I beg to move,
That this House calls on the Government to reverse its decision to cut tax credits, which is due to come into effect in April 2016.
Today’s debate is incredibly important, but it is a shame that we have to hold it at all. It is deeply disappointing for the 3 million families across the UK who are set to lose an average of £1,300 from April that the Government have not taken the opportunity to step back, do the right thing and rethink these unfair proposals. The Conservatives omitted to mention these unfair proposals in their manifesto. Indeed, given another chance today to stop the changes—in the Welfare Reform and Work Public Bill Committee—they chose to vote against doing so.
Last night, we heard the latest arguments in favour of the cuts, which are already backfiring. The Government are seeking to make this a binary choice between cutting the incomes of the working poor and funding nurses, when in fact many of those in receipt of tax credits are our nurses, teaching assistants, care workers, civil servants and so many others who work day and night to keep our public services and our economy moving.
Just ignore him.
I do not think I even need to respond to that intervention. The hon. Gentleman is seeking to trivialise this debate. We have been very clear about what we would do and about what we are calling on the Government and his party to do. His constituents will be watching him today and asking: who he is standing up for—his constituents or his party?
I will make some more progress and then give way.
These cuts will also hit the self-employed and those who run our local businesses. It is bizarre for the Government to take £1,300 off each family by highlighting how much more they have already taken in tax credits. Today, it has become even clearer that the Government have chosen to balance the books on the backs of the poor. The Chancellor has made this a debate about taking from the non-working poor or from the working poor, rather than a choice recognising that, in tough economic times, it is fairer that those who have more should contribute more.
The £1,300 that my hon. Friend cites is of course an average. Many working people in my constituency will get clobbered by a lot more than £1,300 a year. Is not the really serious point that only in April the Prime Minister said on TV—in the studios—that he would not cut tax credits?
My hon. Friend is absolutely right. It is not on the basis of one occasion that we are saying that the Government have changed their mind or have not told the truth; they have not told the truth on this measure step by step since it was first introduced in the Budget. They have tried to hide the impact on hard-working families across Britain. My hon. Friend is absolutely right that the £1,300 figure is an average, and many families are set to lose much more.
The hon. Lady will be aware that the Conservative manifesto made it very clear there would be £12 billion of welfare savings, so this was clearly flagged up. Will she explain where, if she opposes the measure, she will find the savings—which other benefit would she cut, or which tax would she raise?
The hon. Member for Croydon South (Chris Philp) talks about the Conservative manifesto, but the manifesto cannot have outlined that 689,000 carers might be affected. Those who care 35 hours a week and then try to work 16 hours on the national minimum wage will be hit. What do Conservative Members have to say about that?
My hon. Friend makes her point incredibly well. It is those who are working so hard to support us in every sphere—in our public services and the economy—who will be hit the hardest by this move. I hope that the Government will change their mind today. I will make some more progress before I take further interventions.
The Chancellor says that he wants a low-welfare, low-tax, high-wage economy—this may come as a surprise, but of course we all do—but what he says and what he does are two different things.
I will give way in a moment.
The Chancellor decides to cut tax credits at the same time as cutting income tax and inheritance tax for some of the wealthiest in our society. His failure to grow wages in the last Parliament not only led to a drop in living standards, but meant that tax receipts were lower than they would otherwise have been. In addition, as the Institute for Fiscal Studies has highlighted, welfare spending was virtually unchanged during the last Parliament because of the growth in tax credit payments and the explosion in housing benefit payments caused by his low-wage economy. Indeed, the number of people earning less than the living wage has risen by 45% since 2009. The Government may seek to hide what they are doing and to make this a debate about the Labour party, but it is a debate about the quality of life for millions of families who are working hard to make ends meet.
Perhaps the hon. Gentleman has not read any blogs or listened to any media in the last two days. We have been on the media repeatedly and have explained very clearly that we would do that through long-term growth, making sure that we invest in high skills and increased—[Interruption.]
I will give way in a moment if I can make some more progress.
It is shocking that the Government continue to avoid telling the truth about these changes, including the Prime Minister, to whom I wrote last week, asking him to clarify his comments that after all the Government’s changes a family where one earner is on the minimum wage will be £2,400 better off. He is yet to be clear about how he reached that conclusion, how many families will gain in the way he suggests or what assessment he makes of the analysis by the Institute for Fiscal Studies, the Resolution Foundation, Barnardo’s and so many others who are against these changes.
The Chancellor chose either not to perform or not to publish an impact assessment of these changes for the Commons—a move that was criticised in no uncertain terms by the Social Security Advisory Committee. There are only two ways to interpret that: the Government either do not want to know or do not want to tell.
My hon. Friend talks about the impact of these changes. Let me give her one simple example from my Walthamstow constituency of a working mum. When her tax credits were delayed, we had to refer her to a food bank because they were literally the difference between being on the breadline and having bread. Does my hon. Friend agree that that will happen to working people across the country if these changes go ahead?
My hon. Friend is absolutely right. She highlights, too, the impact of the Government’s appalling administrative processes on our constituents. They are left trying to make ends meet and having to go to food banks. More than 60% of the use of food banks is due to issues with benefits and benefits administration.
After an intervention, the hon. Lady asked whether Government Members had been listening to the media. I listened to an interview she gave on Radio 4 this morning. She gave only two examples of changes that she would make to the tax system. One related to inheritance tax and the other was to raise the tax threshold to 50p. In 2017-18, that would raise only £270 million. Where would she get the other £4.2 billion?
I thank the hon. and learned Lady for her comments. Perhaps she will say what she is doing for the 6,300 families in her constituency who will be affected by these changes. Perhaps she should speak to those in her party who have raised serious concerns about the changes, including Lord Tebbit.
Before the debate on the statutory instrument in September, the Government chose either not to perform or not to publish an impact assessment of these changes, so one was not available for the debate in the Commons. The Exchequer Secretary seemed to suggest that they had done that, when clearly they had not. The distributional analysis that the Chancellor finally submitted to the Secondary Legislation Scrutiny Committee in the other place last week has been described by my right hon. Friend the Member for Birkenhead (Frank Field), the Chair of the Work and Pensions Committee, as a “sleight of hand” and an attempt to “bamboozle”.
I will make a little more progress first.
It is worth reminding hon. Members exactly what the Government propose to do with these changes. First, they will effectively halve the threshold at which claimants start to see their tax credits award tapered away, from £6,420 a year to £3,850. Secondly, they will increase the rate at which the award is tapered away to zero. That means that for every pound that is earned above the threshold, their award will be tapered away by 48p. Previously, the rate was 41p. House of Commons figures show that a family with two children and two parents who earn the minimum wage will see a fall in their income of more than £1,800 next year. By the end of the Parliament, that family will lose a devastating £7,700.
My hon. Friend is absolutely right. The Conservative party claims to be there for the workers, but it is going against everything that hard-working families are doing to make ends meet. It is time for the Government to rethink what they are doing and stand up for those they pretended to stand up for at the time of the election.
I will give way in a moment.
A family with one earner on the minimum wage will be more than £1,500 worse off next year and almost £7,000 worse off over the Parliament.
The claim that we have heard most is that working families should not be concerned because the minimum wage will see significant increases in the next few years. As the Institute for Fiscal Studies has made abundantly clear, the claim that those increases will close the gap is arithmetically impossible. Paul Johnson, the director of the IFS, summed it up:
“The key fact is that the increase in the minimum wage simply cannot provide full compensation for the majority of losses that will be experienced by tax credit recipients”.
“Unequivocally, tax credit recipients in work will be made worse off by the measures in the budget on average.”
There are 4,200 working families in my constituency who will be affected. Given that the Prime Minister said before the election that he would not cut tax credits, does my hon. Friend think that this House and the other place would be right to vote down the proposals?
My hon. Friend is absolutely right. I hope that Government Members will make that decision today.
The IFS has found that, as a result of all the tax and benefit changes in the summer Budget, by 2020, households with incomes in the second, third and fourth deciles will be worse off by £1,250, £860 and £530 respectively. Indeed, the Resolution Foundation’s recent report showed that the changes are likely to result in 200,000 more children being pushed into poverty at a time when the Welfare and Work Bill is effectively erasing Labour’s Child Poverty Act 2010, the duty in it to eradicate child poverty by 2020 and the measures to monitor child poverty. Perhaps a Government Member would like to ask their own Front Benchers a question about that.
Perhaps the hon. Gentleman should ask what will happen to the 4,500 working families in his constituency who are set to see an average cut in their household income of more than £1,300. What impact will that have on whether they can keep their home, put food on the table or afford clothes for their children? I suspect that he will have a lot to answer for in his constituency.
A million single parents who are in work are set to be £1,000 a year worse off and 1.5 million married women will be £600 poorer.
I will in a moment.
These cuts will also hit the self-employed who are on tax credits. Since 2010, self-employment has grown at twice the rate of overall employment. We know that, on average, self-employed people earn 40% to 50% less than those who are in regular employment.
I will in a moment.
This weekend, The Observer included the case of somebody in Manchester who is self-employed. He expects his tax credits to be reduced to virtually nothing from next April. I hope that in his response, the Exchequer Secretary will be straight about what these changes mean for the self-employed.
That is absolutely incredible. We have answered that point in the media and in articles, and I do not need to keep going over that ground. The hon. Gentleman might want to respond to the 3,000 families in his constituency who will be hit by these changes, and say how he will reply to institutions that have done hard research into these matters. The Government have chosen to carry out no impact assessment for what has been described as an “array of statistics”. This debate is about people’s lives, and the hon. Gentleman should stand up for his constituents, just as Labour Members will do when voting in the Lobby tonight—[Interruption.]
I think that comment represents a misunderstanding about what tax credits are supposed to help with. I hope that the hon. Lady’s Government will be more successful this Parliament in increasing wages—hopefully to a level where people start to come off tax credits—but they do not have a very good record to date. As I said, the number of people earning less than the living wage has risen by more than 45% since 2009.
In their interventions so far, Conservative Members have already conceded the argument. They started by saying that low-paid workers were going to be better off, and that Britain needs a pay rise and will get one. They have conceded that argument, but now it is all about choices and how tough it will be to balance the books. They have lost the argument.
My hon. Friend is right, and as far as the public are concerned Conservative Members have lost the argument. It is now time for their constituents to ensure that they support the changes that we propose, and that they hold the Government to account at the next election.
The right hon. Member for Haltemprice and Howden (Mr Davis) has described the use of a statutory instrument as an attempt to avoid scrutiny, and on 6 October he said:
“The Government has to balance the books, but the burden shouldn’t be on the poorest…I hope this doesn’t turn out to be our poll tax.”
Even the Bow Group, which perhaps speaks for several Conservative Members who may not be able to speak today, has said:
“Tax Credit cuts could damage Britain’s entrepreneurial economy and the Conservative Party’s claim to be the workers party”.
The hon. Lady is making a powerful case. In my constituency more than 4,500 families will be affected, in particular because of sky-high private sector rents. Does she agree that people will be hit particularly hard when cuts combine with the fact that Governments have not taken action to bring down rents in the private sector?
I will continue for a moment and then I will give way.
New House of Commons Library analysis that we have published today shows that at least £0.5 billion will be lost to the London economy if cuts to tax credits come into effect, and that will hit nearly 410,000 low and middle-income working families in London. In my borough of Hounslow, 13,500 working families will be affected, and the local economy will be hit by about £17.5 million of reduced purchasing power if the cuts come into effect.
I know from many conversations that I have held with Conservative Members that they agree that aspiration is key. I was on tax credits before coming to this place, and I also benefited from further education, so I plead with hon. Members to consider that. Does my hon. Friend agree that by cutting tax credits and further education the Government are preventing people like me from having those aspirations?
My hon. Friend makes a powerful point and indicates through her own story how this anti-aspiration measure will hit families that are working hard not just for themselves, but to give their children a chance in the future. As they continue to struggle, these cuts will impact on those children, and it is projected that 200,000 more children will be moved into poverty.
I am conscious that many Members want to speak, so in conclusion I will say that this measure is set to hit the poorest the hardest. The Prime Minister is fond of saying that he supports those who work hard and do the right thing. His Conservative election manifesto stated:
“The British character is renewed every day by the millions who work hard, raise their families and care for those who need help, do the right thing and make this country what it is.”
He also said:
“We are fixing the economy so that everyone feels the benefit”,
but at the moment that could not be further from the truth. Far from being the party of the common ground or of workers, this move shows that the Government are no longer interested even in knowing how families are set to be hit by the choices they make. This decision is not just poor politics but poor economics, and families are concerned about what the impact will be as they struggle with paying the rent or their mortgage, and with putting food on the table at a time when food bank use continues to rise. The problem of low pay in the UK persists, and changes to tax credits are about to make things much worse. With 6 million people not earning enough to cover the basic costs of living, tackling in-work poverty is crucial, but we should not do that by making matters worse and hitting those who need help the most.
The Government have chosen to introduce these changes without even a transition plan, and when cross-Benchers and bishops start to express concern in the other place, we hear reports that No. 10 will threaten to suspend the other place if Members table and win a fatal motion. There is a chance today for every Member of the House to do the right thing and stand up for their constituents, by putting families in their constituency first and their party second. I urge Conservative Members to vote with us in the Aye Lobby today.
Protecting working people’s economic security is, and always has been, a priority for this Government. We are passionate about that, because we believe in people being allowed to meet their potential and fulfil their aspirations from wherever they come in life. Our mission is to get wages up, tax down, and welfare under control. The reforms to tax credits must be understood as part of a wider package of reforms that includes an increase to the personal allowance, increased childcare provision for working families, and of course the national living wage.
Next April the legal minimum pay for a full-time worker will be £1,300 higher than it was the year before. We have done that at a time when businesses have created record numbers of jobs—1,000 a day and 2 million in total, and the highest rates that we have ever reached. Coupled with strongly rising wages, more hours on offer and low inflation, our policy is delivering security and prosperity for working households up and down the country. That is what the country deserves and that is what we are doing.
As a matter of fact, living standards have this year reached beyond their pre-crisis point, or indeed any prior year.
We can make lasting economic reforms only because we have taken the tough decisions to get this country back on its feet after the financial crisis that crashed into Labour’s structural deficit, which was among the highest in the developed world. Some choose to indulge in a game of “What if we had unlimited money?” We face facts. In 2010, the Government inherited a deficit of £153 billion. That is almost £6,000 for every household in the country. Our budget deficit was 10.2% of GDP. For every £4 the Government were spending, £1 was borrowed. That could not be allowed to go on, because when Governments lose control of the national finances, those who lose the most are generally those who have the least.
The Minister is making some excellent points and I fully support his desire to reduce the deficit and reform tax credit. This is a listening Government, so I just wonder whether, in the coming weeks as we consider the impact of the reform and in terms of compassion, it might be worth looking at tweaking the child tax credit—or the marriage allowance, which is very low—to try to soften the blow. I do not expect the Minister to answer now, but that is surely worth considering.
Does the Minister not agree that the Opposition have completely ignored the background, which is that at the moment wages are rising at a rate of 3.5%? We are seeing wages rising. The policy is working and it would be wrong in those circumstances to continue to subsidise and act as a drag on wages by using tax credits in the way they have been used.
As a result of this Government’s strong economic management, we are indeed seeing strong wage growth coupled with strong employment growth. This is the right time to make lasting economic reform.
On the deficit, much progress has been made, but this year we are still having to borrow £3,300 for every household in the land. To tackle a deficit of that proportion requires all income groups to share the burden. I agree with the hon. Member for Feltham and Heston (Seema Malhotra) that it is right that those with the broadest shoulders should bear the most.
To put this issue into context, will my hon. Friend confirm that the average taxpayer is paying £1,900 extra in tax this year just for the cost of Government debt interest? Is not the only way to reduce this debt tax on ordinary taxpayers to get rid of the deficit and pay down the debt, something which the Labour party seems incapable of grasping?
It is indeed an extraordinary amount. For every month we fail to deal with the deficit, not only would we be racking up more debts for all our children but we would be incurring greater interest charges in the here and now, which means money not spent on other essential services.
I am grateful to the Minister for giving way, although I am not quite sure he will be so grateful when he hears my question. I have to admit—in fact, I am embarrassed to say—that I voted with the Government on the cut to tax credits. I did so on the clear basis and understanding that there would be mitigation in the Chancellor’s autumn statement of the worst effects of the cuts to tax credits. The Minister cannot imagine my anger as I listened to his party’s conference, and the Prime Minister and the Chancellor ruled out any such mitigation. I will be voting with the Opposition this evening, unless the Minister tells this House today what mitigation the Chancellor will guarantee in his autumn statement. I give the Minister the opportunity to persuade me to change my mind.
The hon. Lady, who is a veteran and very experienced in the House, will know I cannot pre-empt anything in the Chancellor’s autumn statement on this or on any other subject. She was right to vote with the Government on the statutory instrument. As I will be outlining in my remarks today, this is a reform package of measures for working people. It is the right thing to do for the future of those families and the future of our country.
Nobody expects the Minister to be able to provide an answer on what will be in the autumn—or November—statement, but can he confirm that the figures that the Prime Minister uses to say that eight out of 10 people will be better off as a result of the Government measures include all of us and large numbers of other people, while the two out of 10 who will not be better off are all those claiming tax credits? Will he confirm that when we go into the next general election all the current 3.2 million tax credit claimants will not be better off as a result of the measures he has announced?
I hesitate to use a double negative, but I cannot say they will not be better off. Many, many people will be better off. On the specific point of the eight in 10, that refers first to financial year 2017-18, and, as the right hon. Gentleman will know, to all working families. Obviously, the precise impact of the different measures—tax credits, national living wage, income tax personal allowance, childcare, social rents and all the other different elements—will vary with precise circumstances, but many, many families will be considerably better off. The hon. Member for Feltham and Heston herself was good enough to cite one such example of one particular type of family being £2,440 better off by 2020.
I must make some progress.
The tax credit reforms are an important part of fiscal rebalancing, but they are only one part. On the same day that the tax credits lower threshold and higher taper rate take effect, we are reforming dividend tax and pensions relief for those on high incomes, and initiating a further clampdown on tax avoidance. Those are three measures among a set that also includes: the end of permanent non-dom status, restrictions on landlords’ tax relief and the continuation of a top rate of tax that is higher than it was in 4,718 of the 4,753 days the Labour party was in office. If we look at how the burden of deficit reduction is spread through society, the simple fact is this: the distribution of spending among income groups is constant between 2010 and 2017, while the burden of tax has shifted towards the best-off.
My hon. Friend brings me on, quite handily, to my very next point. When tax credits first came in, their aim was entirely noble, but they quickly soared out of control. The total cost more than trebled between 1999 and 2010, ending up costing £30 billion in 2010. Scandalously, while spending spiralled under the previous Government, in-work poverty actually rose by 20%. Now, we can kick a problem down the road or we can do something about it. We chose to do something about it. Our reforms do not abolish tax credit or anything close.
I heard the hon. Gentleman make this extraordinary point on “Newsnight” last night. He talks about an average. If we have an upwards curve, and we draw a line through it, of course it is going to be lower in the middle than at the end. The point is the bill kept on rising—
I am afraid I could not put it better than my hon. Friend, and I will not try.
Under these reforms, fully half of families will still be eligible for tax credits, and the total cost will come down only to what it was as recently as 2008. They will focus support on the lowest incomes, while taking those on higher incomes off tax credits altogether.
Today’s bills will be paid at some point. We believe that the challenges for this generation should be dealt with by this generation, and we believe we need to get our finances under control and eliminate the deficit, and not just pass on the problem to our children and grandchildren.
I do not deny that pay restraint in the public sector is difficult, but that 1% restraint has also protected 200,000 jobs in the public sector, which is an important aim. In addition, since 2007-08, pay in the public sector has risen faster than in the private.
I keep saying I must make some progress. For the moment, I think I must mean it.
These reforms of tax credits go hand in hand with the new settlement for working Britain that my right hon. Friend the Chancellor set out in the last Budget. At the same time, we are introducing radical measures to put more cash where it belongs—in the pockets of hard-working people. Our increases to the tax-free personal allowance mean that a typical basic rate taxpayer—
We are making these necessary changes for the future of all sorts of families, but more than anybody for the sake of our children. The hon. Lady will know that the best way to address poverty is through work, and that is what we have been doing. She will also know the statistics—that where a child is in poverty and a parent moves into work, in 75% of cases they move out of poverty as a result, and that where a parent moves from part-time to full-time work, 75% of children also move out of poverty.
From next April, we will have the national living wage, which by 2020, when it will be worth more than £9 an hour, will mean over £5,000 more in gross full-time pay for someone on the minimum wage today.
As always, my hon. Friend is correct, and she brings me on to my next point. Already, more than 200 firms, including some of our biggest employers, have announced they intend to pay staff at or above the national living wage before it comes into effect, which has helped to push private sector wage growth to 4.4%, according to latest figures, at a time of low or no inflation.
Then there are the wider things we have done on living costs. We have frozen council tax and fuel duty. On childcare, we have already introduced 15 hours for the 40% most disadvantaged two-year-olds, which is just through its first full year of operation and still ramping up. From 2017, there will be 30 hours for working families with three and four-year-olds, and just the additional 15 hours will be worth £2,500 per child per year.
The Minister can cut the waffle. To many of my constituents, this is a matter of trust. Why does he think the Prime Minister, on 30 April, toured the television studios and told an audience at “Question Time” that he would not cut tax credits? It was seven days before the general election. Does he think that had anything to do with it?
The statutory instrument does not affect the level of child tax credits. The hon. Gentleman, being a keen student of these matters, will know about the taper for tax credit awards and the stacking effect of the different elements, but the child tax credit, as the Prime Minister said, is not being changed.
I am conscious of time and know that many people want to speak.
Perhaps most important is the wider effect of the national living wage. The independent Office for Budget Responsibility estimates that as the national living wage imposes upward pressure further up the scale, 6 million people will get a pay rise. That effect starts now, but it will continue rising right up to the end of the decade. We are not just talking about a lower welfare, lower tax, higher wage economy; we are seeing it happen.
The Minister has made the point repeatedly that the new national minimum wage is meant to offset the reduction in tax credits. What proportion of those on tax credits are currently on the national minimum wage? I suspect I will not get the answer, so I will tell him. It is 25%.
The hon. Gentleman’s intervention is timely. Had he been listening—that might sound as I did not mean it to sound—he would have heard me talk about the wider effects of the national living wage. It affects not just people on the national minimum wage, but a much wider distribution. Most economists estimate that it would extend about 25% up the income scale.
It does answer the question. The hon. Gentleman was suggesting that this proportion would not benefit from a national living wage, which is incorrect. A lot of people who are not on today’s minimum wage will also benefit to a sum of about—[Interruption.] I am asked how many—the estimate is that about 6 million people will benefit directly or indirectly.
Let me ask the Minister about the subsidy point. We can all agree on the context that we need to reconfigure our labour market. Almost 6 million people are not earning a wage that they can live on. Ultimately, yes, a subsidy going to employers is not desirable, but surely the issue here is the order in which we transform our economy. The fact is that through a properly prosecuted industrial strategy—something that we have obviously not seen in our steel industry—it is possible to reconfigure the labour market. That should come first—before taking away the tax credits and support from people who are not earning enough. Ultimately, that is the difference between the two sides.
The harsh reality that we face is that we have a budget deficit equivalent to £3,300 for every household in the country. We need to take firm action on that now. It is right, as I said earlier, that the burden is spread right throughout society, but it is also right to shift the burden towards the upper end, which is what has happened with the tax burden.
The Minister will know that many Conservative Members, including me, are concerned about these changes. I will not, however, vote with the Opposition because of the nature of the vote and its non-binding effect. However, further to the reference point—[Interruption.] If a few more Labour Members had turned up at the original vote, we might have won. Let me take the Minister back to the point made by the hon. Member for North Down (Lady Hermon). Will he confirm that the autumn statement offers the opportunity for the Government to mitigate some of these effects, whether it be through a change to the order or through other tax changes? Can he confirm to me and many others on the Government side who are concerned that the Treasury is looking at other things that can be done to help this group of people?
There are a number of mitigating elements involved in the package. We have been talking about the national living wage, and there are major—[Interruption.] These things are all new. There are major extensions to childcare provision. We have reductions in social rents, and increases in the income tax personal allowance.
Before I conclude—I am very conscious of the time—I want to address a couple of points about poverty. The best route out of poverty is employment. We have created the conditions for the private sector to create record numbers of jobs—over 2 million since 2010. The best way to target in-work poverty is, first, by helping people move up the hours scale and, secondly, by increasing wages. We are seeing wages rise strongly, and we are seeing living standards rising by 3.1%, year on year.
I am not giving way again, as many people want to speak and I am coming towards the end of my remarks.
The number of people in in-work poverty is 200,000 lower than it was at its peak in 2008-09. Let me remind Members of the surest way to create poverty and to dash the aspirations of working families up and down the country. It is to lose control of the public finances. We are making sure that that never happens again. We are driving down the deficit; we have set out the path towards surplus; and through our Charter for Budget Responsibility, we are making sure that we insulate ourselves against any future shocks the world economy might throw at us. We do all this while delivering a new settlement for working Britain—one where decent wages are not subsidised by the public purse, but met by employers; one that says to employers, “You can have very competitive tax, but you must pay your people properly”; one that allows hard-working people to keep more of the money they earn; and one that offers a way out of reliance on benefits and top-ups through work that pays.
Those have not been easy decisions to make, but we face a £3,300 per household deficit, and if we reduce the level of state support people are inevitably affected. But tough decisions become necessary decisions when we are working towards the most important and the most progressive goal of all—economic security for working Britain in an uncertain world. Our new settlement for working Britain is an integral part of that. We will continue down the path of economic security, stability and opportunity for working Britain.
I am pleased to have the opportunity to debate tax credits today, particularly in light of the wholly inadequate time we had to debate tax credit changes on 15 September in connection with the statutory instrument. Would it not have been better if the proposed changes were made part of the Finance Bill so that they could have been properly scrutinised and debated and so that many Conservative MPs would not have been made deeply unhappy about what their Government have done?
During the week of the tax credit debate, a damning report from the House of Commons Library was published on the effect on many people of the changes consequential on these proposals. Let me state that the Scottish National party wholly opposes the changes to tax credits, which are nothing less than an attack on low-income families in this country.
The Prime Minister told his party conference that he wants a “war on poverty”. I would tell the Government that actions speak louder than conference rhetoric when cutting tax credits is going to increase poverty, particularly child poverty. The reality is that this is not a war on poverty, it is a war against the poor. All of us came into politics to make a difference. I say to the Government and to all Conservative Members that they should examine their consciences. Do they want to push through these cuts that will damage millions of families, increasing inequality in this country?
I find that extraordinary. We fought in the general election on delivering home rule to Scotland, which meant full fiscal autonomy. Given the damage that the hon. Gentleman and the Conservatives are going to do to hundreds of thousands of families in Scotland, they should give us the power over our economy and over welfare so that we can protect people in Scotland from the damage they are going to do.
We hear that individual Tory MPs have been summoned to speak to the Prime Minister and Chancellor to be straightened out. I appeal to them not to be bought off. They should do the right thing and support today’s motion. This is a Government who cut inheritance tax for those wealthy enough to have £1 million-plus properties and punish those on low incomes. “All in this together”?—well, we can reflect on that line.
Will my hon. Friend reflect on the fact that the Government have also refused to close what is called “the Mayfair loophole”, allowing more than 8,000 people earning more than £1 million a year to pay only 28% tax, while hammering the poor?
Let me make a little progress, and then I will.
Let us look at the facts of the matter. In Scotland, more than 500,000 children are in families that rely on tax credits, 350,000 of which are from the more than 200,000 low-income families who will be hit by these changes. If we take the UK as a whole, the Library tells us that 3.3 million in-work families received tax credits in April 2015, of whom 2.7 million had children. The Library tells us that the average negative impact in the reduction of the tax credit award in 2016-17 will be £1,300. As the Library puts it, the changes to tax credits will deliver savings of £4.4 billion in 2016-17. Of course, that is one way to put it; in reality, it is £4.4 billion that will be taken out of the pockets of the poor and the majority of working families, and £4.4 billion-worth of spending that will be taken out of local economies.
Indeed, and I shall be saying more about that a little later. You do not fix the deficit by taking spending out of the economy. The point is that those hard-working families who receive tax credits tend to spend every penny that they get, injecting money into the local economy, paying tax, and so on.
I will make a little progress, but then I will happily give way again.
The House of Commons document also states:
“There is no transitional protection for existing families on tax credits.”
Let us just dwell on that statement. The harsh winds of a winter chill are brought to you by Her Majesty’s Government—or, as we might put it, Ebenezer Cameron. I do not believe that any of us came into this place to put our hands on our hearts and say that we want to do this to hard-working families. We have it in our power to stop it today. Just imagine the letters dropping through constituents’ letter boxes, telling them about the massive cuts that are about to afflict them, and for what purpose! We must pause, reflect, and change course. Today is the opportunity that the House needs to recognise that we have got this one wrong. We need to be brave, be bold, and collectively do the right thing.
Let us stop and think about this for a minute. Low-income families, on average, will lose £1,300 a year. Let us now look more specifically at a single-earner couple with two children, working a 35-hour week on the minimum wage. That couple will see their tax credit award fall by £1,853 in 2016-17. The impact of the so-called national living wage will only modestly offset the impact of a fall in tax credit income, and the net family income will fall by £1,525.
Will the hon. Gentleman concede that the parties represented on his side of the House have made a series of apocalyptic predictions about the British economy since the 2010 general election, and that, one after another, those apocalyptic predictions have been proved wrong? Why should we believe your predictions now?
We are not making any apocalyptic predictions about the economy. What we are talking about is the impact on hard-working families. We want to see investment in our economy. We want to see investment in innovation and skills, improving productivity and improving the living standards of all, in Scotland and elsewhere. We want to work with you so that we can improve those things.
I will give way in a second, but I want to make a little bit of progress.
Let me pose this question to Conservative Members. What will you say next year to constituents, hard-working, decent folk, many of whom will have voted for you, and who have just seen their incomes cut by more than £1,000? Are you going to tell them that their hard work is paying dividends—that for them, work is paying? You do not have an answer, because there isn’t one. The policy is wrong, and you have the opportunity to change it: to do the right thing for the country, and to do the right thing for hard-working families in your constituencies.
As the hon. Gentleman knows, he is making many points with which I agree. I know that he is keen to be honest with the House, but will he be clear about one thing? Tonight’s vote will not overturn the changes in tax credits, although a vote in the other place may do so at some point in the future. Today’s debate is a good opportunity for us to express our concerns, but I do not want the hon. Gentleman to lead anyone who is watching it to believe that the vote will be on tax credits. Even if the motion is passed, it will make no difference. Will the hon. Gentleman be clear about that, please?
Order. Before the hon. Member for Ross, Skye and Lochaber responds to that intervention, I must tell him that he has been talking quite a lot about “you”. I am sure that he does not mean the Chair. Perhaps it would work rather better if he addressed the Minister.
Thank you very much for those wise words, Madam Deputy Speaker.
I agree with the hon. Member for Brigg and Goole (Andrew Percy) that what the House has today is an opportunity to send a message to the Government that they ought to reflect on what has been proposed. I think that they have made an honest mistake. I hope that it is an honest mistake, that we can reflect on it, and that we will not punish people in the way that the tax credit changes will do.
I want to make some more progress, because I know that many other Members want to speak.
I mentioned that constituents would be coming to you, and asked what answer you would give them. I think that what we must do is the right thing: the right thing for hard-working families in all our constituencies.
I am going to make some progress.
Every Member of Parliament should look up the online House of Commons paper, which contains a link to the number of tax credit recipients by constituency. Any Members who support the Government’s proposals can see exactly how many of their constituents will be affected by them. We remember Mrs Thatcher saying, back in the day, that there was no alternative. That, of course, was nonsense. We also heard that there was no such thing as society. That sort of behaviour should be a thing of the past. There has to be social cohesion. We have to demonstrate that we want to help people out of poverty, not remove a ladder that would take them out of it.
I know what people in my constituency are saying. They do not like this. It is seen as mean-spirited. It is punishing the poor: ordinary, hard-working folk. There is no excuse for it, and we can stop it. There will be a massive impact on families, and we know that the end result will push families with children into poverty. We hear—and we have heard it in the Chamber today—that many Tory Members have voiced concerns at the impact of the changes. We should say to the Government, “You need to listen to those of us on this side of the House, as well as some of your own voices that are reacting to the impact of what you are doing.”
Thank you so much, Madam Deputy Speaker. I remembered as soon as I had said it that I should not have said it. Apologies, Madam Deputy Speaker.
The hon. Gentleman asked just now what it was that we wanted in our constituencies. What we really want is a better future for everyone. We do not want people to be hard done by. Will the hon. Gentleman comment on this? We want more jobs, a better future, more money and better childcare, all of which the Minister has outlined today.
We all want a better future. We all want more jobs, and better-paid jobs. But the point is—the point that we cannot get away from—that you do not do that by punishing those who are in work, and who will be pushed into poverty. As the Government have often said, work must pay. You cannot do what you are doing and be consistent with your own objectives.
Does my hon. Friend agree that although it is of course indefensible for the Government to pick up the tab for employers who refuse to pay their staff decent wages, cutting the support from the working poor will not force wages up? A strong labour market will, as will rigorous enforcement of a genuine living wage and ending zero-hours contracts.
Absolutely. I hope that we will go on and have a robust debate about productivity in this country and about skills and innovation, because driving investment into the economy will drive wages up and negate the need for tax credits. None of us has a fundamental desire to see the long-term existence of tax credits, but they can only be removed when wages are driven up. What we cannot do is what the Government are doing and cut tax credits ahead of increases in wages.
I am going to make some progress, because I am aware of the time.
One has to ask about the moral compass of a Government who want to increase the inheritance tax threshold while the poorest in our society are being squeezed to such an extent. One nation, they tell us, but whose nation is that? It is not a country in which we want to live. Perhaps from an economic point of view we need to ask where the logic is in this policy. We are told that it is about getting the deficit down, but taking cash out of the pockets of the poorest means taking cash out of the economy and depressing economic activity. Those on low incomes tend to spend what money they have. This provision does not fix the deficit; it takes spending—[Interruption.] That is patronising? I will tell Government Members who is being patronised, and that is poor people in this country.
Let us make it clear, as we did during the election in Scotland, that we want to get the deficit down but that this is not the way to do it—[Hon. Members: “How?”] Members ask how we will do that, and I am happy to give them an answer since they have given me the opportunity. I remind them that we won the election in Scotland, with 56 MPs returned for the SNP, and we had a progressive message that we delivered to the people of Scotland of investing in our country by increasing spending by a modest 0.5% per annum that would have delivered additional spending in the UK of £140 billion and would have reduced the deficit to 2% of national income by the end of the decade. That is a much more responsible way to deal with the future of our country.
There is a philosophical question of whether effective support through tax credits for employers paying low wages excuses those employers from paying a real living wage that offers dignity for work. I would argue that we all want to reach a situation in which work pays, to the extent that those in work have a decent standard of living. The SNP has been championing a real living wage as a response to dealing with poverty and that would mean that hard-working families would become financially sustainable, driving up tax revenues, reducing the deficit, enhancing economic activity and, ultimately, leading to an enhanced fiscal position. The desire to make work pay, which the SNP fully supports through the idea of the living wage—the real living wage, not the Tory construct—has to go hand in hand with an environment that encourages productivity, but we know that that has not happened for the past eight years, with productivity flatlining and even the OBR’s forecast for the next four years showing only limited recovery in productivity. We cannot have sustained growth in wages unless we have growth in productivity.
No, I am going to make some progress.
We need a national debate about how we can strengthen and drive sustainable economic growth, driving up living standards and making work pay. We can only reach a high wage economy with investment in skills, innovation and business. That is not happening, and its absence is why we need the safety net of tax credits. That is why the Government must reconsider what they have voted through.
The Resolution Foundation has shown that the so-called living wage will boost wages by £4.5 billion by 2020, nowhere near the impact of the £13 billion of cuts to various working age benefits. It cannot be acceptable that working people pay such a price. We need to cut inequality, not drive it, which is what the Government are doing.
Let us come back to the example of the family losing £1,525 of their income next year. What will the Government say to such families when they are faced with difficult choices? Family budgets are already tight and something has to give.
I will not give way just now.
Just imagine what will happen when someone living hand to mouth faces an unexpected problem. Perhaps over the winter the central heating boiler will need to be fixed or a fridge will need to be replaced. What will Members say to their constituents when they knock on the surgery door? Where is the compassionate Conservatism we used to talk about? When their voters have their income cut by more than £1,500, all those problems will mean difficult choices. That is why this issue needs re-examining. I am appealing to the Government to listen to the many voices raising legitimate concerns.
The Government talk about being a one nation Government, but if that is their desire they cannot square it with the rise in inequality that will be accelerated through these measures. We know that a report published by the Resolution Foundation on 7 October estimates that the tax and benefit changes will push a further 200,000 children into poverty in 2016. Is that really a price worth paying? We cannot accept that that can be right. This is not just a question of the 200,000 who will fall into poverty next year; the figure will increase to 600,000 by 2020.
The hon. Gentleman has talked four or five times about doing the right thing, but is it not important to recognise that that includes doing the right thing by the next generation, which stands to be saddled with billions of pounds of debt that cannot be paid back?
Of course we need to make sure we are doing the right thing for people today and for the next generation, but that comes back to what I explained to the House: the position the SNP had at the general election—a responsible position of investing today and for tomorrow, a responsible position of dealing with the deficit but investing in the future of the country.
On Friday a lady called Edith came to my surgery to complain about her daughter’s situation. She is a nursery assistant earning £8 an hour. She works 30 hours a week and cannot work any longer because she has school-age children. Edith was mortified about the effect of the cut in working tax credits on her daughter and her family’s welfare. What does the hon. Gentleman think the Prime Minister should say to people like Edith up and down the land as to how they can trust his word in the future?
The sad reality is that I do not think the Prime Minister has anything to say to Edith in the hon. Gentleman’s constituency. That is why I am appealing to hon. Members on both sides of the House to reflect on the damage that these measures will do to Edith and others. We are having a good debate today.
I want to finish off as I have spoken for quite some time.
Perhaps it is little wonder that the Government want to redefine poverty. The numbers being pushed into poverty are frightening. It is not a price that a civilised society can pay.
In conclusion, I am grateful that we are having this debate today, but it must not end here. I would plead with the Government to change course before it is too late. These millions of families should not be affected by these tax credit changes. I hope the Government act, but failure to do so would demonstrate yet again that we need full powers over Scotland’s welfare system to be in Scottish hands, not the hands of the Chancellor and the Work and Pensions Secretary.
There is a clear contrast, with a Tory Government in Westminster attacking the poor and a Scottish Government using their powers to protect the poorest and most vulnerable in our society. The Scottish Government have invested £100 million to ensure no one pays the bedroom tax and invested £40 million to protect council tax benefit. That is a caring, compassionate Scottish Government. If Westminster wants to punish the poor, it should give Scotland powers over tax and spending so that we can protect our own people from this heartless Conservative Government.
I shall endeavour to give a brief speech, but I think this is a rather big occasion.
We have reached a stage six months into the new Parliament where we are defining the issues in terms of how we are going to conduct the responsible management of the economy over the rest of the Parliament and achieve the healthy, long-term recovery that, as my hon. Friend the Member for Cheltenham (Alex Chalk) has just said, we are trying to give to benefit our children and grandchildren, and not just ourselves.
We won the election because, I think, we were regarded as more credible on economic policy. People had not always agreed with what we had done, but they realised we would take the necessary difficult decisions to keep the country on course with an economy in the process of recovering.
The Labour party has still not woken up to the fact that it lost the election because it was not credible on the economy and was simply presenting an uncertain collection of rather populist proposals that did not add up to a responsible future. That has been illustrated today. Labour Members are having a very enjoyable time because at this difficult stage for them they have found something they can all oppose. They have found nothing they can all support and they can present no alternative, but they are enjoying opposing on a populist basis what has been put forward. I would exempt from that the hon. Member for Streatham (Mr Umunna), a former shadow Secretary of State and briefly a contender for the leadership of the Labour party, who has just left his seat, because he made an intervention conceding that he was against taxpayers subsidising pay, but the message was, “Make us virtuous, but not yet.” He was quite happy to go along for the time-being with this flawed system until some uncertain date in the future.
The Scottish nationalists appear simply to be taking the view that this is a good popular occasion on which to give a harrowing description of the consequences of these proposals, and to imply that they are a deliberate attack on the poor that has been chosen by the class enemy on this side of the House. Fortunately, however, I see no prospect of the Scottish National party getting a UK majority—however successful it might be electorally—and of having responsibility for the economy on which my constituents are dependent.
The starting point, as usual in these debates, is that in modern Britain there is a wide community of interest in where we are all going. We all think that the economy should be managed to boost the overall prosperity of the country. At the same time, however, we live in a society in which we have to seek to alleviate poverty, to ensure that people are helped when they work hard to help themselves and to ensure that we have a system whereby we can provide a decent income for those people who are so vulnerable or so unlucky that they are unable to support themselves without help. That is the starting point, and that is why we have a welfare state and a welfare system.
My second point is that I have always thought that tax credits were one of the most flawed innovations to be brought into our welfare system. The idea was taken from the Clinton Administration in the United States and applied slightly differently here. It might have had some worthy intentions behind it, along the lines of providing negative income tax, but I always suspected that it was in fact introduced for politically populist reasons. The new Government could be seen to be giving money to add to the pay of a wide section of the population, and we have had that system ever since.
I will give way in a moment, but I want to make some progress. I do not want to speak for long, as lots of Members want to speak. Let me just finish my outline, then I will start to give way.
When tax credits were introduced, the then Government were confined by their election promise to stick to the spending and tax programme that they had inherited, because of the deficit. I seem to recall—I have not looked this up—that they therefore introduced them by means of a device that treated them not as public expenditure but as a tax change. Indeed, I seem to recall being assured on the Floor of the House by the then Chancellor of the Exchequer, when I expressed my disbelief, that they constituted negative expenditure.
That is why the payments became the responsibility of the Treasury and were described as tax credits. The Treasury is—or was—very good at collecting money from people who do not want to pay it, but with great respect to my old Department, which I greatly admire, it was not particularly suited to handing out benefits to people on low incomes with any degree of reliability or accuracy. I still get constituency cases relating to tax credits, because the system is based on forecasting someone’s income based on the previous year, but lots of people do not notify precisely all the changes in their arrangements. Ever since the system started, one feature of it has been that perfectly ordinary working people get demands to repay thousands of pounds that have been paid to them in error. I think that the level of error has come down, but at one point it was staggering, with a very high proportion of claimants being given bills by the Treasury that they could not afford to pay.
These measures were usually introduced on the eve of an election, so that even more members of a grateful public could receive yet more money on top of their pay. More importantly, it rapidly became clear that a lot of this money was subsidising employers, who found that they could hold down incomes. This was happening at a time when the economy was coming out of a recession, and they could therefore hire all the staff they needed, with the taxpayer subsidising their pay.
Given the objectives that we are all agreed on, and that it is quite obvious that we need welfare reform—although Labour Members are unable to think of any at the moment—I cannot think of a more obvious target for such reform than the tax credit system. I approve of the Government’s choice in that regard. Of course, electoral bribes are always difficult to reverse, but I shall explain in a moment why this is a good time to make substantial progress towards getting rid of this dreadful mistake, which the last Labour Government should never have introduced.
The right hon. and learned Gentleman makes an important point about the nature of the benefit and the difficulties some people experience in paying it back a year later. Does he accept, however, that the system of family credit was introduced by Margaret Thatcher, and that Eleanor Rathbone fought for family allowances back in 1929? There has broadly been a cross-party consensus that the welfare state has to deal with those on low incomes, particularly those who are working.
Of course the Government have a duty to look after those of all kinds who are below subsistence income—that is what we have the welfare state for. I used to support family allowances with some vigour, because in those days we had persuaded the then Government to pay it to the mother, and a high proportion of women—there probably are still some in this position—did not know what their husbands earned and it was right to pay a benefit for the children directly to them; it was a kind of social reform. I did agree with the current Government that the time had come to end it for higher-rate taxpayers—again, it was a general subsidy. Various attempts were made to do a negative income tax, but we never succeeded in finding one—I tried over the years, talking with Chancellors and also when I was Chancellor. What has been introduced—tax credit—was a Clinton invention, altered by the Labour Government, and it has never worked properly, for the reasons I have given.
I do not want to take as long as the Front Benchers, so I will make a little progress.
Why do this now? There is never going to be a better time again to make more substantial progress in loosening our dependence on this subsidy to pay. I will not repeat what the Minister said admirably from the Dispatch Box about all the other things that are being done in more sensible areas, where we support the income and help with the expenditure of working families. That of course has to be key. That is the alleviation that everybody is demanding of what is bound to be difficult when we move forward. I am not naive. Politically, I point out to my Conservative colleagues that this is early in a Parliament, six months in, and my guess is that if we do not take this decision now, everybody will run for the hills if we decide we are going to do it in two years’ time. If we are looking, as a governing party should do, to what we are going to be able to show to the public by way of a successful economy when we next face them in five years’ time, we will see that now is the time to take the necessary decisions to get on with this.
More substantially, as has been mentioned by, among others, my hon. and learned Friend the Member for North East Hertfordshire (Sir Oliver Heald), the former Solicitor-General, the employment situation is extraordinarily strong. This is the time to do it, because we are never going to get all the full compensating reactions in the labour market if we do not get them at a time when employment is at a record-breaking high, unemployment is very low and real incomes are rising at an amazing 3% a year.
In all the figures that keep being cited about what will happen to those who lose tax credit, there is one great incalculable, although people have tried to estimate it: what will employers do as they realise that their staff are losing their tax credit? We have already seen various firms lining up to say that they are going to pay my right hon. Friend the Chancellor’s living wage, some straightaway. That is because the labour market has changed, they do not want demoralised staff and they want to race ahead of the Government and say that they are giving a big pay rise. I accept that not everybody will be able to do that, but I think that employers, finding that the subsidy of tax credit is being drained away again, are in a better position now than they have been for years to say, “Perhaps we are going to have to give—perhaps we ought to give—a reasonable pay rise to the staff working for us because we can no longer rely on the Government setting in behind us.” Again, if we do not do it when the employment market is so strong, we will never do it at all—now is the time.
I thank the right hon. and learned Gentleman for giving way, because I agree with an awful lot of his analysis of the problems caused by the whole system of tax credits. The difficulty is that we do not start with a blank sheet of paper. The fact is that the cuts are in the here and now, whereas the possible increase in wages will come only in the future. Can he really see any employer giving somebody a wage rise because they have just had a third child who will not be eligible now for tax credits?
Quite a lot of low-paying employers will realise the effect on the morale of their staff, some of whom will tell them that they are losing their tax credits. I am not naive and know that this will not mean that nobody loses. Not everyone will be able to do that. The downsides of the change—my hon. Friends on the Front Bench explained the upsides that will affect a lot of these working families—may not be totally eliminated, but there will be fewer problems now if we go ahead with this. I have already said that getting rid of electoral bribes, which most parties have given over the years, always proves to be terribly difficult. I have seen some dreadful things introduced and then nobody has the nerve to vote against them. Perhaps I should not worry. I receive a free bus pass, free television on which I do not pay a licence, and a winter fuel allowance to save me from winter poverty. I know that I was meant to say to the previous Labour Government, “God bless you, Mr Brown. You are a worthy man, and I shall vote for you from now on.” My political views are more complicated than that. Tax credits were about the Labour Government bumping up people’s income on the eve of an election.
No, now is the time to get on.
I will conclude by turning to the rather big question of the £4 billion that will be lost by this motion. We are having a cheery knockabout argument and £4 billion is going out the window, and neither the Labour party nor the Scottish National Party can agree on any credible explanation of what they will do about that. They will borrow the money; that is what they did and that is what they will do.
I think that the right hon. Member for Birkenhead (Frank Field) is trying to catch your eye, Madam Deputy Speaker. He tried to produce some alleviation; at least he is halfway there. I think his changes save only £2 billion, so another £2 billion must be found from somewhere else. Perhaps he will address that when he speaks.
More importantly, there is talk of Labour and Liberal peers in the House of Lords voting down the measure. That is really quite a startling constitutional innovation. They use technical arguments, saying that it is a statutory instrument, and that it was not in the manifesto. Well, Budget measures are not in manifestos, so that is not a relevant argument. If the Upper House decides that it will not accept the supremacy of this House when the Government set tax and spending matters, I advise all Members in this House of all political parties to take that extremely seriously. It is irresponsible and it should not be done. We do not want a repeat of what happened in 1911. Personally, I will become a fervent advocate of reform of the House of Lords, as I always have been, all over again if they start doing that.
Pay should be set by employers once we get back to a healthy and normal world. We cannot have a system where we all have a party political argument about how much subsidy the Government will give to employers for selective members of the population. We do need welfare reform, and tax credits are one of the best candidates for such a reform. The Treasury should never have been paying out on welfare. We cannot get rid of it, but it is time to make some great progress. If this matter gets lost, the path of steady recovery that we have been on, as we lead the way in the western world towards a much more balanced, sustainable and modern economy, will be seriously damaged. I support my hon. Friend the Exchequer Secretary to the Treasury, and I hope that we will reject the motion.
Order. Before I call the Chair of the Select Committee, I point out that we have less than three hours left and more than 50 Members wishing to catch my eye. Dropping the speech limit down to two or three minutes seems ridiculous at this stage. There will also be a maiden speech following the contribution of the Chair of the Select Committee, and I do not want to impose a limit until after that. Can we please keep interventions to an absolute minimum and speeches as short as possible, so that I can put the time limit on as late as possible? With that, I call Frank Field.
I am immensely grateful, Madam Deputy Speaker. It is a pleasure to follow the right hon. and learned Member for Rushcliffe (Mr Clarke). Like him, I will set the scene, but much more briefly, I hope.
The record shows that even when it was not popular on the Labour Benches, I spoke about the need to reduce the deficit, so I do not come here as a Johnny-come-lately who has suddenly discovered when we are not in government that that is a crucial aspect of economic stability. Similarly, when I pleaded in this place, on both sides of the Chamber, not to build up the tax credit strategy, I never got one Conservative Member to help me to divide the House so that we could show our disapproval of a method which, in the long run, has the consequences that the right hon. and learned Gentleman explained to us—that if we subsidise wages by that means, there is an effect on employers in the long run. Most employers, like individuals, are rational creatures. Why should they increase the wages of the lowest paid when taxpayers will do the job for them? That is the setting.
I make three pleas to the House. Although it would be tremendous news if a large number of Conservative Members, or even if one or two, joined us in the Lobby this evening, we should not raise our hopes too high. When we were in government, it was almost a capital offence to vote with the Opposition on such motions.
No, I shall accept the plea of the Chair for brevity as 50 Members wish to speak.
There has been a cross-Bench appeal today to the Backbench Business Committee, which you used to chair with distinction, Madam Deputy Speaker, for a debate on this. We could soon have that debate and views could be expressed when Members were not voting on a motion from a particular party. We would then see what this House genuinely believes about these changes. For many Government Members this is a crunch point, although I would make the charge that the Government are wearing lightly the pledge that they made so much of before the election, to such good effect on our Benches during the election and immediately afterwards, that theirs was the party of the strivers.
The Chancellor painted the picture of people on very low wages getting up in the morning and passing the drawn curtains of families on welfare. That was a deadly campaign which had its effect. If I were a low-paid worker, I would have paid some attention to a party that was making a specific pledge to protect strivers. That is why I think there is such unease on the Government Back Benches today. Those on the Treasury Bench may now wear that pledge lightly, but a number of Conservative Members fought an election campaign believing that they were going to be the party that protects strivers.
Maybe today is not the right moment for those Conservative Members to feel able to express that view in the Lobby, but I hope that before long we will have such an opportunity, and the Government will see how seriously some of their own Back Benchers took the pledge that they would be on the side of people on very low wages who, often against their own interest, get up and make a contribution—all too often a very valuable contribution—to our society.
In a statement after the election, the same man who made the plea to the country to accept the Conservatives as the party that protects strivers introduced welfare reforms which are the largest-ever cut in provision for any group, let alone for those in work. In a moment I will pick up the point that the right hon. and learned Member for Rushcliffe made about the timing of that. Maybe tonight will not be the point at which Members cross over, but I hope—this is my first plea—that we will soon have a motion that we own as Back Benchers, in which we can in a civilised way express our views about supporting strivers .
I want to return to the point made by the Prime Minister, which the Minister so ably defended today—an almost impossible brief. I compliment him on that, and I compliment him also on the work that he is doing in the other place with the Cross Benchers, trying to persuade people not to vote as they wish to vote. The crucial piece of information that the Government will not provide is this: of the 3.2 million tax credit claimants who will be, on average, £1,300 a year worse off as a result of these changes, how many will still be worse off at the end of this Parliament, when the Government will have to face the electorate, despite all the welcome changes they are introducing on childcare and so on? Before we have that debate, when people will vote with a seriousness of intent that they might not have today—this is my second plea—will the Government please produce those data so that we will have accuracy, rather than having to rely on the snapshot we have from the figures that they have produced?
The Government are saying that everything will change. We know that many of those who might be better off by the end of this Parliament—one hopes that they will be—might not be in the years towards 2020, but how many will, in fact, still be losing out in 2020, 2019 and 2018, despite the Government’s welcome changes to the national minimum wage? I think that in the long term that has revolutionary implications for how we view welfare, because I agree with the right hon. and learned Member for Rushcliffe that we have lulled ourselves, without fully appreciating it, into using welfare as a way of compensating for the failures of capitalism, and we should not have done so. The pressure should be on employers to raise productivity and pay decent wages.
My third plea will be as brief as my first and second. The Government are holding the line at the moment. When Gordon Brown introduced that ludicrous, vicious little policy of abolishing the 10p tax rate, he did so simply to catch out the then Leader of the Opposition. He threw it in at the very end of his Budget statement so that he could then crow about it, but it would have massively affected some of the poorest people in this country, particularly women workers. The Government were going to hold the line right up until they faced a defeat of the Budget—not a debate like today’s, but the Budget. At that point, all of a sudden the coffers were opened and taxpayers’ money was spat out— almost vomited out—to almost every group bar the 10p group.
I can guarantee that the Government will come forward with “tweaking” measures, as we have already heard them called. I urge Tory Members not to let them get away with tweaking the national insurance or tax thresholds, because many of our constituents who will be worse off as a result of these tax credit changes will not be compensated in any way, let alone fully, if any tweaking is spread over the 30 million of us who work, compared with the 3.2 million who will be made worse off immediately as a result of this move.
I welcome today’s debate and, unlike the right hon. and learned Gentleman, am rather pleased that we on the Opposition side are all together on a subject. If we are to be taken seriously, we have to say where we would like the £4.5 billion to come from if it is not to come from the very group of the electorate that we admire most: the strivers who get up every morning to work for a fraction of what we get as Members of Parliament but who still turn up, and who have been so badly treated by this Government and by this measure.
Why today? Why have I chosen today, and this debate, to break what I hoped might be the habit of a lifetime in resisting the urge to make a maiden speech? My friends and colleagues will know that I have been trying flipping hard to avoid doing it.
It is not because I did not want to thank my predecessor for the long and dedicated service he gave to South Cambridgeshire and to the Government, though I must admit that sometimes his shoes do feel incredibly roomy for these small feet. Andrew Lansley absolutely deserves our praise, and he will be rightly rewarded next week when he takes his seat in the House of Lords. It is not because I did not want to shout from the rooftops about my constituency. I am certain that I bore everyone rigid about the economic miracle that is South Cambridgeshire; I am so, so proud to represent its people.
It is because today I can sit on my hands no longer. My decision to become an MP is a very, very recent one. It was the Tottenham riots of 2011 that shook me from my comfort zone. Night after night, my television showed me a country that was falling apart—my country—with social breakdown and an economy on the verge of collapse. I felt so strongly that I had to step forward and lend a hand. Today, I feel that way again. So I picked a team—the blue team. I believed they were the party who could bring us back from the brink, and we have started to do that. This Government have taken tough but prudent decisions and employment has reached levels never seen before. Britain is back, and I am immensely proud of this Government for their role in that. So I hope that I will see again those gems of prudence and wise judgment that drew me to the Conservative party, before it is too late.
Too late for what? Too late to stop us getting things wrong, and the timing wrong, on changes to tax credits. Believe me when I say that I entirely agree with the principle that tax credits should not be used to subsidise wages. It is not sustainable and it sends the wrong message about the kind of country and the kind of people that we want to be. Because I know that tax credits do need to change, I cannot support the black and white motion that is in front of us today. I am sorry, but I believe that the Opposition are wrong to say that we must not touch tax credits. However, a detailed debate about them does need to be had, and I am far from being the only Member on the Government Benches who recognises that. It is right that people are encouraged to strive for self-reliance and to find work that pays for their independence from the state, but I worry that our single-minded determination to reach a budget surplus is betraying who we are. I know that true Conservatives have compassion running through their veins.
I have refrained from making a speech so far because sadly most days I feel that Members on both sides of the House are firmly married to their positions regardless of the debate, and so, frankly, why prolong the agony? Why sit in the Chamber for hours when I know I could be concentrating on helping my constituents with immediate needs now? But today is different. Today, every Conservative Member who knows who we really are has a duty to remind those who have forgotten. We are the party of the working person—the person who leaves for work while it is still dark, who strives to provide for themselves and their family with pride: a pride that says, “I will go to work. Even though I still can’t quite make ends meet, I will still go to work, because to work is to have pride, and to have pride is to be British.”
I am not interested in the colour of the Government who created a bloated welfare state—that is in the past. I do not care whose fault it is, but I do know one thing: it is not the fault of the recipients of tax credits. It is the responsibility of Government, whoever they may be—those who set and change policy and those who set the rules by which these families live. If we want to change those rules, we have to support the people through that change. This is not a spreadsheet exercise. This is not a Budget document on a piece of paper. We are talking about real people—working people.
Yes, the income tax threshold has risen and will continue to rise, and that is fantastic. The minimum wage is increasing—brilliant! I am so proud of my Government that they have made this happen. But the timing of changes to tax credits is not concurrent. When we talk about moving towards the ideal goal of a lower-welfare, lower-tax, higher-wage economy, that is right, but I also hear us talking about the financial impact on people “over the Parliament”—that is the phrase I hear. But people on the breadline cannot wait for the Parliament to pass along. Many live hand to mouth every day.
I suspect that you and I could weather such a transition period, Madam Deputy Speaker—we could pull in our belts—but many of the families affected by the proposed changes do not have that luxury. Choosing whether to eat or heat is not a luxury. That is the reality.
Conservatives pride themselves on cutting their cloth according to their means, but what if there is no cloth left to cut? How many of us really know what it feels like? How many of us have walked in those shoes?
To expect people to immediately find more hours or better-paid work suggests, I am afraid, a level of naivety about the skills of some of our people. Also, are we out of touch with the economies and environments of some of our towns and cities? We can support people to get there, and I believe that can be done relatively quickly, but not overnight. That is the crux of the debate and the part that many of us on the Conservative Benches cannot reconcile.
I became an MP to stand up for the vulnerable, to lead the way for those too tired to find it for themselves. That is the role of Government, too. My first loyalty is to those people and it is to them that I now speak. To suggest that some Conservative Members may challenge the Government’s approach only because they fear for their seats is offensive. This is not about retaining votes.
Change is not always a sign of weakness; it can show strength. Did the British public, who were so concerned about immigration before the election, condemn us when we reacted to the photograph of that little Syrian boy? No, they told us to open our arms. When the International Monetary Fund decried our economic plan for not being fast enough and not showing enough growth, we remained steadfast in our belief that slow growth was sustainable. So too must be these changes.
Our debt has been falling consistently while those who need protection have been protected. Is now really the time to change that successful strategy? I would not be embarrassed even once—never mind five times—if we decided to review our approach.
Yes, being in government does mean making tough decisions, but tough decisions must also be strategic. One of the greatest challenges facing my South Cambridgeshire constituency is the affordability of housing. A constituency does not function—a country and its economy do not function—if the people who run the engine cannot afford to operate it. We need every teaching assistant, care worker, cleaner and shop worker to secure this economic recovery. To pull ourselves out of debt, we should not be forcing those working families into it.
The Prime Minister has asked us to ensure that everything we do passes the family test. Cutting tax credits before wages rise does not achieve that. Showing children that their parents will be better off not working at all does not achieve that. Sending a message to the poorest and most vulnerable in our society that we do not care does not achieve that, either.
I believe that the pace of these reforms is too hard and too fast. As the proposals stand, too many people will be adversely affected. Something must give. For those of us proud enough to call ourselves compassionate Conservatives, it must not be the backs of the working families we purport to serve.
May I first congratulate the hon. Member for South Cambridgeshire (Heidi Allen) on her remarkable, thoughtful and excellent speech? I am astonished that she will not be in the same Division Lobby as Labour Members tonight, but I congratulate her nevertheless.
A lot of my constituents are low-paid workers. Many are paid the minimum wage. They work very long hours. Some have two or even three jobs in order to have enough money to feed their families and pay the bills. Even then, some of those families cannot afford to put food on the table seven days a week and have to endure the humiliation of going to food banks with their families. These low-paid workers are not shirkers or skivers, and they are not lazy or feckless. As a matter of interest, they are not the people who caused the financial and banking crisis in 2008, which led to so much damage to the economy and cost the taxpayer billions of pounds to pay off the gambling debts. To go back to what the Conservatives said at the last election, if the curtains of the houses of those workers are drawn at 7 or 8 o’clock in the morning, it is not because they are skiving or being lazy; it is because they only got home from work after midnight.
These are the people in my constituency who rely on working tax credits to top up their poverty pay and who will suffer if these tax credit changes go through. The only crime—I do not consider it a crime—they have committed is that they are poor. I never thought that poverty was a crime. Most of them would like to get better jobs. Unfortunately, they cannot. These are the people that the House will penalise for working hard to try to sustain their families.
It is not just the working poor who will suffer; as has been said, so will self-employed people. I want to share with the House a constituent’s letter to me, because it encapsulates the problems facing self-employed people. Let us call the lady Isabella. She says:
“I’m writing to ask you to complain as strongly as you can about the upcoming tax credit cuts and to ask what I should do. I run my own business with my husband which is growing year on year but we still only earn a small amount, our family has an income of £13,000. Last year my business turned over nearly £50,000. I receive the full amount of tax credit and it is a life saver and allows us to grow our business and become useful members of society. We have won awards for our work...and we work long hours…to try and make the business become a success.”
She says she does not have a pension, but hopes the business will grow because that will be her pension. If the changes take place, her family will lose £1,700 a year, which, as a self-employed person, she says will make life virtually impossible on the income that she and her husband are making. She asks what she should do and whether the Government want her to close down her business. She says:
“Am I not exactly the sort of person this government purports to be celebrating and supporting?”
Do the Government want her to close down her business and join the ranks of the unemployed?
I am delighted to speak in this debate as it gives me the opportunity to speak up for the hard-working families I meet on the doorsteps of Erewash. My constituents tell me that they want a fair welfare system, one that is there for the most vulnerable in our society and provides a safety net when things do not work out. They tell me that when they pay their taxes, they want the money to be spent on the NHS, education and social care, not on subsidising employers who think they can get away with paying just the bare minimum wage. They also tell me they want to be paid a fair wage for the work they do and do not want to be dependent on state handouts. The people of Erewash are a proud people and I am proud of them.
That reflects the way in which I was brought up. My parents did not expect handouts from the state, but looked for ways to boost the household income. My dad worked hard during the day and took on a second job in the evening. Even when my mum was entitled to attendance allowance in her later years, she did not want to claim it because she thought that someone else would need it more.
The tax credit system is so complex that it is not fit for purpose. I am sure that my casework is no different from that of other hon. Members. Time and again, residents who receive tax credits get a pay rise and inform HMRC, but then find that they rack up huge debts with HMRC. Those people tell me that they would much rather earn more money than have to claim tax credits. That is exactly the environment that the Government’s changes are bringing about. We are introducing a national living wage between now and 2020, and are continuing to increase the income tax threshold.
We are short of time, so I will move on.
When we include the extra childcare that is being provided by Government, virtually zero inflation and mortgage rates at an all-time low, it can easily be seen that we are putting families at the heart of our welfare changes. I also believe that we are putting women at the heart of our changes. The extra free childcare will allow more women to get back into work, and those who are already in work will be able to do more hours. That will definitely boost family incomes. Wrongly in my opinion, women tend to be in lower-paid jobs, partly owing to the sacrifices that they make to bring up their families. The introduction of the national living wage and the increases in the income tax threshold will disproportionately benefit working women.
I am not saying that everything is perfect. We need to continue to narrow the skills gap between men and women. That is why I am backing a project spearheaded by the Erewash Partnership in my constituency, which aims to help women to set up their own business and realise their dreams. Some may question why we need women-only support. It is well recognised that some women lack self-confidence when it comes to going it alone in business and having the self-belief that they can do it. The support is tailored to meet those specific needs and it is working.
I want to finish by reminding people of the principle that was set out by John Bird, who founded The Big Issue: it is far more effective to offer a hand up than a handout. The culture of tax credits has become too much of a handout, rather than a hand up. I am confident that the proposed changes will create the hand up that Erewash residents want and deserve.
I am pleased to follow the hon. Member for Erewash (Maggie Throup) because I see a very different situation. I genuinely believe that the different situations that we see and the consequences of the tax credit cuts that the Government are introducing speak volumes about the choices that the British people face.
I want to take up the challenge set by the right hon. and learned Member for Rushcliffe (Mr Clarke). He rightly said that those of us on this side of the House are not an Opposition. I agree with him: we are an alternative. I want to set out what being an alternative means and why we would take different decisions on tax credits.
First and foremost, as my hon. Friend the Member for Streatham (Mr Umunna) pointed out—I am sad he is not here—the order in which change happens is crucial to the impact that it has. There is general agreement in the House that we all want to see a higher wage, lower welfare economy and higher productivity. Surely the test of every change the Government make should be whether it will achieve those things. The simple answer is that this change will not.
The evidence from the Institute for Fiscal Studies shows that none of the Government’s changes to mitigate the impact of the cuts will raise family living standards. As the right hon. and learned Member for Rushcliffe pointed out, employers are raising wages. I am a little more cynical than him and suspect that they are doing so because changes in the law are coming, rather than out of benign munificence and a recognition of the benefits to productivity of paying a higher wage.
Nevertheless, the order in which the Government are undertaking the changes will make all the difference to the people in this country. They could decide to change the order and introduce the so-called living wage first, then look at the tax credit cuts. That would make a difference because of one matter that was sorely absent from the Exchequer Secretary’s contribution. I am surprised that he did not mention it, given that he used to be an expert on it. He is presiding over an economy in which personal debt is rising at an alarming rate. The Minister looks quizzical. He says that the burden of the Government’s changes is being distributed equally, but the burden of personal debt is not equally distributed in this country, as we see at first hand in our communities. We see families for whom borrowing on a credit card or from friends and family, or taking out a payday loan, is the only way that they can make ends meet.
My hon. Friend is making a fantastic speech and I, too, am confused about why the Minister is looking so perplexed. The Office for Budget Responsibility stated that because of measures introduced in the Chancellor’s Budget, unsecured borrowing will rise by £45 billion by the next election. My hon. Friend’s point is pertinent to the debate.
The Minister kept talking about the amount of public debt that he wanted to attribute to each household, but average unsecured personal debt is now £10,000 per household. Given the vulnerability to which families are exposed when they have that level of unsecured debt, will the changes make it more or less likely that such personal debt will rise? No one in the House would argue that the changes as currently constituted will not lead to a rise in personal debt to families, and we know the consequences of that. I pay tribute to the hon. Member for South Cambridgeshire (Heidi Allen) who honestly and openly set out the consequences of debt. She explained the worries she has when she sees families who are struggling with debt, and Labour Members share those concerns.
I applaud the hon. Lady’s passion but she is missing the context. The changes are part of a package that include a national minimum wage, 30 hours of free childcare, and a lock on tax rises. Taking that into account, wages and personal income will rise—does she not see that?
I beg the hon. Lady to read research from the independent Institute for Fiscal Studies that shows that none of those changes will compensate for the difference in income. I ask her to look into her heart and consider whether families in her constituency will end up borrowing because they find that there is even more month at the end of their money as a result of these changes and the way they are being introduced.
I understand the point raised by the right hon. and learned Member for Rushcliffe but there are alternative choices. We all want the deficit to go down—some of us do not want to see Governments borrowing from banks anymore—and we recognise the problems in our economy. Some of us are deeply concerned about the consequences for families of having that level of personal debt hanging over their heads. When interest rates rise—and they will—a 2% increase will lead to an extra £1,000 a year in interest payments alone that families will have to find. Families in other constituencies might have £1,000 hanging around, but not those in my constituency. With one third of people in this country having no savings at all, the changes as they stand will eat not into people’s savings or borrowings, but into their debt. That is the consequence we are facing and we need alternative ways to deal with that.
Let me offer some alternative ideas for how we could cut the cake and reduce this country’s debt. The Government could make changes to inheritance tax, although I recognise that Conservative Members do not like that idea. Alternatively, let us look at capital gains tax. The Chancellor made great play of putting capital gains tax on the sale of commercial property, but he left open a loophole for residential property. Were the Government to close that gap, none of these changes would need to take place.
Debt is a problem in itself. This Government are paying out £10 billion in public finance initiative debt repayments. Were they to get serious about renegotiating PFI debt—they would receive support for that from those on the Opposition Benches—we could save that money. The speech by the hon. Member for South Cambridgeshire was powerful because there are always choices to be made. Labour Members would make different choices and put first those people for whom £10,000 of unsecured personal debt means not only suffering the indignity of going to a food bank or going hungry every day, but that they cannot make long-term choices for their family’s future, or even entertain the idea of getting on the housing ladder. They will not be able to pay the social care costs that the hon. Member for Erewash spoke about, or let their children go into further or higher education, because they simply cannot afford it. We see the potential that will be wasted as a result.
We want to make choices that will help those families, help the economy to be more productive, and help this country truly to bounce back, but that is not the choice being made by the Government tonight. I urge Government Members who recognise the debt held in their communities and understand that this measure will make it worse not better, to think again and to work with us on when and how these changes come in and how we can make sure everyone benefits from a higher wage, higher productivity economy. I promise them that the families in trouble who are coming to them now need and deserve nothing less.
I wanted to speak in this debate because I believe it is important to add my voice, for what it is worth, from the Government Benches and from a first-time Conservative seat, on the tax credit reforms.
I represent part of the great city of Plymouth, which has for some time been a stronghold of the Opposition in recent elections. Indeed, my seat was once the domain of the Leader of the Opposition, such was the political landscape in our history. However, Plymouth is changing. We may have at times benefited from the nuances of being almost entirely state-dependent for our income, but the modernisation of the dockyard has had a profound effect on the demographics and outlook for our city. We now have second and third-order effects of long-term state dependency visible in generations of our residents.
In recent years, we have seen real benefits as the fundamentals of our local economy have changed. That resilient yet ever-evolving Janner character has seen us become a haven for marine science in the south-west, with companies such as MSubs, which was visited by the Chancellor in his last stop in the city. We have some genuine world leaders in hi-tech manufacturing and our charity sector is something that those of us who call Plymouth home are extraordinarily proud of. We have three fine higher education institutions. We are home to the world’s most adaptive and resilient fighting force in 3 Commando Brigade. We are a city that cares, regardless of background, and I look forward to turbo-charging this agenda in the years ahead.
As times have changed, so has the vote. On the Government Benches, we do not think it is right that people should be better off on a life on benefits than those with young families who work hard and contribute to the system. The welfare state is a truly remarkable thing: a system that makes me proud to be British, and a system that provides a safety net to those who need it and security for those who fall. The harsh reality, however, is that the system failed in places like Plymouth. In places like Plymouth, the system offered a life on benefits with income up to £26,000 for a family of four, such as my own. We cannot blame people for one minute for seeking this way of life, but we can look at the system that encouraged it. That is what my party is rightly doing.
I must urge caution with respect to these specific changes to tax credits. We all take individual journeys to this House, but mine was very clearly to represent my constituents above all else and to do what is right by my city. If I am to truly follow through on this, it would be remiss of me not to recount the extraordinary levels of feeling in Plymouth last weekend. This bright, vibrant, exciting and predominantly blue collar city, where in the last general election we saw lots of new and first-time Conservative voters, has serious objections to the tax credit reforms. It is my duty to represent them here in the people’s Parliament where they, and no one else, have sent me to work.
There is a general understanding out there for welfare reform. The policies are, in my experience, very welcome to many in a city that many people would see as entirely failed by the Labour party. Those of us at the coalface every weekend trying to help, encourage, gently persuade and even inspire a generation of young people, feel emboldened by the drive towards self-sustainability and independence of the Government’s reforms. However, my duty—again, I seek not to bang on to those far more experienced and capable in this House—and indeed our duty is to shout for our most vulnerable: the 10% I talked about the other night in the armed forces mental health debate in this House: those who, through no fault of their own, find themselves on the fringes of society, and who, but for a bit of bad luck and a couple of wrong decisions, could be any one of us.
I stand here as a compassionate Conservative, and unashamedly so. There is a good reason why I was not a member of this party before I decided to stand as an MP last year, but I have no doubt at all that the party is changing. I am proud of our current Prime Minister for the direction he is taking us in. I am one of those who thought that one of the Prime Minister’s bravest moves was to bring in same-sex marriage. I would have struggled to be here today without his personal stewardship, and, when we are winning in places like Plymouth, it is clear for all to see.
It is clear to me that Plymouth's view is that, while welfare, and by extension tax credits, must be reformed, these measures must be supported by mechanisms that protect our hardest hit, with precision targeting and strong messaging. I today urge the Chancellor to provide something—anything—that might mitigate the harshest effects of this policy on our most vulnerable. There are people far more intelligent than me who will provide data and statistical analyses in favour of or against the argument. Indeed, they have done just that. I seek not to go against their carefully considered arguments, but British politics is at a crossroads.
I seek not to denigrate Opposition Members, some of whom I know personally and have deep admiration and respect for, but we have an entirely chaotic Opposition who have so completely lost their roots in the traditional British left as to provide no stable for almost anyone in their right mind who has Britain’s best interests at heart. We must seize the opportunity to welcome to our stable people from all previous political backgrounds. Let us look again, work harder and find a way of bringing this overdeveloped and harmful tax credits system back under control, but let us do it in a way that looks after what should be our core vote.
I say to the hon. Members for Plymouth, Moor View (Johnny Mercer) and for South Cambridgeshire (Heidi Allen) that it is never easy to make a speech with which most of those on the same Benches disagree. I have been in that position myself, so I commend them on their fortitude.
I want to talk about the effect these proposals would have on my constituency. Paradoxically, 60% of my constituency is in Lewisham, one of the poorest boroughs in London, and 40% is in Bromley, one of the richest. Lewisham is not the richest, but it is not the poorest either—that honour, if an honour it be, resides elsewhere—but it does have the highest proportion of any of the 32 London boroughs of people above the benefits level but below average earnings. They are the working poor, and they will be the hardest hit, should these proposals go forward. Lewisham also has the highest proportion of people working outside their borough, so travel costs are a factor for those attempting to work their way out of dependency.
I do not accept the false dichotomy, which some people presented, between strivers and shirkers, but the people who will suffer the most under these proposals would fall into any category definition of “strivers”. Almost 25% of families in my constituency receive tax credits; 8,600 families will be affected, while 5,500 in-work families will lose up to £1,300 from next April, according to the Library. The total loss to some of the most vulnerable people in the constituency will be something over £7 million. Strangely enough, my constituency is better off than the other Lewisham constituencies. Those of my hon. Friends the Members for Lewisham East (Heidi Alexander) and for Lewisham, Deptford (Vicky Foxcroft) have far higher numbers than mine, so the effect across the borough as a whole can be imagined.
The Government argue that the increase in the minimum wage, which they try to describe as a living wage though it is nothing of the sort, to £9 an hour by 2020 will offset the cuts. It will do nothing of the kind. The most pernicious element of these proposals is the decision to take money away from people from next April while not paying the so-called compensation until four years later. As others have said, it is not just the nature of the proposals but their vicious timing that will do such damage to so many people.
The Government say, “Let us enable people to keep more of their own money, rather than taking it off them and then giving it back”. As a general proposition, I think that is fairly sound, and it is arguably a more efficient way of running the economy, but it ignores the nature and efficacy of a progressive tax system: the Government raise taxes from those who can afford it to pay for infrastructure and other schemes, but also to ensure a minimum standard of living across the country through a benefits system that is an integral part of the welfare state—although I accept that a balance will always need to be struck between taxation and expenditure.
Some Government Members, such as the former Chancellor, the right hon. and learned Member for Rushcliffe (Mr Clarke), who is no longer in his seat, and others, almost made it sound like the tax credits system was such a liability that it should be abolished altogether. That was their import, but they are wrong. The tax credits system is not there to subsidise poor employers—we are united across the House on that point; it is a crucial taper between the world of benefits reliance and the world of work. Without it, the option would not be for people to be in better-paid employment, but to be in unemployment. That would be the reality.
There is a case for reform of the system, and my right hon. Friend the Member for Birkenhead (Frank Field) along with many others has done a great deal of work in this area. While new claimants can be treated separately, there must be transitional protections for some of the hardest-working and most vulnerable families in the country.
I am grateful to you, Madam Deputy Speaker, for calling me to speak in this important debate.
Britain is home to 1% of the world’s population and accounts for 4% of the world’s gross domestic product and 7% of the world’s welfare spending. Tax credit expenditure more than trebled in real terms in the decade between 2000 and 2010. In fact, Britain has the highest expenditure on family cash benefits in the world. In 2011, we were spending twice as much as the OECD average. Without sound public finances, there can be no economic security for working families, and the country cannot pay for the hospitals and schools that people rely on.
Those who suffer most when the Government run unsustainable deficits are not the richest, but the very poorest. As the Prime Minister made clear in a speech at Ormiston Bolingbroke in Weaver Vale, there is nothing progressive about burdening our children or paying more in debt interest than we spend on schools. There is nothing progressive about debt.
I am grateful to the hon. Gentleman for his intervention, but I have to say that I have a vested interest as I have three young children. Is he saying that we should increase our debt? Should the debt of £1.3 trillion be £2 trillion, £3 trillion or £4 trillion? How much more debt does he think this country should leave to our children to pay back?
The SNP is more than willing and happy to reduce the national debt year by year and annual borrowing year by year, but I say again that something over a third of the national debt is actually owned by the Treasury, so he cannot go on saying that interest payments go to somebody else; they go to ourselves to fund hospitals, for example.
The hon. Gentleman is saying that the Scottish National party is happy to increase the national debt. That is the message: the national debt is going to go up. That is what socialism does and what socialists say. They are not concerned about the national debt, which is currently £1.4 trillion and getting higher. We can hear the message coming through loud and clear from the SNP.
Tax credits cost £l billion in their first full year, but have since risen to an estimated £30 billion over the last year, yet over the same period in-work poverty rose by 20%. The status quo on tax credits is clearly not working. Indeed, the former Labour Chancellor of the Exchequer, Alistair Darling, said that tax credits were
“subsiding low wages in a way that was never intended.”
It is vital to address the root causes of low pay rather than simply continuing endlessly to subsidise low pay through the benefit system. Reforming tax credits is crucial to achieving a sustainable welfare system that is fair both to the most vulnerable in society and to hard-working taxpayers who have to pay for it.
These reforms do not stand in isolation, but are part of a joined-up, wider offer to working people by this Government. With the announcement of the introduction of a new living wage by my right hon. Friend the Chancellor during his summer Budget, and the strides taken to raise the personal allowance, people will not only earn more but keep more of what they earn. It always pays to work.
On top of that, we doubled the number of free childcare hours of which parents can take advantage to 30, introduced tax-free childcare and froze fuel duty, saving a family £10 every time they fill up their tank.
The hon. Gentleman is talking about how people working on low pay should be grateful for the so-called living wage. Let me make the point again that this is not a living wage: it is not £7.85; it is not enough for people to live on. Let me provide an example. On the basis of changes to the tax credit threshold and the taper, a medical secretary with two children earning £22,236 a year can be expected to be £2,109 a year, or £40 a week, worse off in 2016 than in 2015. Will the hon. Gentleman comment on that?
What I will say is that employers must step up to the plate. They must pay higher rises—rising salaries. The living wage will rise to £9 during the term of the present Parliament, and because the Government have increased the personal allowance, people will earn £12,500 before paying any tax whatsoever.
The combination of those changes will make eight out of 10 working families better off. A typical family in which someone is working full time on the minimum wage will be £2,400 a year better off by the end of this Parliament. By 2020, the annual income of a single parent with one child working 35 hours a week and receiving the current national minimum wage will have increased by more than £1,500.
Poverty can be left behind only through work. The reforms of tax credits focus support on the families on the lowest incomes, while favouring support for working families through the tax system and earnings growth rather than through benefits. They will move Britain from a high welfare, high tax, low wage economy to a lower welfare, lower tax and higher wage economy.
I congratulate the hon. Member for South Cambridgeshire (Heidi Allen) on her honest and, if I may say so, rather courageous maiden speech. It was a pleasure to listen to.
I will begin with a rather strange declaration, which is that I agree with the Conservatives. I, too, believe that “work should pay”. The sad reality is, however, that in Scotland, more than 60% of children in poverty come from families who are in work. We have already heard that the proposed cuts will hit those in work the hardest, with in-work families losing, on average, £1,300 in 2016-17. We have heard, multiple times, how that financial gap will be filled with the introduction of the new so-called national living wage; but it is not a living wage. It falls 65p short of the real living wage, which, outside London, sits at £7.85 per hour. It should therefore be referred to as what it is: a new minimum wage.
If we look across the board at the families, both in and out of work, who will be affected by the cuts, we see that, on average, households will lose roughly £750 as a result of social security cuts, while households that will benefit from the new minimum wage will gain only £200 from it. That means that the new minimum wage will compensate for only 26% of the total losses created by cuts in tax credits.
I know how much the Government like to talk about financial “black holes”, especially when it comes to the SNP, but the reality is that if they proceed with their proposals they will create a financial black hole of £550 for roughly 8.4 million people in this United Kingdom. It is clear from the figures that their policy serves no purpose other than to push more and more people into poverty, and, in particular, to push more children into poverty. In Scotland, more than half a million children are currently in families who rely on tax credits, and 350,000 of those children are from more than 200,000 low-income families who will be hit by these changes.
I have listened carefully to what the hon. Lady has said so far. Will she answer a question that her colleague the hon. Member for Ross, Skye and Lochaber (Ian Blackford) did not answer earlier? Does she support the decision by the SNP Government in Holyrood to use their new income tax-raising powers, in the next year or so, to increase Scottish income tax and increase tax credits?
There are two points to be made in response to that intervention. First, it is worth remembering that 85% of power over welfare remains at Westminster. Tax credit is a reserved issue. Secondly, I think that the use of the income powers highlights a deficiency in the initial argument. If there is a need for the Scottish Government to top up benefits, surely there must have been a fault in the benefits to begin with.
Does my hon. Friend agree that politics is always about choice? Notwithstanding the rhetoric from the Conservatives about balancing the books, they could choose not to spend £100 billion on Trident. They could choose not to raise the threshold of inheritance tax. They could choose to close the Mayfair tax loophole completely, rather than balancing the books on the backs of the working poor.
I completely agree with my hon. Friend.
The House of Commons Library also tells us that the proposed changes will deliver savings of £4.4 billion in 2016-17, but that means that the Government will be taking £4.4 billion out of the pockets of the poorest people in this country. If people qualify for tax credits in the first place, it is clear that their wages are considered inadequate to live on. Given that we can cite credible evidence that the new minimum wage will not compensate for the loss of income created by the cuts, we can conclude only that they exist purely for ideological purposes and to continue the madness of austerity. As was pointed out earlier, we know that when the average person has money in their pockets they spend it. By taking £4.4 billion out of their pockets, we are taking money out of local economies, further tightening the economy and increasing the pressure placed on ordinary people.
The third and final point that leads me to believe that the Government should abandon these tax credit cuts is the two child policy. Are we really saying that people should count themselves lucky if they qualify for tax credits only for their first two children? In Scotland, 54% of families have only one child and poorer families are no different, so this aspect of the policy serves only to perpetuate the myth and the stereotype that the poorest in society have lots of children that they cannot afford. Not only that, but are we really making the disgraceful proposal to our citizens that, as our Government are so compassionate, we might consider helping them if they have a third child so long as they have been raped? Is that where we are now setting the bar for providing decent opportunities for our children—only if they are the product of rape? Forget the fact that that is a moral outrage from the get go; it is also completely unsustainable. How does someone qualify? Does there have to be a conviction for rape? Or could there just be a claim? This is completely unrealistic. What further damage will it do to women who have suffered a heinous sexual attack if we make them have to relive that attack by giving evidence to ministerial bodies?
Fundamentally, this is an ill-thought-out, illogical and harmful proposal. Even the Adam Smith Institute has just this afternoon called on the Government to remove these proposals. I am therefore proud to say that I will support the motion tonight and that the Government should abandon their current course of action immediately.
Order. The list of speakers seems to be growing rather than shrinking and almost 40 Members still want to speak, so before I call the next speaker I shall drop the time limit down to three minutes in the hope we can get as many in as possible.
The Government are pursuing the right strategic approach by moving from supporting working families through the benefit system to encouraging earnings growth and providing support through the tax system, but they need to think carefully about how they implement the policy to ensure that working families on low wages are not hit hard and unfairly. I urge them to address these worries before the changes to working tax credits come into effect next April.
The Government are doing the right thing by putting in place policies that in the long term will enable us to move to a high-skills, high-wage and low-welfare economy that is not concentrated in one place—London and the south-east—but offers opportunities for all across the country. The decline which these policies will address has taken place in many parts of the country, including my constituency of Waveney, over the past 30 or 40 years. They will not work overnight. They will need time and they might need to be refocused, redesigned and rebooted.
In the short term, there is a need for other policy initiatives to ensure that the removal of working tax credits does not indiscriminately and punitively hit those on low wages. My concern is that over the next four years the welcome initiatives that have been made so far will not on their own be enough to prevent working families on low incomes from facing significant reductions in income that could cause real hardship. They are the hard-working families doing the right thing that we can all say we support.
Since 2010, the coalition Government’s and this Government’s stewardship of the economy has helped to create a record number of jobs and has stimulated a genuine and seemingly sustainable growth in wages. That has improved the economic outlook and will enable people to increase the hours they work and move on to better paid jobs. However, such opportunities are not available evenly across the country; they are in some places, but not in others. The Government must do more to support working families as they pursue this right but difficult policy. Phasing in a reduction in employee national insurance contributions should be considered, as should changes to universal credit. Universal credit has the advantage of simplicity, but it could be made more flexible.
The Government are doing the right thing, but this policy must be introduced with more support for those who are also doing the right thing and looking to work more. That is something that I, as a one nation Conservative, ask the Government to do.
The Conservative party promised no cuts to tax credits and said people should always be better off in work, and we agree with that, yet the Government are reneging on those commitments. Some 7,300 working families with children were in receipt of tax credits in my constituency at April 2015 and all will experience an income cut in April 2016. Those with more than two children will be particularly badly hit.
One couple who came to see me in my surgery on Friday will face a cut in their annual income of more than £1,500 a year, and that includes the change in the personal allowance. The couple obtained the figure from the “entitled to” calculator on the direct.gov website. He is a primary school teacher earning £26,500—well above the minimum wage—and as a public servant has little expectation of a pay rise above 1%. His partner has had pregnancy-related health complications so she is not working. They are expecting their first child. They said to me that they
“feel extremely disappointed that an honest young couple who have a child on the way and have never claimed a thing do not get any help.”
It is not right that a second-year primary teacher is struggling to make ends meet and that low and middle-income earners like this man face the brunt of Government cuts yet again.
I do not dispute that employers should pay decent wages so that working families are less dependent on the taxpayer to make up the difference, and that we should strive to be a high-skill, high-wage economy, but until the wages of the lowest-paid rise, the Government should not withdraw the benefits that allow working families to feed their children and ensure that people can heat their homes and are able to afford to travel to work.
The Resolution Foundation calculates that cuts to tax credits and universal credit next April will create an “overnight shock” to family incomes, plunging around 200,000 families into poverty, mostly working households. The so-called national living wage is not a living wage and will simply not compensate these families for their loss of income. Middle and low-income families will continue to need support, not spin.
The Government justify these cuts by saying that they need to make savings in public funds, but where is the assessment of the cost to the public purse of these drastic cuts to the income of so many low-income families? What about the greater risk of people being forced into unemployment and the additional cost to the taxpayer from that? What about the additional cost to the country of children arriving at school hungry and unable to learn? What about the greater chance of long-term illness from cold homes, and the costs of increased personal debt that my hon. Friend the Member for Walthamstow (Stella Creasy) described so clearly? Where is the assessment of the impact on local economies of these changes—the loss of £4.6 billion in the next financial year? Money spent by low-income people is spent in their community, not on playing the stock market.
The Conservative party is the party of jobs, opportunities and higher wages, not of borrowing for ever until we go bust. There is nothing whatever compassionate about running out of money. My right hon. and learned Friend the Member for Rushcliffe (Mr Clarke) made some very good points, not least that, given the conditions, this is a good time for employers to deal with the subsidy that has built up.
In Australia during the crisis the Government authorised the payment of $900—about £500—as a tax credit, as an absolute emergency measure to keep the economy from going into recession, and there was an almighty argument and stink over whether that was even possible.
Gordon Brown instigated a system that spends thousands of pounds per person every year. He bumped the figure up ahead of elections time and again, and the welfare system got out of control. This was indeed a bribe, and it was made with borrowed money. That is not fair on the general taxpayer. We are the party that wants to reform this system. This is about reducing our deficit and not burdening our children. All our children will be paying for this for ever more unless we reform the system now. It is also worth remembering that the tax credit system is one of the reasons that migration from the EU has been sucked in so hard since 2005, and if we want to deal with that, we must address this issue.
This is the party of incentives. We want to make the future better and enable businesses to create jobs that will pay better wages in order to give people the opportunities they need if their families are to get on. That is why we have a major infrastructure programme in the south-west. We have heard Opposition Members ask what we are going to invest in. Well, we are investing a lot. We are going to make a major difference to people in my constituency and in the south-west. These moves will enable a much broader-based rise in wages, which I look forward to. I believe that we should incentivise people even further in the next phase, and it has been suggested a few times that we should look at the national insurance system. We could raise the national insurance threshold much further, right up to the point at which income tax is collected. That reform would make work pay even more.
Thank you, Mr Speaker, for giving me the opportunity to contribute to today’s debate. During the recent general election campaign, I spoke to many families across the Merthyr Tydfil and Rhymney constituency who were already struggling to make ends meet and, in some cases, struggling to put food on the table or to heat their homes. Since the election, we have heard from the Conservatives that they are on the side of working families and want to make work pay. In recent weeks, however, I have visited food banks in my constituency and seen at first hand how the demand for support from our food banks is increasing, not decreasing. It is also deeply worrying that in many cases, food bank support is reportedly being provided to people who are in work rather than out of work.
If the Government continue with their severe cuts to tax credits and do not alter course, it will cause absolute misery for many families in my constituency and many other areas across the country. These measures have been described as the largest cut to family incomes ever implemented by a Government. Is that an achievement that the Conservative party wishes to aspire to?
We are talking about working families. These are the people whom the Government say they want to help, yet the tax credit cuts would completely pull the rug out from under them, causing misery and hardship on an unprecedented scale. The cuts will mean that work pays less, which will undoubtedly lead to further debt and to families being unable to afford their basic living and housing costs. The cuts will also lead to further direct and indirect financial pressures on local authorities, which are already struggling to cope with massive cuts to budgets and services.
The changes will hit working families, with 3.2 million low-paid workers losing out next year. Information released by Barnardo’s highlights that a lone parent working full time on the minimum wage—the new so-called national living wage—for 37 hours a week will lose around £1,200 a year as a result of these changes, even after accounting for the increase in the minimum wage. That cannot be fair, and these measures will not support working families as the Government say they want to do. The combination of the Government’s public sector pay policy and the changes to the tax credit threshold and the taper will mean that hundreds of thousands of public sector workers will have less income in 2016, 2017, 2018, 2019 and 2020 than they do in 2015. Again, can that be fair?
I say to Conservative Members that these measures will hurt working people, particularly the most vulnerable across our country. That will include not only 4,900 families in my constituency but families in all constituencies, including those represented by Conservative MPs. I urge Conservative Members to support the motion, to show that they are truly on the side of working families, and not to condemn more children into poverty.
I am very much obliged to you, Mr Speaker, for being able to speak in this debate. We have heard lots of passionate speeches and many well-argued speeches, but I wish to start by referring to the one made by my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke). He said that when we look at the election, we see that there was a clear choice between the Conservative party and other parties on economic credibility. It is on that rock of economic credibility that this Government are doing something that is difficult but essentially the right thing. Opposition Members have to outline where they are going to find the £4.4 billion of savings, and they have not done so in any way.
I am not frightened with respect to this debate, but perhaps in other ways I should be.
The Opposition parties have a number of questions to answer. Where are they going to find the savings? More broadly, most of us agree that this system of tax credits subsidises employers, so is that subsidy to them to be paid year in, year out until kingdom come? Do we want to keep doing this for the foreseeable future, perhaps in perpetuity, or should we try to reform it and impose some conditions on employers to increase wages and share general increases in prosperity? The Government are doing the right thing. Clearly, this is a difficult decision. We cannot kid ourselves that some of these choices are easy, because they are not, but that is why we have been given the mandate—to do difficult things. If it were easy, we would have done it already and we would not have a problem. This is the right thing to do.
As other Conservative Members have observed, the conditions could not be more propitious to institute a reform of this kind. We have rising incomes and rising wages, and unemployment has fallen. I recall that in the last Parliament the doomsayers were saying that we would hit 5 million unemployed, but that never happened. We have good labour conditions and this is exactly the right time to bring about a reform of this nature. The last thing I would say is that although we engage in pantomime, Punch and Judy politics, this idea that the Government have done nothing for working people is ridiculous. We have to stress the fact that the national living wage has been introduced and the personal allowance has been trebled, and we also have to consider the doubling of free childcare for working parents with three and four-year-olds. This is a good comprehensive measure that helps people.
First, let me say that I do not think many people disagree with the analysis that has been made about tax credits. The question is: will the Government’s approach and the timing of their reduction solve the problem and avoid the difficulties that have been identified?
Let me deal with the three arguments put forward by the hon. Member for Spelthorne (Kwasi Kwarteng), the first of which was that Government credibility is at stake. In a democracy, it is not just the credibility of the Government that is important, but the fairness of the policies they are undertaking. They might argue that they are dealing with the deficit and taking tough action, and that those are good things, but those affected must also feel that they are being treated fairly. I do not believe there is fairness in this policy, because it does affect those people at the lower wage end of the economy. As has been said, we are talking about the strivers in society—the people who want to make a contribution and yet find themselves undermined.
My hon. Friend makes an important point. In Northern Ireland, 33,000 of those who will be affected have two or more children, and the impact is likely to be about £2,500 per year on them. The issue of fairness is therefore important.
The second point that the hon. Member for Spelthorne made was that this was the right time. The right hon. and learned Member for Rushcliffe (Mr Clarke) argued that the economy is buoyant, but that is not true in all sectors, or in all regions. There are many places where the labour market will not push up wages and where there is not the competition for employers to say, “We will have to hold on to workers by pushing up their wages to the national living wage or beyond.” It is not the right time in many parts or in many sectors of the economy. As the Office for Budget Responsibility has said—as has the Adam Smith Institute, which is hardly a hotbed of left-wing subversives who want to wreck the Government’s policy—the policy will price thousands of workers out of the labour market.
Finally, the safety nets that exist are not there for everybody. For example, the national living wage will not apply to a large group of people in society—to those who are under the age of 25. The new approach to housing benefit will not help those who are in the private rented sector, so they will face housing costs. The childcare costs will not apply right across the board. We will find similar things if we go through many of the other safety nets that the Government say they have put in place. For all the reasons that I have mentioned, this is an unfair change in policy.
Some Members have asked, “What is the alternative?” May I just say that I served as Finance Minister in Northern Ireland, and we had to find 5% cuts in the middle of a financial year, and then 3% cuts every year for four years? There is enough room in a budget of £400 billion to find the changes that are required to fund the phasing in of these kinds of changes. We do not have time to discuss that today, but suggestions have already been made. If this is a policy that the Government want to pursue, the real challenge is to find ways of introducing it humanely, fairly and effectively.
Much has been said today, but I wish to concentrate on two points. First, we must accept that tax credits are a failed policy. I do not think that anyone has any credibility in this debate unless they accept that the policy is a massive failure of the previous Labour Government. Even if we are generous to Gordon Brown—and there is no reason why we should be—and we adjust for prices, this is a policy that should have cost £6 billion and has ended up costing £28 billion. No economy can afford such a bill. It is wasteful. It is a byzantine merry-go-round of recycled money that has “misdirected”—to use the jargon—at least £10 billion in fraud and error. As has been said, it has enabled many employers, including some of our largest companies, to pay their staff less in the full knowledge that the state would top up weekly incomes. In doing so, the policy has depressed wages. I know that all too well from my constituency where the toxic combination of out-of-control immigration and out-of-control welfare has meant that there has been little, if any, pressure on some of my largest employers to increase wages in the past 10 or 20 years, and it is an increase that the working people of Newark want to see and to which this Government are committed.