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Tax Credits

Volume 601: debated on Tuesday 27 October 2015

1. What assessment he has made of the potential effect of proposed changes to tax credits on child poverty. (901797)

2. What estimate he has made of the administrative cost of proposed reforms to tax credits announced in the summer Budget 2015. (901798)

4. If he will bring forward transitional provisions for the proposed changes to the tax credits system. (901800)

Last night, unelected Labour and Liberal peers voted down the financial measure on tax credits approved by this elected House of Commons. That raises clear constitutional issues that we will deal with. We will continue to reform tax credits and save the money needed so that Britain lives within its means, while at the same time lessening the impact on families during the transition. I will set out these plans in the autumn statement. We remain as determined as ever to build the low tax, low welfare, high wage economy that Britain needs and the British people want to see.

Six thousand, eight hundred children in South Shields are growing up in families who rely on tax credits. One of my constituents told me, “Tax credits at the moment only just make it possible for families to feed and clothe their children as it is. If this Government keep making cuts on those of us who are lowest paid we may just give up hope.” The public, the experts, some of the Chancellor’s own MPs and the other place all agree that his plans will victimise working parents and their children, so will he please give my constituents some hope and shelve these ridiculous tax credit cuts?

We will give the hon. Lady’s constituents, and indeed the constituents we all represent in this House, support by continuing to deliver economic security in this country—economic security that has seen unemployment fall in her constituency by 44% since 2010. One of the ways we deliver economic security is by controlling our welfare bill and making sure this country lives within its means. That is what we will continue to do.

The Chancellor has singularly failed to listen to the SNP and to this House when we have said that he needs to think again about tax credits. He sounds like he is keener on dealing with peers than on listening to them, so how about he listens to the people and just drops these tax credit plans once and for all?

This House of Commons voted three times for the changes that were rejected by the House of Lords. I am sure that we look forward to the support of the Scottish National party on that constitutional question. I would make this point to the hon. Lady’s constituents: we need to have a welfare system that works. We need to move to a lower welfare, higher wage economy. We do that by introducing the national living wage and having a welfare bill that the country can afford. That is the best thing we can do for the security of the people she represents.

If the Chancellor had listened to the evidence from the outset, he would not be in this mess. If his Back Benchers had voted with their consciences, there would be an alignment of opinion between this House and the other place. Instead of manufacturing a phoney constitutional crisis, why will he not put his toys back in the pram and appreciate that he needs to go back to the drawing board with his failed policy that hits working people the hardest?

We will deliver the welfare savings that we were elected to deliver in this Parliament. We will help people in the transition to that lower welfare, higher wage economy. I remember a time when the Labour party used to support moving from welfare to work; it has entirely abandoned that approach. We will be the party that stands up for working people, and working people need controlled welfare and a country that lives within its means.

Does the Chancellor agree that whatever our views may be in this House on the tax credit dispute, in overturning the settled will of the elected Chamber, the unelected Lords has exercised the powers of a Chamber of Parliament in the tax area, whereas for at least 100 years it has been well established that it has, and should have, only the legitimacy of a consultative assembly?

The Chair of the Treasury Committee makes an important point. Of course, on only five occasions in recent decades has the House of Lords blocked or rejected a statutory instrument, but never on a financial matter. We heard a whole range of opinions yesterday—from Lord Butler, the former Cabinet Secretary, to constitutional experts such as Vernon Bogdanor—telling us that this was unprecedented. We are going to have to address it—the Prime Minister has made that very clear. That is what we have to do to make sure that the elected House of Commons is responsible for the tax-and-spend decisions that affect the people of this country.

I have written to the Chancellor about a lady in my constituency, Stacey, to whom I have talked at length. She earns only £11,000 a year and says that £31 a week is being cut from her budget. I know that the Chancellor will meet me to discuss that. Surely the point is that we should have the conversations here, and he will listen, and that ultimately we will be held responsible and chucked out. What is not right is that unelected people, who never have to stand again, should decide how the people are taxed and how we spend our money.

I agree with my hon. Friend on the constitutional point, which is a matter that the whole House of Commons will want to address. I take very seriously the point he raises about his constituent. I have made it clear that we will listen with regard to how we make the transition to a lower welfare, higher wage economy. When we introduced controversial welfare changes in the last Parliament, such as the removal of child benefit from higher earners and the introduction of the welfare cap, we made changes, having listened to Parliament, to smooth the transition to both those important reforms. Of course we will listen to the House of Commons in this respect, but the end goal is clear: this country cannot have an unlimited welfare budget that squeezes out other areas of public expenditure. We cannot have a situation whereby we have 1% of the world’s population and 4% of the world’s economy, but 7% of the world’s welfare budget.

May I urge the Chancellor to stick to his guns on tax credits? Gordon Brown spent billions of pounds he did not have on tax credits, to try to buy votes at the 2010 election. Does the Chancellor agree that there is no painless way out of huge debt and that people would do well to remember that before they ever elect a free-spending Labour Government again?

I completely agree with my hon. Friend. Spending on tax credits went up three times during the last Labour Government, yet working poverty increased during that period. In other words, it had completely the opposite effect from that intended. The people who suffer when the country loses control of its public finances are, indeed, the low paid. They are the people who get turned out of work. It is not the richest in the country or the trade union barons who lose their jobs when that happens; it is the poorest in the country. What we can deliver for them is economic security. So, yes, we will listen on the transition, but we are determined to deliver controlled welfare and economic security for the working people of this country.

The Children’s Society estimates that 10,000 children living in 5,100 families in Rotherham will be punished by the tax credit changes. What transitional provisions will the Chancellor put in place to support them?

I will set out at the autumn statement how we make sure that we smooth the transition to the lower welfare, higher wage economy that the people of Rotherham and the rest of the country want. We have to make choices in this country. Are we prepared to see our country decline, our budget go out of control and jobs lost, or do we want to continue delivering the economic security that sees a record number of people in work and that has seen employment increase in Rotherham?

The average taxpayer in this country now pays £2,000 a year in extra tax just because of the Government’s debt interest payments. Is not it time that we saw that debt tax on this country’s payslips, so that those who believe they can spend with impunity, including the unelected Chamber, recognise the cost it will provide to future generations?

My right hon. Friend is quite right to call it a debt tax. Indeed, one of the largest items of Government spending is paying the creditors we owe, who fund our national debt. That crowds out the spending that we could be putting into our education and transport systems. We have, of course, taken forward an innovation proposed by a Government Back Bencher in the last Parliament, and we now send a tax statement to every taxpayer so that they can see how much we spend on debt interest and how urgent it is that we remove this deficit and reject those who want to borrow forever.

On the constitutional point, will the Chancellor read out the specific sentence in the Conservative party manifesto where he promised he would cut tax credits?

I am very glad that the hon. Gentleman has a copy of the Conservative manifesto. It is an excellent document, which says we are going to deliver better schools for people, we are going to put more money into the national health service for people, we are going to invest in transport for people and we are going to make £12 billion of welfare savings.

It is good to see the Chancellor in listening mode. There is another group that can assist practically but which we are not talking about—companies. Are our companies in listening mode about the measures that they can take in moving their employees to the national living wage much more rapidly? What can the Chancellor say about what they are doing to help on this issue?

My hon. Friend makes a very important point. The savings we make in welfare are part of a package that includes a national living wage. Although the national living wage starts to come in next year, over 200 major companies—such as Sainsbury’s, Morrisons, Costa Coffee and many others—have already, since the Budget, introduced wage increases that match what we are proposing to do by statute, so we are already seeing the benefits of the national living wage coming into effect before it is even introduced.

We know that there are 500,000 more children in poverty since 2010—[Hon. Members: “No.”] There are 500,000 more children in poverty since 2010, and there will potentially be 4 million children in poverty by the end of this Parliament. If the Chancellor is in listening mode, knowing that he does not need to make these cuts to balance the budget, why does he not listen to those who say, “Stop now with the policy of tax credit cuts”?

I am afraid that the hon. Gentleman is just not correct on the numbers. Child poverty is down by 300,000 since 2010, and the number of children in workless households is now 500,000 fewer than it was when the Government came to office. The truth is it is difficult to take any lectures from Scottish National party Members about balancing the books. They made forecasts for their oil revenues that would have left Scotland with a £30 billion black hole if they had ever got their way. We will go on delivering economic security for the people of Scotland, and indeed the rest of the United Kingdom, by taking the difficult decisions that his party ducks.

The Chancellor is in denial—absolute denial. Did not yesterday, 26 October, demonstrate two things—the Chancellor has lost his political touch, and his chance of being Prime Minister has just gone up in a puff of ermine-clad smoke?

As ever, when pressed, all that SNP Members want to talk about is party political gains, rather than sorting out the mess that this country was in six or seven years ago. As a result of the changes we have made, there are hundreds of thousands more people in Scotland with jobs, businesses are investing in Scotland, as they are across the United Kingdom, and we will go on making those changes. The hon. Gentleman can go on praying in aid a House of Lords that he has spent his whole life campaigning to abolish. I will go on delivering the reforms to our economy that are needed to help Scotland to continue to grow.

At the end of the previous Labour Government, nine out of 10 families with children were eligible for tax credits, some of whom earned up to £60,000. In other words, they were paying their taxes and then getting some back. Is it not better to reduce taxes in the first place so that people keep more of their hard-earned income?

My hon. Friend speaks for her Lincolnshire constituents and for the whole United Kingdom in saying that we want to move to a lower tax, lower welfare, higher wage society. We took such a step in the Budget by increasing the personal allowance to £11,000. We also cut taxes for business, reducing corporation tax and expanding the employment allowance so that smaller businesses could take on more people. It is all about continuing to deliver the record levels of employment we see in our country, and indeed the growing economy that today’s GDP figures confirm.

May I remind the House that for 3 million people out there who have done everything asked of them and have been bringing up their children and going to work, this is not a constitutional matter? Those people will lose £1,300 a year. Given what happened in the other place last night, may I reassure the Chancellor that if he brings forward proposals to reverse the cuts to tax credits, fairly and in full, he will not be attacked by Opposition Members; indeed, he will be applauded? Can he assure us that whatever proposals he brings forward, he will not support any that an independent assessment demonstrates will cause any child to be forced to live below the poverty line?

I am, of course, happy to accept any proposals that the hon. Gentleman puts forward—[Interruption.] I am happy to listen to those proposals, but there is a difference between those who say, “We want to make no savings to welfare at all; we want to abolish things like the benefit cap; we are not prepared to make any savings at all to the tax credit system”, and those who say, “Yes, we want to move to a lower welfare society, but we want help in the transition.” If the hon. Member for Hayes and Harlington (John McDonnell) has proposals to help with the transition, of course I will listen to them, but if he is again promoting uncapped welfare and unlimited borrowing, I do not think that the British people will listen to him.

The Chancellor has a choice before him: he can push on with tax giveaways to multinational corporations, and press on with cuts to inheritance tax for the wealthiest few that he announced in the summer Budget, or he can reverse those tax breaks for the few, and instead go for a less excessive surplus target in 2019-20. He can avoid penalising 3 million working families with cuts to tax credits, and stick to his self-imposed charter. Is he prepared to listen to reason on this matter? Is he, or any Government Member, prepared to step up and show some leadership on this issue?

Let us remember that we inherited a tax system where City bankers were paying lower tax rates than the people who cleaned for them, and multinationals were paying no tax at all. We have introduced a new tax to ensure that multinationals do not divert their profits, and we increased capital gains tax precisely to avoid that abuse of tax rates. We will not take lectures from the Labour party about a fair tax system.

In a way, the hon. Gentleman reveals what he believes, which of course I completely respect. He says that we should abandon our surplus rule and run a deficit forever, but I profoundly disagree with that central judgment. If we borrow forever and are not prepared to make difficult decisions on welfare, we will condemn this country to decline. As a result, people will become unemployed and living standards will fall. That is not the Britain I want to see. We will go on taking difficult decisions to deliver that lower welfare, lower tax, higher wage economy, and this elected House of Commons will continue promoting the economic plan that delivers that.