels—to the level that it was under Labour Governments in 2007-08—and deliver £4.4 billion of savings in 2016-17.
The Chancellor’s Budget delivered the promised increase in the personal tax allowance, which will rise to £11,000 next April and to £12,500 by 2020. The living wage will be £7.20 an hour, and employers are already pushing wages up to match that figure. That is equivalent to annual gross earnings of £13,100 for someone aged 25 or over working 35 hours a week. The projected increase to £9.35 an hour will increase the figure to £17,100 for someone aged 25 or over working 35 hours a week, which is a huge increase in a basic salary. In general, the losses from the combined effect of the threshold reduction and the taper increase will be greater for tax credit claimants with relatively high incomes, which is vital to ensure that our welfare system is kept affordable and provides support for those most in need.
In summary, the Government have a clear mandate to control our spending, to reform welfare and to balance our country’s finances. The proposed tax changes, combined with the increased personal allowance and the introduction of the first national living wage in the first Conservative Budget for 18 years, demonstrate that this Conservative Government are committed to creating a higher wage and lower tax economy. I believe that these changes will put our welfare system on a long-term sustainable footing, and I will support them today.
Before the election, the Prime Minister promised to maintain the value of tax credits. He has broken that promise. He also said on 22 April that the Government were
“using all the tools at our disposal”,
including the “tax and benefit system”, to “make work pay”. Today, we are debating the betrayal of that pre-election commitment.
As we have heard, 3 million working households will lose up to £1,000 each and a single-parent earner on £19,000—a modest income—will lose £2,000. Many extrapolations that are set out in the House of Commons briefing paper and elsewhere show the scale of the losses.
Today, we have heard from Government Members the argument that tax credits are a subsidy for bad employers. In some instances, that is true, but there is scant evidence for the assertion across the board. What is absolutely clear is that the tax credit system is an incentive, particularly for lone parents, to go into the workplace and stay in work. The positive employment incentive of the tax credit system has been almost entirely ignored by the Conservative party.
That masks a success story over the past 10 to 15 years, which has seen a dramatic increase in the number of parents, particularly lone parents, going into the workplace. We should celebrate that fact and support those working parents who have gone into work. A recent piece of research by the New Policy Institute, “Trends in parental employment in London”, demonstrates that success story in employment. Associated with that, there has been a
“large shift away from out of work claims towards in-work claims”.
A rise in the national minimum wage is welcome—indeed, employers should share with the state the responsibility for ensuring that working people enjoy a decent basic income—but it will not offset the huge hit on tax credits. As the analysis by the Institute for Fiscal Studies has shown, the new national living wage offers
“little compensation because the boost to gross wages is smaller than the announced fiscal tightening and almost one-third of the increase in gross wages goes to the Treasury in higher tax receipts and lower benefits and tax-credit entitlements.”
The IFS calculates that across the entire population that receives in-work benefits and tax credits, just 20% of the losses that will accrue from the benefit cuts will be returned to those people through the rise in the minimum wage.
Will the hon. Lady give way?
I will not give way because many people want to speak.
My particular concern is that London has the highest level of child poverty of any region in the country and, with 356,000 families receiving tax credits, almost 750,000 children will be losers as a result of this policy. A study by the Trust for London on the higher costs that are faced by working people and parents in London, which has just come out, shows that even before the tax credit cuts, such families are £54 a week worse off than equivalent families outside London. These cuts will hit the working poor right across the country, but they will hit them harder in London than anywhere else.
As we look towards the election that we will fight next May, I absolutely guarantee that my colleagues will draw attention to those losses for families, and those families will not forgive this Government for betraying their commitment to protect the working poor.
There is no doubt that this measure is controversial and that it will hurt our constituents. It is a tough measure, but I nevertheless support it strongly because of the wider picture. This country must take the journey from being an economy of high welfare spending, high welfare dependency and high borrowing to being a more competitive country with higher productivity and, most importantly, higher real wages at every level of the economy. That, in turn, will put us on the path to more sustainable prosperity and sound public finances.
I have spoken on tax credits before in the House. I said on Second Reading of the Welfare Reform and Work Bill that they were one of the greatest mistakes in the history of the welfare state. When the Beveridge report made its recommendations, which led to the welfare state, the third key principle was that state benefits
“should not stifle incentive, opportunity, responsibility”.
My biggest problem with tax credits is that it is overwhelmingly clear that they stifle incentive and opportunity.
I agree with my hon. Friend. Tax credits have distorted the principle of welfare, which was to help the most vulnerable in our society who are unable to work. We now have a distorted system of in-work welfare where the state is subsidising wages. It is unsustainable.
I strongly agree with my hon. Friend. My point about work incentives is based on my experience as a small business owner. I found the situation with tax credits extraordinary. I had members of staff who declined pay rises because they would lose so much from their tax credits, and most common of all were part-time staff who would not go full time because the tax credits were so generous.
Will the hon. Gentleman give way?
I will not give way at this moment. People were receiving the equivalent of full-time pay on part-time hours, and in that situation can we blame someone for not wanting to take on more hours? It is a real problem, and many other employers have made the same point to me. The problem is widespread.
My hon. Friend might be interested to hear that as a small business owner, I share his experience. I have offered pay rises and additional hours to members of my staff, and they have turned them down because of the tax credits that they would lose as a result.
I thank my hon. Friend and emphasise that this is not a fantasy. This is not a think tank or a theory; this is the real world that we have experienced. With tax credits it is difficult to incentivise staff in their interest to make the most of their talent. I genuinely believe that every person was born with incredible skills and talents. We should seek to help people make the most of those talents, but tax credits provide a perverse disincentive to do so and place a ceiling on wages and ambition.
Does my hon. Friend recognise that the points raised by my hon. Friend the Member for Waveney (Peter Aldous) have real resonance, in particular for single parents? The welcome childcare changes will not be implemented for some time, and that will lead to a transitional period during which people will be hard hit by these changes.
I do not disagree. As I said, we are having to make a choice about whether the pain that this measure undoubtedly involves—we must be honest and open about that—is a price we have to pay if we are to make the whole country more prosperous on a sustainable basis for the future.
My hon. Friend the Member for Wyre Forest (Mark Garnier) made an excellent fundamental point about tax credits. At a time of general prosperity, I do not think that the state should be embarking on a widespread expansion of the benefit system and the dependency culture. In 1945 when we set up the welfare state, this country was on its knees and people needed the welfare state.
Several hon. Members
I am sorry but I will not give way again. People needed that system to support those who were in desperate circumstances. In May 1997 when the Labour party came to power, we had a strong growing economy and were to have strong global trade for many years after that. We enjoyed low inflation because of the growth of China, and we had a wonderful period of economic growth with low inflation. It was an amazing opportunity for the Government to build for the long term, but in those prosperous times what did they do? They built a £30 billion extension to the welfare system, with nine out of 10 families with children able to qualify for those benefits. That is not a safety net, it is a massive extension of the dependency culture and a total nationalisation of family and household income. That is what we are voting on today.
There is a price to pay, but we are voting on a fundamental principle in this statutory instrument: should this country move forward to an economy based on stronger wages and where people become more reliant on wages to support themselves rather than on benefits and the state? I am proud to go through the Yes Lobby today. I think this is an important measure and a key step towards a competitive, dynamic country that has sustainable prosperity for all.
What a mean confidence trick the Chancellor carried out in the Budget. Some 3,600 households in my constituency will be affected, including 6,600 children. The Chancellor said:
“Britain deserves a pay rise and Britain is getting a pay rise.”—[Official Report, 8 July 2015; Vol. 598, c. 337.]
He also said that those on the national minimum wage can expect a cash increase and full-time workers can expect their incomes to go up by £5,000 a year. But we now know that the whole package is far from compensated for by the increase in the national minimum wage. People on the national minimum wage will not just be worse off next year, but the year after that, the year after that and the year after that—every year until 2021. The Library’s document tells us that on average they will worse off by £8,945 over the next five years.
Conservative Members cheered the Chancellor to the rafters. Did they understand that the overall package would result in the poorest workers among us having their incomes cut? The Secretary of State for Work and Pensions punched the air. Did he not understand that the overall package would result in a cut in the incomes of people on the national minimum wage? Was he being mean or is he just too stupid to be doing his job?
The Chancellor said in his 2010 Budget:
“I am not going to hide hard choices from the British people or bury them in the small print of the Budget documents. The British public are going to hear them straight from me”.—[Official Report, 22 June 2010; Vol. 512, c. 167.]
What happened in the latest Budget then? The Conservatives say that theirs is the party of working people. Here are some working people: a cleaner with one child will be £31.72 a week worse off. An assistant cook will be £32.49 a week worse off, a teaching assistant £32.49 and a health care assistant £35.36—
Will the hon. Gentleman give way?
No, I have heard the hon. Gentleman so many times. He has to stop reading out the Whips’ handouts: it does not add to the debate.
A nurse with three children will be worse off by £35.91—from the party that claims to be the party of the workers. I have a whole list of worker after worker, all of them worse off as a result of the changes to tax credits.
Conservative Members may have been convinced by the Chancellor that he will make some changes. We have heard them argue that this change is necessary and that we have to make it. Perhaps they think that they have been given a promise that something will be done and some changes made for the people on this list, but I am sick and tired of hearing Tories tell us that we have to make changes. The changes will not hit them: they will hit the poorest income earners in their constituencies. Let the Tories vote for this change tonight. People will not forget that. We will remember that the Tories voted to reduce incomes for families with children. They trooped through the Lobby, claiming to be the party of the workers but voting to reduce their incomes. People will not forget that.
I am grateful for the opportunity to speak in this debate. I support the proposed changes to tax credits, but I acknowledge that it is a difficult and sensitive issue. I wish to make a few points to explain my reasons for supporting the measure.
While I acknowledge that tax credits were introduced to support low wage workers, it cannot be right in this day and age that people who work long hours, often doing difficult work, are reliant on benefits to supplement their wages because they do not earn enough to live on. The perpetuation of the tax credit system of topping up wages lets employers off the hook when it comes to paying a decent wage. As we have heard, even Alistair Darling, the former Chancellor, has said that tax credits are
“subsidising lower wages in a way that was never intended.”
The proposed changes to tax credits deal not only with the economic issues of reducing public spending, but aim to address the inequalities faced by those who find themselves on welfare despite being in work. Life on benefits can have a huge negative impact on life outcomes, even affecting length of life. Living on welfare can have negative outcomes on physical health, on mental health and on educational attainment, to say nothing of the dignity of living on benefits.
Will the hon. Lady give way?
I will not, I am afraid.
It is very important that we make work pay. I have met many constituents who are on tax credits because they are paid so poorly. We are subsidising employers unwilling to pay a decent wage, but relying on the taxpayer to subsidise low wages. Currently, taxpayers, many of whom are earning just above the tax credit limit, are subsidising employers to pay low wages. This must end.
Change to the tax credit system is more than an economic argument to reduce public spending, but reduce it we must. I have heard nothing from Opposition Members on how they would do that if there are no changes to the tax credit system. To facilitate the changes to tax credits, the Government have not just introduced the national living wage but are providing free childcare for 30 hours a week, freezing fuel duty, freezing VAT, national insurance and income tax for five years, and increasing the tax threshold to £11,000 as a step towards raising it to £12,500, thereby keeping more money that people earn in their own pockets.
Changes to tax credits are needed to reduce public spending, as we are accountable to the British taxpayer who is currently subsidising low pay. What message is that to low-paid workers? If people get up early, go out to work, work long hours and come home late, they deserve a decent wage, not a life on benefits. We should, in this place, be pushing the agenda for better wages, instead of accepting that a life on benefits is inevitable. I will be going through the Aye Lobby tonight.
It is unfortunate that we have only 90 minutes to debate the regulations, but it is absolutely right that we should debate them on the Floor of the House. The right hon. Member for Birkenhead (Frank Field) has done us a great service in bringing this matter to the Floor of the House. It is worth reflecting, however, that the reason why there is not more public outrage about the proposed changes is a reflection of the sheer complexity of our tax and benefit system. That will have to be addressed—not in this way—in the medium to long term.
There was a lot in the Minister’s speech with which I could agree quite easily. When he spoke about the importance of raising the personal tax allowance, the very welcome increases to the minimum wage and the importance of providing better childcare provision, those are all things with which I could have no difficulty. The difficulty I have with the regulations is that at a stroke they negate the benefits the Minister outlined. It ought surely to be a matter of common consensus in all parts of the House that the best route out of poverty is through work, but what the Government are doing today is giving with one hand and taking away with the other.
Will the right hon. Gentleman give way?
I am sorry, but I am short of time.
The average household in social housing could lose up to £1,700 a year under the changes. That means for every extra £1 earned, they will lose up to 93p in benefits. That is why the Government are not true to their stated intent to encourage people off welfare and into work by bringing forward changes of this sort.
To understand why today’s statutory instrument is the wrong measure at the wrong time, it is worth reflecting on what happened to people’s employment circumstances after the 2008 crash. We expected steep rises in unemployment, and sure enough it went up, but not to the extent we expected, because employers kept people in work. However, their wages were frozen or reduced and those in part-time employment saw their hours cut. We can now see the light at the end of the tunnel—at last, we are seeing some wage inflation—but surely at this moment the Government should be encouraging people to take more hours, not removing the incentives to do so.
The hon. Member for Waveney (Peter Aldous) made a characteristically thoughtful contribution, and one of the most significant. He said the Government’s proposals were strategically correct. He might well be right about that, but what he said thereafter in the rest of his contribution indicated they were tactically inept. I address myself to him and other Government Members who share his concerns, because they are part of the most powerful group in the House: Government Back Benchers. The Government have a majority of 12, so it needs only six of them to vote with us to take this down and make them think again. I say to him, because I know he is a genuine man, that if he has not had his assurances and compensations before the vote, he will not get them after it.
The tax credit reforms before the House must be viewed in the wider context of the measures in the summer Budget and other Budgets to help working people: the £9 living wage, giving 2.5 million people a direct pay rise; the income tax, national insurance and VAT freeze for the next five years; the rise in the personal allowance; the doubling of the amount of free childcare; the council tax freeze; and the cut in fuel duty.
The hard truth is that our tax credit system is unaffordable, unsustainable and requires reform to help those working people who pay for it. The statutory instrument, which I am pleased to support, will do that. The system cost £1.1 billion in its first year. This year, it will cost taxpayers £30 billion. We spend more on family benefits than France, Germany and Sweden. Even the right hon. Member for Birkenhead (Frank Field) said it was unsustainable. The statutory instrument focuses tax credits on the lowest income groups to help them in their lives.
The only welfare system that is sustainable and credible is a welfare system that is affordable. We can support those most in need only if we protect the system by reforming the system, rather than allowing it to implode under its own weight. Britain is home to 1% of the world’s population and generates 4% of the world’s income, yet it pays out 7% of the world’s welfare. This is a drag on our competitiveness in the world and our economy at home. I support the statutory instrument and urge other Members to do the same.
With the leave of the House, I will respond briefly to some of the points made, particularly by the right hon. Member for Birkenhead (Frank Field). The Government do not recognise the £1,350 figure quoted, because it does not take account of the gains to households from the national living wage; the increased personal allowance; the fact that households in receipt of housing benefit will see some offsetting increase to their entitlement; or the improvements in childcare provision.
The hon. Member for Feltham and Heston (Seema Malhotra), whom I welcome to her place, said the Government had not published a distributional analysis, but we have, and it is available online. It shows that the distribution of public spending across the income quintiles was unchanged between 2010-11 and now and that those at the top of the income distribution are paying more. I urge hon. Members to evaluate these changes in their wider context and our record in government: helping businesses create 2 million extra jobs; lowering income tax for 29 million people; ruling out increases to income tax, VAT and national insurance contributions; extending free and subsidised childcare—we are soon to do much more; and of course ensuring that Britain gets a pay rise with a national living wage.
We must get Britain’s finances on a solid, sustainable footing, because the surest way to make working people worse off, as we sadly saw in the past, is to lose control of the public finances. Welfare spending needs to be reformed—for the benefit of those who pay for it, as well as those who use it. We are doing this as part of a package to move to a less welfare-reliant, lower-tax and higher-wage economy. I commend the regulations to the House.
One and a half hours having elapsed since the commencement of proceedings on the motion, the Speaker put the Question (Standing Order No. 16(1)).
15 September 2015
The House divided:
Question accordingly agreed to.View Details
That the draft Tax Credits (Income Thresholds and Determination of Rates) (Amendment) Regulations 2015, which were laid before this House on 7 September, be approved.