[Relevant documents: Oral evidence taken before the Work and Pensions Committee on 26 October 2015, on Tax Credits, HC 548, Oral evidence taken before the Treasury Committee on 15 July and 21 July 2015, and written evidence published on 20 August and 22 October 2015, on Summer Budget 2015, HC 313]
I beg to move,
That this House calls on the Government to reconsider the effect on the lowest paid workers of its proposed changes to tax credits due to come into force in April 2016, to carry out and publish an analysis of that effect, and to bring forward proposals to mitigate it.
Thank you for your ruling, Mr Speaker. On behalf of the House, I thank the Backbench Business Committee, which not only acted quickly in giving us this debate but decided that we should have a whole day to debate the issue given the importance of the matters we are discussing to many of our constituents, particularly those who have the least money.
Members will have seen from the motion on the Order Paper, signed by a large number of my hon. Friends from both sides of the House, that we want to touch on three themes today. First, we call on the Government to give us more data so that we can, secondly, consider the impact of the tax credit cuts on our lower-paid constituents. Thirdly, given that there is now a debate raging in this House as well as outside it, we wanted to give the House the opportunity to suggest means by which the Government might mitigate the measures, although the debate has moved so fast that I do not think that those on the Treasury Bench are thinking merely of mitigation.
In this opening contribution I want to touch on three themes. First, I congratulate the House of Lords not on causing a constitutional crisis, but on giving the Government a well-earned opportunity to think twice about their proposals. Secondly, I shall outline the data that we need in this place to consider how the biggest change in the Budget will impact on our constituents. Thirdly, I want to start introducing the proposals that Members are putting forward not merely for mitigation, but for reform of the tax credit proposals.
First, on the lucky break that has been dealt to the Chancellor, when the Lords rejected the statutory instrument giving the Government authority to go ahead with the tax credit changes, I began to pity that no doubt young adviser in the Treasury who had thought up the wheeze of putting the measure in a statutory instrument rather than in the Budget itself. Although on many subjects we would disagree with Lloyd George, he had a certain wisdom in deciding how to protect money resolutions in this House from interference from the other place. The convention that had been developing before and was reaffirmed with legislative force then was that if a Budget motion goes from this House, the other place might wish to debate it but could not interfere with it. I pitied the career of that young adviser who suggested a wonderful wheeze not to debate it here on the Floor of the House, but to take the very essence of the Budget in a Committee stage upstairs.
Now, as more hon. Members have begun to realise the consequences of the tax credit changes, I began to think that maybe that official is for promotion, in that the procedure gives wonderful cover for the Government to engage seriously with us here and with our constituents on what might best be done both to meet the Government’s target to reduce the deficit and to make sure that any reduction is not disproportionately or to any extent put on those with the weakest shoulders. It is a huge opportunity and I hope that in the course of the debate we will see the changes and the movement that has taken place since that Budget debate.
Secondly, I make a plea for the data that this House requires so that it can understand what is involved for all our constituents, particularly those strivers who get up and work, doing some of the least privileged jobs in our society, and whom successive Governments of different complexions thought we should encourage rather than deter. It is worth remarking, although I do not wish to add any conflict to this debate, that we have to go back to Lloyd George’s debates to look at the information that he provided to the House on who would pay for his 1909 Budget—that Budget in which he enshrined it in our constitution that Budget measures were for this place and not for the other place.
Lloyd George provided far more information than the Government provided this year on who would be affected by his Budget. I know it was simpler then—he was after the landlords’ pay and he made it plain that they would pay for the measures, and that the Budget would redistribute not just to the poor, but to the poor who were not in trade unions and who at that point had no one to protect them. The Government have achieved a first—and I hope they will withdraw from this innovation—in starving the House of the necessary information.
What I would like to see from the Government is how we break down among decile groups—each 10% if the income distribution—the impact of this £4.5 billion cut in tax credits. May we have that information by each data group? There are three big changes that the Government wrought in the Budget statement. First, they reduced the earnings threshold from £6,420, lowering it to £3,850 next April. Secondly, they are abolishing the family element—the £500 that was put into the calculation —which will disappear in 2017. Thirdly, the child element, which is valued at £2,780 a year, will be lost for all children after the second child in a family.
Those measures will obviously affect different groups in all our constituencies. Given that there is a unity across the House on the idea that the necessary reductions in the budget deficit should be borne by those with the broadest shoulders, we need to look at the impact of those measures, both individually and collectively, on each decile group. Then we need to look at the impact for each type of family and for each year up to 2020.
To be fair to the Government, many of us wish them to include in that analysis the four compensatory measures that they argue will mitigate most, if not all, of those changes. For example, the Prime Minister has told the country that eight out of 10 families will be better off as a result of this year’s Budget. The truth is that eight out of 10 might well be better off, but practically all of our constituents who draw tax credits are in the two out of 10 who will be substantially worse off. I therefore hope not only that we will see a careful analysis of the cuts affecting individual families, but, in order for it to be rounded and fair, that it will include the four compensatory measures that the Government argue will mitigate the impact.
One such mitigating factor is the welcome increase in the tax threshold. When the Exchequer Secretary replies to the debate, perhaps he will be able to tell us whether all those claiming tax credits will be covered, or is the figure more like half? Let me say now—I might not have an opportunity later—that I have huge regard for him. I am sympathetic to the position he is in, because he is defending a Government brief that is on the move. I will mention a precedent that I think will cheer him. Those of us who have been in this place for some time will remember when Mrs T insisted that John Major come to the Dispatch Box to defend her policy on cold weather payments. She then heard the eruptions from the Benches behind him and decided to change the policy that afternoon, but she instructed him to tell the House that something much better was in store. I hope that the Chancellor, who is now in listening mode and thinking about what changes to make, will be similarly generous and allow the Exchequer Secretary to announce those changes, rather than seeking to take any kudos himself.
One of the big changes is the increase in the tax threshold, but only half of those who will lose out as a result of the tax credits changes will be compensated, or partly compensated, by that increase. Probably the most important positive measure that the Government will introduce in this Parliament is the significant increase in childcare for all our constituents who have children under the age of five: the number of hours of childcare for the poorest two-year-olds and all three and four-year-olds will increase to 30 a week.
The Minister who will reply to this debate has probably the most important brief of any Minister, because he now has overall responsibility for life chances. If this House is serious about ensuring that the life chances of children in the poorest households are raised to the level of children in more privileged households, we must look very carefully at how that extra money is spent and, in particular, whether our very poorest and youngest constituents get the best deal out of that childcare. The increase in childcare is probably the most important social measure that the Government are likely to introduce in this Parliament, but following close on its heels is the introduction of a national living wage.
The right hon. Gentleman is making a characteristically thoughtful speech, but in discussing amelioration of the third element will he acknowledge that many employers are going further than the schedule for the national living wage uplift requires? That will be massively welcome to many people across the country and will have a material impact on the four elements he is describing.
Many employers are doing so, but some are not, hence the importance of the Chancellor’s making it a statutory requirement. That demonstrates the role of law when it is used cleverly. A number of employers who previously were not interested in introducing a national living wage—in correspondence with me, they said that they would not do so—are now among those that have, in a sense, jumped the gun in introducing the Chancellor’s national living wage. That is welcome.
Is there not a problem for employers in the public sector? A number of them, including my local council, Gateshead Council, are committed to paying the living wage, but clearly they do not know whether extra funding will be made available to them so that they can do so.
There is clearly, as my hon. Friend says, a question about resources. We are arguing that Ministers should produce an analysis of the impact of the national living wage, but many local authorities are paying above that level now, so those workers already have that money in their wage packet. The ability of local authorities to increase wages will be limited in the years we are considering, so many public sector workers on the lowest pay will not be beneficiaries of the living wage; their pay increases will be limited by the requirement the Government have laid down. Perhaps that is a factor the Government will use in the analysis for which we are asking.
Well, indeed. Our plea is to have made available the range of analysis that has traditionally accompanied any Budget statement that any Member of this House, however long he or she has served, has come to expect.
The Work and Pensions Committee has emphasised a fourth factor, which is that there may be some wage push as a result of the introduction of the national living wage. Will that be taken into account in the Government’s analysis? I am slightly sceptical about the extent of that wage push—again, it is one of the problems of having been a Member of this House for some time. When I was initiating the Low Pay Unit’s campaign for a statutory minimum wage, the official trade union position was to oppose it on the ground that there would be a mega-bill as we re-established differentials. However, when we look at the impact of the statutory minimum wage, we see a great deal of bunching of wages, and not the big increases that some people feared and expected.
I can call him my right hon. Friend, because we have known each other for 40 years. On the data the Government provide, because this is an incredibly complicated area, there are elements of data that are important but that would not normally be provided. One of them is the marginal withdrawal rate of any scheme that the Government put into effect. Government spokesmen have previously said that people can work their way out of poverty, but it looks as though some of the effects of the national living wage will result in a 93% withdrawal rate, which will mean that people cannot work their way out of poverty. Will he add that to his list of data for the Government to provide?
I will certainly do that, because I want to refer to a proposal that I initially made about making a reform at nil cost. I did not do that because I wanted to be dragged to the stake and burned as a result, but because I was anxious to begin a debate. If one is asking the Government to change their mind, somebody who has made proposals might also change their mind. With any proposal, the net withdrawal rate is crucial. We in this House thought it intolerable that people should pay more than 45% on their income tax and suffer that rate of withdrawal. It is not a bad rate to aim at for poorer people when we add income tax, national insurance, and withdrawal of tax credits and other benefits. That underscores the point that the right hon. Gentleman made.
Would the right hon. Gentleman also see merit in looking at the geographical distribution of the effects of these measures, given that as the Member for Birkenhead he will know that there are very poor communities where the effects will be very widespread? The result will be not just poorer people but poorer communities.
Will my right hon. Friend take into account the fact that we need to have something that is saleable to the people who are benefiting from tax credits? Language such as marginal rates of return, thresholds and differentials can completely confuse not only the beneficiaries but small employers. Will he make it clear in negotiations with the Treasury that we must try to make this saleable and to keep the concept simple, so that people who genuinely need tax credits can claim them, because there is still massive underpayment?
There is indeed. That leads me neatly on to what the proposals for reform might be. I wish briefly to touch on four.
First, I make a plea to the Government to recognise just how quickly this whole debate is changing and to take advantage of that. Tax credit payments are here for the long run. When we began this debate back in 2010, there was enthusiastic talk about, in almost no time, a new benefit—universal credit—that would sweep away means tests and deliver a seamless service to our constituents. To be truthful but gentle about universal credit, its progress is very modest. I do not disagree with the Secretary of State in looking back at previous instances of trying to smash reform through whatever the costs, but at some stage somebody in Government has to look at how slow the progress of roll-out has been and question whether a full flowering will ever see the light of day. This raises questions about how tax credits might be reshaped, given that universal credit is not for the chop and is here for the longer term. It will not, in the lifetime of this Parliament or even the next, make tax credits redundant.
We have begun to have debates about this with the public. When I recorded a programme this morning, every time I said a word that people thought the public would not understand, we had to stop and start filming again. I could not say how long it took to film. We have our own language, which is a shorthand that is not understood by people outside.
My right hon. Friend speaks with great authority and experience on these matters. One of the very straightforward concepts that all my constituents understand is that there is a right-minded intention to get rid of taxpayer-subsidised poverty pay. In doing so, however, we cannot say to people on low pay, “We’re going to impoverish you on that journey.” The simple concept is yes, let us talk about the instruments for doing that, but remember that it is about getting rid of poverty pay and lifting people up, so that at some future date we do not have to rely on subsidy to make it worth while to go to work.
I could not agree more, in that we have not had a Chancellor who has decided that it is misplaced for taxpayers to play the role in the welfare system that wages should play in our economy. That leads welfare reform into new areas about how to raise productivity, particularly among those who are lowest paid. We should not simply accept and welcome the Chancellor’s proposals for a national living wage but think about how we take it on from there. My hon. Friend is absolutely right.
My first suggestion to those on the Treasury Bench stems from the fact of the Government’s introducing a national living wage. When the people who designed tax credits got to work, nobody thought that any Government would bring forward that proposal. They therefore incorporated two aspects into the tax credits system. The first was about how to subsidise, and make up to a more decent level, poverty wages. The second was that given the life cycle and where life’s journey takes us, there are periods when people have children and their budget is stretched, and the tax credits system should play a role in that. I ask those on the Treasury Bench, when they are thinking about what they do in only a few weeks’ time in the autumn statement, to consider whether we should now grow up and accept that we are going to have a national living wage, and that the tax credits system should not only subsidise low wages but take some of the responsibility for the costs of children. I think there would be a great deal more support in the country if tax credits were about supporting children rather than the need to subsidise poverty wages.
There are two benefits—child tax credit and child benefit. The Prime Minister seems to misunderstand the difference between the two, because he said during the election that child tax credits would not be touched, but given that under this formula we are changing the clawback—or, as my hon. Friend the Member for Nottingham North (Mr Allen) would say, the amount of money people lose—by changing the threshold at which people begin to take back tax credits, and the rate at which tax credit income changes, we are affecting the value of child tax credit. There are questions about the sense of having two benefits serving the same purpose.
My second proposal is one that I guess many Tory MPs have made privately to the Government. I cannot imagine that Government Whips are different from Opposition Whips. If we had been in government making this proposal, our Whips would have been very busy last weekend phoning hon. Members to ask what they would tolerate as a minimum for reform. I would have thought that one very clear message coming back would be that bringing in these reforms next April is not acceptable
The third and more radical proposal, which again unites Back Benchers on both sides of the House, is that the changes to tax credits should apply only to new claimants. One of the problems of our popularity in shovelling around taxpayers’ money without realising that the music might stop some day and people might think the bill was not actually affordable is that in the meantime our constituents have responded to the very clear messages—in the form of incentives in the tax credits system—about what we wish them to do. In talking both publicly and privately with Conservative Members and certainly with Labour Members, I have noticed a sense that it is one thing to say there is a new contract for people who are not claiming tax credits now, but it is a totally different ball game to say to the others, “You’ve responded and you’ve done all we expected you to do, but, by Jove, we are going to clobber you now for doing so.”
I will make two points. The right hon. Gentleman is absolutely correct that for people in the system who have changed their behaviour—in terms of the vehicle they have bought, or the house they have chosen to buy or rent—we cannot change the rules afterwards and hit the poorest hardest, as the changes would.
I also want to put it on the record that I have made my view perfectly clear—certainly to Conservative Members—that the changes cannot go ahead next April and that any mitigation should be full mitigation. Mitigation must protect the poorest households, of which, owing to our low median salary, we have an awful lot in east Yorkshire.
Does the right hon. Gentleman agree that the Government have accepted the principle he has just espoused about those who are already in the system? With the pension changes, for example, the Government have not required those coming up to the pension age who have certain expectations to change their expectations. Why does that not apply to those who are currently recipients of tax credits?
I could not agree more. I think those on the Treasury Bench are picking up a very strong message. There would be very little opposition to the Government introducing the reforms for people who are not claiming tax credits now, but who, if they claimed them in the future, would know the rules of the game. When this place has helped to shape people’s lives, expectations and drive, it is very different all of a sudden to blow the whistle and say, “We’re changing the rules.” People both in the Chamber and in the country feel very strongly about that.
On the specific issue of dealing with the changes for people coming into the system, does the right hon. Gentleman not recognise that that shows its complexity? Somebody who is offered a position paying more than enough to take them out of the tax credits system might be reluctant to take such a job, because if it does not work out they will come back into the system as a new claimant. Even with his proposed change, the system will be complicated.
I was waiting for those on the Treasury Bench to point out the difficulties involved with all such moves. It is important to say that we are not in the hole; the Government are in the hole. We are trying to make suggestions about how to get out of the hole. It is no use the Government turning round to us and saying, “Did you not realise that this would have this effect and that effect?” I know we will not get that from the Exchequer Secretary, but a suitable sense of humility from the Government would be welcome.
There would of course be a tendency for any Chancellor to say, “I’m going to make the Lords agree to my new SI.” If it was an SI that this House cheered on its way down to the other place, that might be wise. If it is an SI on which there was still deep disagreement, particularly among Conservative Members, I think it would be very unwise not to bring forward the proposal in primary legislation.
Is there not room for a little bit of forethought and pre-emption? We are only six months into a five-year Parliament, and this is the first of many changes that may happen. Will my right hon. Friend stress that Parliament could be seen as a partner in this process? Rather than having a crisis-management approach to social policy, can we not involve the Work and Pensions Committee, the Treasury Committee and colleagues in both Houses? The Government can set the object, but we could be allowed to say something to help them on their way. We know that there has been a general election and that they are entitled to get their laws through, but they should use Parliament as a partner, rather than have this constant crisis management.
I could not agree more. In my speech opening this debate, I am in a sense saying that this is a glorious opportunity for the Chancellor to get it right: both to change his image and to become a much more serious reformer on the tax and benefit front. I am sure that he did not want to land himself in this position, but now he has, I hope that he will be optimistic not only about the partnerships he can build, in the way that my hon. Friend suggests, but about the opportunity it gives him in beginning to take into account the effect of a national minimum wage on the welfare debate. I sometimes wonder whether he has quite realised just how significant change is and could be.
If hon. Members will allow me, I will turn to the fourth suggestion for reform. I have put it forward, largely to get a debate going, and I now wish to attack it. The suggestion was to take the Chancellor seriously when he said that reforms should be done at nil cost. I wanted to show that it would be possible to raise the thresholds—the point at which people begin to lose tax credits—to the national minimum wage at nil cost, but that would require an even greater penalty in the loss in tax credits for people above that level.
There is not a great deal of support for that idea, but I put it forward merely to stress this point. When we had a huge great uprising of Back Benchers from both sides of the House over the abolition of the 10p rate, the Government were adamant that they were not going to listen, but then, on the night before the big concessions, huge sums of money were found at the Treasury to go everywhere but to help those on the 10p rate. It is now clear that the Chancellor will put some extra money into the whole operation. If we suppose that he wants to go down the nil cost route, the extra money ought to go to protecting those who will lose, rather than to those not claiming tax credits—including all hon. Members, who are not affected—who would benefit if he raises the tax threshold further or increases the national insurance threshold.
I will make my last point quickly, not because I do not want to develop it further, but because I am conscious of the large number of hon. Members who wish to participate in the debate. If we are saying that the Government should give up £4.5 billion from savings toward the reduction of the deficit, we are required to say where that money might come from. I wish to suggest two areas. I have lifted the first from the Treasury. It is now briefing the media that one possible way of finding the extra resources for a delay and a staged introduction—that is certainly what Conservative Back Benchers are asking for as a bare minimum—of this reform, if that is what we can call it, would be to have a smaller budget surplus by 2020. I just put that forward, because it certainly seems to be a possibility for the Treasury.
My second proposal relates to pension tax relief. It is very interesting that the Chancellor has asked for views on how we might reform it. Huge sums of money are involved. I am not advocating that we should abolish it overnight. I do not think that we should treat people higher up the income scale in the same horrible way that the Government were proposing to treat those on tax credits. When Governments start changing incentives, people need to have time. If, however, we abolished it overnight, we are talking about an extra £34 billion. If we made the tax concession 15% for everybody, the figure would be more than £15 billion, and if we made it 20%, it would be £10 billion. These are mega-sums of money.
I raise that issue because I do not believe that the Government’s consultation on pension tax relief is up to speed with their pension reforms. The reason pension tax relief has been built up over a century is that previous Governments gave up the ghost of ever introducing a state pension that would take people off means tests. Hence, we had to bribe people to save more so that they would not be subjected to the horrors of poverty in old age. The Government are now introducing a basic state pension for the first time ever. That is an achievement. [Interruption.] I will certainly make way on the Bench for my hon. Friend the Member for Coventry South (Mr Cunningham). Shall I give him my notes so that he can finish my speech? I have never seen that before. I had always thought that if a Member was on their feet they were meant to be speaking, but never mind.
Sometimes Governments are very slow to look at how one really radical reform will have a knock-on effect on other parts of their programme. I do not think that this Government have taken into account the resources they are beginning to unlock now that the vast majority of people are going to be given a pension that will take them off means-tested assistance. Therefore, the reasons for bribing people to save in particular ways fall away, and that begins to unlock huge sums of money. I have not made proposals without also suggesting where the money might come from.
I want to end with what the tax credit changes will mean to our constituents if we are not successful today in convincing the Government to rethink radically their proposals. Having talked to my constituents and to others on television programmes, I cannot but be incredibly conscious of their fear at what the changes will do to them. People we should be saluting and cheering are sick with worry about how they are going to make ends meet and about whether they are going to lose their homes and whether they are going to be able to pay the interest on their mortgages, not to mention how they are going to protect their children properly.
Although it is important that we sometimes use technical language as shorthand, I am sure that we will never, ever forget what this debate is about. It is about some of our most vulnerable constituents, whose efforts in work we should be saluting. We should not be handing out this sentence, which terrifies them. For that reason, I hope the House will come to one mind and pass our motion and that we will get a very clear response from those on the Treasury Bench.
Order. Before I call the next speaker, I am going to impose a time limit of seven minutes. Thirty Members are trying to catch the Chair’s eye and there are also going to be three Front-Bench contributions. We will start with seven minutes, but shorter speeches would be very welcome.
It is a great pleasure to follow the right hon. Member for Birkenhead (Frank Field), who spoke a lot of sense. I join him in thanking the Backbench Business Committee for allowing us a full-day debate.
I fully support the motion and was delighted to put my name to it. I voted against the statutory instrument because I could not support the Government. That was not an easy thing to do. I am proud to be the Conservative Member of Parliament for Stevenage, but I could not support the Government on the statutory instrument.
I support the idea of a high wage, low tax and low welfare society, and I believe that tax credits need to be reformed. They cost more than £30 billion a year and have completely snowballed. Families visit my surgeries all the time and they are very upset about the fact that no two families are treated the same. There are huge overpayments and there are underpayments. It is an incredibly complicated system. Some £1 billion a year is lost in fraud. There are huge issues with the tax credit system, but the problem is the impact the proposed changes would have had on those families with the lowest incomes.
I accept that the Conservative party manifesto said we would reduce the welfare bill by £12 billion. We need to look at that and I will come on to it later. Much of the debate about unemployment benefits is about how they contribute to the welfare bill, but actually they make up a very small proportion of it. For example, the reduction of the benefit cap from £26,000 to £23,000 a year was incredibly popular on the doorsteps during the election campaign, but it will save less than £100 million, because it affects fewer than 100,000 families in the whole of the UK. That is an indication of how small a proportion unemployment benefits are of the overall welfare bill.
I stood up for those families whom I believe Labour has left behind. They occupy the centre ground and I want to occupy it, too. The Prime Minister and the Chancellor said in their conference speeches that they also want to occupy the centre ground. Those families get up and go to work. They are trying to do the right thing and to support their families and work themselves out of poverty. They are the families I support and I am happy to fight for them. It is on behalf of those families in my constituency and across the United Kingdom that I voted against the statutory instrument.
Why have I been so vocal on this issue? I cannot believe that the impact of the changes was fully understood. The right hon. Member for Birkenhead made a very good critique of them. I want to focus on the reduction in the threshold that enables people to apply for and receive tax credits. The reduction from £6,420 to £3,850 is an instant £1,200 cut, so anybody earning more than £6,420 would be hit by a £1,200 cut right away. That is far too much of a blunt instrument.
A teaching assistant who earns £11,000 a year has restrictions on the number of hours they can work. They do a valuable job educating the next generation of society, including future business leaders. I make no bones about the fact that I am very proud of the work they do. My wife is a primary school teacher and I am proud of her. My sister is a secondary school teacher and a large number of my family work in education and do a great job. How can they be expected to go out there and make up a £1,400 cut to their income? It is not possible. That is too much to cut all in one go. Increasing the taper from 41% to 48% would result in cuts of only £200 or £300, but reducing the original threshold would result in a £1,200 cut. I cannot support that, which is why I had to vote against the statutory instrument and why I have not since then been able to support the Government in the Lobby on this issue.
Does my hon. Friend agree that a basic test of the fairness of this package would be for its painful parts, such as the threshold reduction, not to be introduced quicker than its more positive elements, including the living wage, personal allowance increases and other benefits?
The hon. Gentleman mentions teaching assistants and cleaners. I should probably declare an interest, because I used to be a teacher in receipt of tax credits. When the scheme came into being I was a single parent, and it was only because I had tax credits that I was able to remain in employment. It was a very difficult time and I faced the choice of either going into unemployment and being with my child or remaining in work. It is not just teaching assistants and cleaners who are affected, but other people in society as well.
I completely agree with the hon. Lady. I mention teaching assistants because I think they are a classic example of people who are constricted in the hours they are able to work. They can work only so many hours a week and so many days a year.
The existing mitigation includes free childcare for three and four-year-olds, but if people do not have a three or four-year-old that is pointless and no help whatsoever. There has been talk about the personal income tax allowance increasing from £11,000 to £12,500. I would like to see it go up to £15,000 by the end of the Parliament, but if people do not earn more than £11,000, it is of no use to them. People on £11,000 will still be hit by the £1,200 or £1,400 cut. That punishes people who are going out to work and doing the right thing. That does not sit right with me and I cannot support it.
I would like to point out that I do not want a job.
Getting back to the people who are on £11,000 a year or thereabouts and who will be particularly punished by the policy as it stands, I am pleased that the Chancellor is now listening. Although I do not agree with what the House of Lords did, I accept that it has brought us to this position. I want the debate to focus not on constitutional issues but on the loss of income for people who have no ability to make it up elsewhere. How can we help those people?
I have talked about the increase in the personal income tax allowance from £11,000 to £12,500, which will cost about £9 billion. The Government spend over £700 billion a year, yet it seems as though if we cannot find this £4.4 billion it will be the end of life as we know it. We all know that that is not the case. There is a way in which the effects can be mitigated.
How do we reform tax credits without punishing those who are trying to do the right thing—those who get up, go to work and try to move their families forward? Some £3 billion of the £4.4 billion saving is down to the change in thresholds that I spoke about—the initial £1,200 cut. It is an incredibly broad instrument that will punish people whether they earn just over £6,420 or £19,000 and it must be mitigated and changed. We have to find a way around that initial £1,200 cut. It is too much and it goes too far.
There is talk of a discretionary hardship fund. I would certainly welcome that for people who are struggling in one way or another. There has been a lot of talk about national insurance. I would like people not to pay any tax on the first £11,000 or £12,000 of their income, but that will not be looked at fully because it would be incredibly expensive. For me, this debate is about how we can help these families.
Basic macroeconomics suggests to me that if we take £4.4 billion off the people who earn the lowest incomes, that is £4.4 billion that will be taken straight out of the economy, because it will be taken out of the pockets of people who would have spent it right away. Every pound that is taken off those people is a pound that is taken out of the shops in their local economies. It just does not make sense.
I do want to work with the Treasury. I can be a prodigal son and be returned to the fold, I am sure.
I think you are a little more disliked than I am.
There is huge fear out there among the public. We need to come forward with proposals as fast as we can. I want the Treasury to talk to us, listen to us and work with us. I warn the Treasury that if it does not come forward with mitigation proposals that we find acceptable, we will continue to raise the issue and try to look after the poorest in society. I accept that Britain has 1% of the world’s population, generates 4% of the world’s income and spends 7% of welfare spending. That is too much. I am proud of the Conservative party and will continue to put fairness at the heart of it.
It is a privilege to follow the hon. Member for Stevenage (Stephen McPartland). Other than the last sentence or two, it was a tremendous speech. I hope that those on the Treasury Bench listened to the words he uttered, because there is widespread agreement in this Chamber and out in the country with the points that he made. He made a detailed analysis of the situation and gave some sensible suggestions that we can all support.
I hope that the hon. Gentleman is able to return to the fold, because we would like the Chancellor to dig himself out of the hole that he has created for himself. He has certainly got himself in quite a situation. We are all fascinated to watch how he gets himself out of it. I think that the Lords did him a favour because had all these changes been passed, the anger in the nation would have been something that we have not seen in my adult life. The Government are being let off the hook in a sense, because they have an opportunity to dream up some mitigation and put this awful mess right.
However, the Government need to hurry up because the fear and uncertainty over what is going to happen are already out there. I spent Saturday morning on High Row in Darlington talking to residents about the changes to tax credits. They already know what is happening. They are already worried. They are already looking at their incomes. They are already changing their decisions, plans and financial commitments and making decisions on employment. The Government need to get on with coming up with decent ideas that will mitigate the damage that is being done, which was outlined so cleverly and succinctly by my right hon. Friend the Member for Birkenhead (Frank Field) in opening this debate.
Is not one of the major problems the speed with which the tax credit cut is coming in, when balanced against the speed at which the national minimum wage will rise? It has been said to me that it feels like the Government are removing the lifebelt before the life boat has arrived.
That will probably end up being one of the quotes of the day. That is a good way of putting it.
I am speaking on behalf of the 7,200 families in my constituency who care for the 3,900 children who will lose out as a result of these changes. When the Government bring forward whatever ideas they come up with to mitigate the impact, we must have the information that we need to assess whether they will be effective.
My right hon. Friend the Member for Birkenhead outlined what data he would like to see. I would like to see a regional distribution, because I suspect that communities such as the one I represent, where wages are low, will be impacted more heavily than other parts of the country. I am also interested in the gender impact of the changes. I would like to see how much debt the Government believe is being serviced by incomes that are in part made up of tax credits. I suspect that mortgages, car loans, credit cards and other personal debts are being repaid on the back of tax credits.
My hon. Friend makes a good point. It is for Ministers to respond to that intervention and I look forward to hearing the reply.
This debate is about children. It costs an enormous amount to raise a child, as many of us know from personal experience. I have read that it can take between £100,000 and £150,000 to raise a child. Child benefit meets only about 10% or 15% of that cost for people who claim it. Tax credits are a contribution from the state towards the cost of raising children.
There are some children in this country who will benefit from the Government’s changes: the children of dead millionaires. They will get an extra £1 million tax free. Does my hon. Friend think that that is a fair transfer from the poorest to the richest in this country?
No, I do not. That is a pertinent point. I know that we will be challenged to find the money that is needed to reverse the change. We could find it through changes to pension tax relief or, very quickly, by reversing the changes to inheritance tax that we opposed and to which we remain opposed.
I want to illustrate the points that I have made in the limited time I have left. We have had quite a high-level discussion so far, but this debate is about real people. It is rare to find a constituent who is willing for their name and personal information—particularly on a financial issue—to be shared in the House of Commons, but I had no difficulty finding people in Darlington who were willing to share their names and details, and to become the poster people for this campaign because they are so angry about what the Government are trying to do to them.
Becky in my constituency lives on Red Hall estate and earns around £16,500 a year. She is a single parent, and her son is eight years old. She stands to lose £1,951 in tax credits per year. She told me that she is already struggling and has difficulty paying for essentials such as heating and electricity. Her salary will not change when the minimum wage increases, and she will not benefit from changes to childcare because her son is eight years old. I can tell the Minister that an eight-year-old is no cheaper to support than a four-year-old.
Becky has already had to cut out extras. She can no longer buy herself clothes, and the reduction in income will have to come from money that she spends on food or heating her home. She said:
“The Government told us that working was the way forwards out of poverty, yet these changes will put myself and my son into poverty.”
Her very real choice will be between heating and feeding her son. Many people will also have to choose between working and not working, and that is what concerns me most. I want everybody who can work in my constituency to get out and get a job because that is good for them, and good for their kids. People should never be better off on benefits than they are in work, yet that will be the effect of this change.
My hon. Friend’s speech follows in the tradition of Eleanor Rathbone who was one of the earliest female MPs in this House from 1929, and campaigned for family allowances. Some of the anger that my hon. Friend is conveying via her constituents is because in this country successive Governments have topped up incomes, understanding the position of poor people and children. Churchill extended the system of family allowances. My hon. Friend is making a fantastic speech, but, on her last point, does she also accept that people will take one, two or three jobs, and that we will have latchkey kids raising themselves?
I am grateful to my right hon. Friend for that intervention, although I wish it had been a little shorter.
In conclusion, I am speaking on behalf of the cooks, cleaners, street cleaners, shop assistants, staff in cafes, restaurants and call centres, and factory workers. The Government must use the opportunity that they have been granted by the other place to put this issue right.
It is a pleasure to speak in this important debate, and I congratulate the right hon. Member for Birkenhead (Frank Field), and others, on securing it.
This debate is a good opportunity for us to discuss tax credits in more depth—there is possibly a degree of unanimity across the Benches, because this issue is hugely complex and must be considered carefully. We have already heard talk of the need for immediate mitigation, but we must also consider the whole area again. Eighteen years ago the right hon. Gentleman was asked to think the unthinkable. He tried to do so, and was promptly sacked for his efforts. This issue is as complex today as it was in 1997.
The Treasury will bring forward proposals in November, but that will perhaps be an interim measure and we will still need to consider carefully how to create a system that supports working families, and those who are raising children and want to do the right thing. We need a system that does not penalise people with high marginal deduction rates, and a change that will not penalise the poorest workers in society.
I feel disappointed—to say the least—that I am not in agreement with my Government on this matter, because during my first five years in this place I was proud of the changes that we made to the welfare state, and of how we tried to make work pay for those who were willing to go out, make an effort, contribute to their communities and look after their families. The most moving event of my time in Parliament was when I visited a Tesco store in Toxteth and met people who were part of an effort by the DWP to get people back into work. The pride and passion that those individuals felt about working and supporting their families was testimony to the fact that our changes were making a real difference.
There is no doubt that the tax credit system has ballooned out of control, but whether we like tax credits or not, they are an important element of supporting workers who are willing to work but whose wages are not particularly comprehensive. We should all support and applaud the decision in the Budget to introduce a new living wage, but there is a clear discrepancy between the timing of changes to the new living wage and changes to the tax credit system. There is no balance to the way in which wages will increase and the immediate withdrawal of tax credits.
I genuinely welcome the fact that the Treasury is allowing time for the new living wage to settle in. I represent a constituency of small businesses and sole traders. It has the highest percentage of self-employed people in Wales, and average wages are only £23,000 or £24,000. Small businesses that employ people in my constituency understand that we need to move to a higher-wage economy and that they must pay their staff properly. Many of them take pride in the fact that they currently pay the minimum wage as a means of keeping staff in place, and they appreciate that the Government are giving them time to adapt and change their business models in order to pay their staff more. It is therefore difficult to understand why we are not willing to give recipients of tax credits the same time to adapt and change to the proposed situation. The decision to cut so quickly and so deeply is problematic, and the response of both Houses has shown that people are concerned about the proposed changes.
Moving forward, we must educate Members of this House. The worst example of a crass comment on this issue came from an unnamed Conservative MP, who stated clearly that if somebody loses £30 per week as a result of these changes, they should simply go and work for an extra three hours. Having taken an interest in this issue, I was genuinely shocked by that comment, because with an 80% marginal deduction rate, an individual earning £10 an hour would need to find 15 hours’ work to make up the £30 loss. When such comments come from Members who claim to represent their constituents, we really should despair.
We must understand the trap that exists in current marginal deduction rates. I was proud that universal credit tried to reduce that marginal rate, and even prouder when I sat on the Welfare Reform Bill Committee and the then Minister stated categorically that the aim was to reduce that rate even further when funds allowed. The Prime Minister stated categorically that the Conservative party should be as concerned—if not more concerned—about the marginal deduction rate of 94p or 95p that we inherited than it should be about the 50p higher rate of tax. It was therefore incredibly disappointing to see that incentive to work, and people’s ability to keep more of the money they earn, changed by these proposals. What message are we sending to people when we say, “Go out, work an extra couple of hours, but we will take 80% of your efforts”? We must be careful about that, which is why mitigation is only a short-term response. In the long term we must look again at the whole system.
To be fair, I have had numerous conversations with Treasury Ministers, and I am grateful to the Exchequer Secretary to the Treasury who called and made my difficulties in a long queue on the A55 much more bearable by discussing tax credits with me. The Treasury has shown a willingness to listen, and it will need to respond in the short term. In the long term we must consider carefully how to create a system that is more likely to support working families in a constructive way. In the short term, he stated clearly that we should look very carefully at how we deal with the £4.4 billion gap in the Government’s finances. I, too, take the deficit seriously. We need to think about why 70% of all the benefits that come from the increased personal allowances have gone to the half of those who are in the richest, highest paid part of society. We need to ask ourselves clearly whether, in view of the fact that we are desperate to find that £4.4 billion, we can justify the extra £9 billion on increasing the personal allowance from £10,500 to £12,500. That would at least contribute towards mitigation in the short term, but we need a longer term plan as well.
It is a pleasure to follow the hon. Member for Aberconwy (Guto Bebb). He makes a very important point about how little people keep for every £1 extra they earn. I seem to recall that the Prime Minister once took Gordon Brown to task on that very issue. It is on film and it can be seen on YouTube. In making work pay, it is very important for people to feel that for every extra hour they work they are making a difference to their progression in their working lives.
The starting point for this debate is the Chancellor’s ill-formed proposals to reform working tax credits. The truth is that the distribution aspect to the tax credit cuts is severely regressive. The Institute for Fiscal Studies has shown that the national living wage, touted by the Government as a solution for that, at best undoes 27% of the damage.
Today, I would like to start with how the story really began. In 1997, when Labour came to power, the only help for families was child benefit, married person’s tax allowance and a child personal allowance as part of income support and income-based jobseeker’s allowance. A small number of people with disabilities also received a disability working allowance. The then Government found high rates of poverty among families with children. Tax credits were thought to be a new mechanism to support those families into work, which was the best route out of poverty. The evidence is strong that the more far-reaching tax credits and the introduction of help with childcare costs transformed prospects for millions of families. One outcome was that the lone parent employment rate rose. In 2014, it was at the highest rate on record: 65.7%. That is amazing. Of course, the vast majority of lone parents are women. Another outcome was that tax credits reduced child poverty. The Department for Work and Pensions confirmed that in the first decade of tax credits, up to 2010, child poverty fell dramatically as 1.1 million children were lifted out of poverty.
Tax credits give a benefit to employees. They are not simply a state handout to bad employers. When most employers set wages, they are blind to the private tax credit details of their employees. What is more, they cannot pay one worker one wage and the next person on the production line a different rate just because they claim tax credits. In most cases, the employer does not know. As the Resolution Foundation reported this week in evidence to the Work and Pensions Committee, if the Government remove tax credits the employer will not immediately step in to fill the void, regardless of the rises in the national minimum or living wage. The Government must know that, and it is wrong to suggest that the only beneficiaries of tax credits are bad employers.
We must challenge and address the Chancellor’s claim that the cost of tax credits has risen from £1 billion to £30 billion today. This summer, the Chancellor stated:
“The original tax credit system…cost £1.1 billion in its first year. This year, that cost has reached £30 billion.”—[Official Report, 8 July 2015; Vol. 598, c. 334.]
That claim is simply bogus. Articles by Declan Gaffney and Tim Blackwell in the New Statesman and by many others show that the £1.1 billion figure relates to the first reforms, which began only in October 1999, halfway through the tax year and covering only three months of tax credit payments for a typical claimant. Indeed, in its first full year, 2000 to 2001, the cost was more like £10.5 billion, not £1.1 billion.
That brings me to the question of why the tax credits bill increased. First, tax credits wrapped up within them a number of previously separate benefits. They were more generous—I acknowledge that. The tax credits we refer to today, however, include the childcare costs introduced in 2003, which no previous Government had ever met. Yes, tax credits were about challenging poverty pay. However, as my hon. Friend the Member for Darlington (Jenny Chapman) mentioned, they also aimed to address the issue facing many families, particularly lone parent women: even if they were on a reasonable wage—whatever “reasonable” is—they still could not afford to work, because of the amount of their wages that would have been spent on exorbitant childcare costs.
My right hon. Friend is making a very powerful case. Does she agree that the important element of tax credits was that they were a means of getting lone parents in particular into work? Gingerbread, among others, has calculated that a 5% rise in employment among lone parents saves the Treasury £436 million. Getting lone parents in particular into the workplace therefore benefits the wider economy.
I absolutely agree with my hon. Friend. Missing from the debate is a consideration of the impact of the changes on other sectors of the economy, and the wellbeing and economic opportunities they provide to people by being in work. As I said, the employment rate for lone parents went up to 65.7% in 2014, which is brilliant. The worry is whether it will go back down, rather than improving further.
The total tax credits that families receive relate to their income. The 2008-09 recession had a dramatic effect on wages. As wages fell, many families either qualified for tax credits or saw their tax credits rise. It is notable that during the John Major recession unemployment rose to a peak of 10.7% by 1993, whereas in the recession of 2008-09, many employers reduced hours or did not increase pay to keep staff in work. I understand why they did that. In the House, we had debates in which we said that we appreciated that employers were trying to deal with a difficult situation and were trying to hold on to people in work. As a result, however, more people either claimed tax credits or received a higher amount.
As I said, unemployment during the John Major recession rose to a peak of 10.7%. In the 2008-09 recession, as a result of a number of factors, including employers keeping people in work, unemployment rose to only 8.5%. Recent figures show that the number of employees earning less than the living wage has risen by 45% since 2009. Combining the two, it is clear that people remained in work but needed more support through tax credits. That is not a conspiracy; this is the reality of an economy adjusting to finding itself in difficult situations, and families finding themselves in difficult situations and the state being there as a safety net to help them. Without tax credits, the rise in unemployment in that most serious recession, which we all experienced, could have been much worse. I think that that goes a long way to explain the cost of tax credits today.
This week, given the vote in another place, the Chancellor says he is in listening mode. We must address how we support people into work and to stay in work, so that they can make progress on improving their living standards and the life chances of their children. I agree with everything my right hon. Friend the Member for Birkenhead (Frank Field) and other colleagues from across the Chamber have said. I will not repeat that, but let me add a final few points.
To move forward, a number of things have to happen. First, the Government must be straight about the figures relating to tax credits. Only then can we have a sensible conversation. Secondly, the Chancellor needs to provide a proper assessment of the impact of any new proposals on incentives or disincentives to work for those who receive tax credits. I asked the Chancellor on Tuesday why, if he stood up for working people, a proper assessment had not been not published with his last proposal. He did not answer. I am afraid that I feel that that was because he is afraid to face the facts. Thirdly, the Chancellor needs to ask what impact the new proposals will have on child poverty. Fourthly, we need to look more widely across Departments at what support actually helps people to get into work, stay in work and make progress in work. I founded the first all-party group on childcare 18 years ago, when I came into this place. The childcare offer has improved, but it is still not good enough for many working families. Those are the questions I need answers to for the 5,300 Don Valley families who are really worried about the future of their tax credits and their ability to hold their head up high and say, “I am in work. Help me to support my children.”
It is a great pleasure to speak in this debate and I thank the right hon. Member for Birkenhead (Frank Field) for initiating it. It has been a very good cross-party debate. I also want to thank my hon. Friend the Member for Stevenage (Stephen McPartland) and the hon. Member for Ogmore (Huw Irranca-Davies) for their contributions.
Dare I say that I am becoming a little more mature in years? I am now the Chair of a Select Committee and can afford to be a little more independent. It is not, however, always easy to further one’s ambitions in a party if one stands up for what one believes to be right. We are standing up for what we believe to be right. It is fundamental that people who work are better off than those who do not. As a Conservative, I believe that we should be encouraging people into work because they will be better off, but if we are not careful, the policy will drive people back on to benefits and take us in the opposite direction from where we want to go.
I support what the Chancellor has done in taking millions of people out of tax, raising the thresholds, halving the deficit, driving the economy and creating vast employment in the country. I come from a constituency with only 1% unemployment, but the average salary, for full and part-time employees, is £18,700 and the number of families claiming both working and tax credits is more than 22%. In addition, the average house price is £190,000—the prices are quite high because it is a beautiful part of the country to live in. However, we have to make sure we support people who are working hard across the country. That is why we need to take this opportunity.
I disagree entirely with what the House of Lords did, but it has given us an opportunity to reconsider. May I be so bold as to say that it does not matter how many spin doctors and people who are clever with figures we have? When someone on a low income who relies on tax credits knows that that money is being taken away from them, it is absolutely real. I hate to say it, but on this occasion, the Government and the Chancellor have to be absolutely certain about how many people will be affected and what we will do about it.
I very much support the national living wage, but the Government and the Chancellor need to help the many small companies in our constituencies to pay it. As people get more in their pockets and more from their employment, we can reduce tax credits and the state subsidy on employment. We all get that. We all know what has got to be done, but we cannot do it at the speed we are doing it and take money from perhaps millions of people. It is simple arithmetic. For someone on a low salary, £1,300 is a huge amount of their disposable income—we must remember that this is about disposable income.
I am optimistic. I have always been optimistic in my life because I believe there are always solutions, and I believe there is a solution to this because the Chancellor is a very clever man. I am sure he is listening and will come back to the Chamber with some proposals. These people, whether they are cleaners or classroom assistants, whether they work in the health service, the private sector, the tourism industry or on farms, are all hard-working, and we must be a party and a Government who support hard-working people. We have done that up until now, and we have just lost our way a little, but we can come back out of the wilderness and put this right.
I could not agree more with my hon. Friend, and I am in politics today to try and make that happen. It is why many of us on the Conservative Benches are prepared to stand up and be counted. It is right that we do so, and our constituents expect it. The Chancellor will say, “We must eradicate the deficit”, and yes, we must, but if we are six months or—dare I say it?—a year late in doing that, people will understand.
My hon. Friend is absolutely right. In the last week, I have received hundreds of emails and letters, as hon. Members might expect, and I have been struck by one thing. When we talk about the debt and the deficit, we are not talking about the Government’s debt and deficit; it is the people’s debt and deficit. I have had countless letters from wealthy people telling me this is wrong. It is absolutely right that they be part of this conversation too about how to repair the damage to our economy. It is their vote, as much as it is that of the person losing money in tax credits.
That is right. To coin a phrase, we are all in it together. It is right that we reduce the deficit and balance the books—we cannot go on borrowing forever, because it will be our children, grandchildren and, at this rate, great grandchildren who will pay it off—but we have to do it fairly. I do not apologise for repeating that work must pay, and we must make sure that those in low-paid work can carry on their lives.
May I remind Government Members that £375 billion of our debt was the result of quantitative easing? The Bank of England has had to step in and use monetary policy measures because of the failure of the Government’s fiscal measures.
I will not get into an argument with the hon. Gentleman about quantitative easing, although I rather fear we would not have the employment we have today had we not used some of those tools. Whether they were overused is a matter for debate—I suspect in the history books—but I suggest that QE helped with employment, and that we have got the economy running smoothly and in the right direction.
I make the same plea that I am sure hon. Members from across the Chamber will make. I ask the Chancellor please to consider how we might mitigate the impact of these changes and raise the national living wage so that people are earning more as tax credits are taken away. People will accept that. It is not a crime to be low paid. We have got to put this right, because the Conservative party and the Government’s reputation is at stake.
It is not normally my business to welcome Conservative contributions in the House, but I have to acknowledge and welcome the contributions from the hon. Members for Stevenage (Stephen McPartland), for Aberconwy (Guto Bebb) and for Tiverton and Honiton (Neil Parish). It goes without saying that SNP Members agreed with almost everything they said. They were brave and very welcome contributions—perhaps more welcome on the Opposition Benches than the Treasury Bench. That will probably be the only time I welcome Conservative contributions in this Parliament.
I am sorry that the SNP amendment was not selected, but I am still grateful to have this further opportunity to set out the SNP’s opposition to the cuts. I will devote a large part of my speech to addressing the proposals put forward by the right hon. Member for Birkenhead (Frank Field). We have much to agree on. His proposals are marginally better than the Chancellor’s, but they do not protect all low-income households from the Chancellor’s ideological wrecking ball that he is taking to social security. I am glad the right hon. Member for Birkenhead said he was proposing his measures speculatively. I hope that we will see greater consistency from the official Opposition in challenging the Tory tax credit cuts. I think that we can do much better.
We formed a strong and united opposition on Tuesday because we spoke with one voice against these cuts. Since Monday, however, we have had three different positions from the Labour party on tax credits. First, there was a push for a delay in the other place on Monday night, with opposition to scrapping the cuts outright. Secondly, to the credit of Labour Members, they joined the SNP in completely opposing the changes on Tuesday. Today we are presented with a watered-down opposition, which would still remove a significant amount of money from low-income households.
Does my hon. Friend agree that, in 2015, making families rely on an unelected Chamber to protect their tax credits from this Government is a ridiculous position to be in? Does he further agree that the interests of Scotland’s low-paid would be far better served if all welfare were devolved to the Scottish Parliament immediately?
It goes without saying that I agree with and welcome my hon. Friend’s intervention.
Under the plan of the right hon. Member for Birkenhead, every household earning more than £13,100 would continue to lose out—and in a more brutal fashion than under the Chancellor’s plan. The House of Commons Library briefing highlights that under the right hon. Gentleman’s plan, a full-time single-earner household with two children and an income of £16,000 would still lose out by £700 annually. The level at which tax credits would be removed thereafter is 65p in the pound. We are still going to see the budget balanced on the backs of low-income households.
I put forward a number of proposals. If the hon. Gentleman had been in the place a little longer, he might realise that words such as “mitigate” are words used to unite people with different views—including even those who want to see a whole withdrawal. I would like to ask the hon. Gentleman to follow carefully, when the record is published, the words of the Secretary of State for Work and Pensions when I asked him whether Scotland—under existing arrangements, without waiting for any further devolution—would be able to use its revenue-raising powers to compensate everyone in Scotland for the changes in the event that the Government do not move on tax credits. The reply was yes. Will we see the Scottish Government using their revenue-raising powers not merely to put motions on the Order Paper, but to make sure that nobody in Scotland suffers from these tax credit cuts?
It is worth saying, first, that I hope that the Labour party is looking to work with the SNP wherever possible to oppose cuts that are going to impact on low-income families. I make my contribution today, as far as possible, in the interests of consensus. We need to work together effectively to oppose what is coming down the line from this Conservative Government. On the issue of tax-raising powers, the fiscal framework has not been agreed. We have no idea what might be coming forward and no idea whether it will be possible to use these powers to raise taxes in the way suggested. I thus think that the right hon. Gentleman introduces an element of obfuscation when he uses that example. The Library briefing shows that we will still see the budget balanced on the backs of lower-income households.
Absolutely—£100 million on the bedroom tax and a further £40 million ensuring that the council tax cuts did not affect low-income households in Scotland in the way they did in England. I hope that, after today, Labour will return to where it was earlier this week when it stood side by side with the SNP in opposing Tory cuts.
The SNP will oppose these ideological, regressive and utterly punitive tax credit cuts with every opportunity open to us—and we do so again today—because we realise the damage caused to family incomes, levels of poverty and child poverty in these isles and to social cohesion in every community in Scotland. The Scottish Government analysis, discussed today at First Minister’s Question Time in the Scottish Parliament, shows that 250,000 households in Scotland will lose, on average, £1,500 from April. Thereafter, when the all the changes are fully implemented, that could rise to an average of £3,000 per household. These changes are fundamentally regressive: they disproportionately target those in low-income households and punish them on account of this Government’s ideological obsession with austerity.
For our part, the SNP stood on a manifesto that was fundamentally anti-austerity and that plotted a more responsible path for bringing down the deficit. We argued for a 0.5% increase in spending per year for this Parliament, which would have released £140 billion in total to invest in capital projects and other measures to narrow income inequalities. Our plan would have brought the budget deficit down to 2% by the end of this Parliament, while protecting public services at the same time—a far more measured and reasonable way to balance the books. Our plan was backed by an IMF report from June this year, which highlighted that reducing income inequality not only leads to reduced poverty, but boosts growth. By extension, the policy of cutting tax credits and thereby increasing income inequality will drive more of our citizens into poverty. It is, in fact, going to harm growth.
I am pushed for time and I know that colleagues want to enter the debate, too.
As well as being socially destructive, this policy is, as an extension of IMF thinking, economically incompetent. No mention was made of these wholescale cuts to tax credits in the Conservative manifesto. There were just two references to tax credits, but neither referred to anything like the proposals in front of us now. I reiterate that the changes were the central plank of this Chancellor’s first Budget since the election. He has based all his sums on the back of these cuts. One would have thought that they would merit at least a passing reference or a hint at what was coming down the line.
The Chancellor’s summer Budget was a prime example of obfuscation, suggesting that these cuts to tax credits would be compensated for by the rise in the minimum wage. That was absolute nonsense. The reality is that the full rise in the minimum wage will not come into effect until 2020—four years after the tax credit cuts start. Even when the full rise comes into effect, it will still not mitigate the tax credit cuts. Why did the Government decide to undermine and sabotage the real living wage campaign by labelling their minimum wage rise as such?
I wish to conclude by addressing some of the language used in previous debates. Many of us have rightly been focusing our time on pointing out that these cuts will impact on working households, and lambasting the fact that many working households will be dragged into poverty by these tax credit cuts. I suppose I have been as guilty as others, as we attempt to show the Government that their rhetoric on making work pay is a complete sham when considered in the light of the tax credit cuts. There should be no distinction between working or non-working households that are in poverty or living on low incomes. We cannot continue to allow ourselves to be dragged into the Tory mantra of the deserving and undeserving poor. Nobody deserves to live in poverty—nobody. So referring to “hard-working families” or “the working poor” is unhelpful. We do not know the circumstances whereby people are unable to work, and we should not judge them in the way some do routinely in terms of “there by the grace of God go I”. None of us knows when we may find ourselves out of work. We should be working to address poverty wherever it is manifested and wherever it is likely to be worsened—as it will be by this Chancellor’s tax credit cuts.
It is a privilege to speak in this debate. I am one of its co-sponsors, but the entire credit for the idea belongs to the right hon. Member for Birkenhead (Frank Field). He rightly identified the need for a cross-party, less partisan and, as it turns out, non-binding debate to allow everyone properly to explore these issues in the national interest without being fettered by feelings of joining one side or the other in the playground of politics.
The result has, I think, been good. I think this has been the best debate so far of a number on this subject. It falls on us all to be honest about it. This policy was a mistake. One can only think that, because I am sure that nobody in any party would intend deliberately to impoverish the working poor with dependent families—I am afraid I do differentiate in this context.
Not for the moment.
The problem was compounded by the method employed—the measure was introduced by statutory instrument, and is therefore unamendable—and by a lack of sufficient information. As four or five Members have already pointed out today, there was no proper impact statement. Had the measure been introduced in primary legislation and thus been amendable, and had the Government provided proper information, the measure would not have gone to the House of Lords in its current form; it would have been reformed in this House, and that is what should have happened.
I subscribe to the Government’s wish to balance the books by 2020, which I consider to be an eminently sensible and responsible aim. However, I also subscribe to the view that we need to protect the poor at all costs. The question is, how do we identify what this policy does? I wanted to find some examples that would enable us to assess both sides of the argument—not just the attack, but the Government’s line as well—and I thank the Chancellor’s Parliamentary Private Secretary, my hon. Friend the Member for Kingswood (Chris Skidmore), for being so helpful in that regard. I put some of the points that he made in defence of the policy to the House of Commons Library, and I shall now give a couple of examples that the Library supplied to illustrate its impact.
The worst-case example that I could find was that of a working single parent with two children, who, without the mitigating effects, could be £2,000 a year worse off in virtually every year until 2020. That is an unbelievable sum to take from a family who are already poor. If the family were eligible for mitigation, in particular housing benefit, the sum could be reduced to roughly £700—the fine detail is unreliable—but, again, it would be lost in virtually every one of the next four or five years,
The great battle over the 10% rate when Labour was in power involved sums that were a quarter of that amount. The great battles over the poll tax, which I remember only too well, involved sums of that size. The impact on a family who are already on the poverty line, by definition, is unspeakable and unthinkable. I grew up in a rather poorer era, and I remember children being hungry on Fridays when the bills were just a bit too big, or it was cold and the heating costs were too high.
My right hon. Friend touched on the issue of housing benefits mitigating some of the tax credit changes. Is that not another problem with the policy? Someone living in rented accommodation and receiving housing benefit would receive mitigation under the current system, but someone who had bought their own property would not.
Exactly—and before anyone suggests that a person who owns his or her house is better off, let me say that many people in that category have fallen into it and got out of it later. The idea that someone earning less than £20,000 a year, and with two children to support, should lose £2,000 is simply untenable.
The right hon. Member for Birkenhead suggested that there were four possible strategies, but in my view there are three. The first possibility is that we shift the burden elsewhere. The right hon. Gentleman proposed that we should shift it up the income scale, and Lord Lawson said the same during the debate in the House of Lords. I shall not elaborate on that possibility, because I think that there are better ways.
The second strategy is to find savings elsewhere. Here I strongly disagreed with the right hon. Member for Birkenhead, who almost encouraged the Chancellor to go hunting for the pensioner pound. It will not be today’s pensioner pound; it will be tomorrow’s. I think it would be very unwise to remove the tax benefits of investing in pensions and undermine what we have left of our private pension scheme. I am protected, because virtually all my pension is paid for now; it is the next generation that will have to worry.
I thought that my argument would appeal more to Conservative Members, because it was a free-market argument. When Governments have guaranteed a minimum, it is not our business to put our sticky fingers into other people’s lives and tell them how they should save or not save. Once there is a minimum pension agreement for everyone, how and when people save should not be a question for the House.
I shall not go too far down that road. Let me simply say that middle-class pensioners are now paying one of the highest effective income tax rates in the country. People who have saved a lot for their pensions and gone above the lifetime allowance must pay 55%. I think we ought to be a bit careful, because if we let the Treasury get at that deferred income, it will take as much as it can.
The third option, which I think is probably the winner—although not by itself; it would have to be modified—is to stage the cuts. I believe that the right hon. Member for Birkenhead lit upon this strategy as well. The cuts would be staged to match movements in the minimum wage and the living wage so that people would not lose.
The Government’s figures for 2020 seem broadly to balance, although they are not perfect. We shall have to work through the mitigation carefully, and that is where the impact statement comes in. Those figures do two things. They protect the working poor, but they also achieve the deficit reduction, which is vital. If we hit the deficit reduction target by 2020—this point was made by my hon. Friend the Member for Stevenage (Stephen McPartland)—each saving of £4 billion a year is not critical. It represents less than 1% of the economy. The really critical issue is how the financial markets see the position. The financial markets do not care about the trajectory from here to 2020; the fact that we get there is good enough. We do not need to worry about the £4 billion a year in between, but we do need to worry about the final outcome. My argument, therefore, is that we should cut the tax credits in step with the minimum wage and the living wage.
The criterion is what is important here. The criterion that the Government must meet is that there should be no losses for the least well off in any of the three intervening years. The poorest, the working poor and their dependants cannot afford to lose one pound. I was never a great fan of the minimum wage, but I was persuaded that it was worthwhile.
Will the right hon. Gentleman give way?
I am afraid not. I have already taken two interventions, and if I take another, I shall lose time.
One of the things that persuaded me that the minimum wage was worth while was the information in social data that it cut crime. We must not lose sight of the social impact of changes such as this: the distress caused to families, the breaking up of families, and the pushing of families towards food banks and, worse, towards loan sharks and petty crime. We have to think about those things, because there is a cost to them as well.
The Institute for Fiscal Studies told the Work and Pensions Committee, which is chaired by the right hon. Member for Birkenhead, that the Government could hit the 2020 target on a staged route. That is what we should aim for. We can achieve the fiscal target, while still remaining faithful to Conservative “one nation” aims. That, after all, has been the leitmotiv of the last few months for us. If we do that, the Chancellor will have good reason to be proud of his achievement.
It is very rewarding and refreshing to follow the right hon. Member for Haltemprice and Howden (Mr Davis), and other speakers as well.
If Ministers take anything from what has been said today, it should be a call for them to pause for a moment, to deliberate on the impact that the proposed changes will have on many working families in our communities, and then to work with Parliament and Select Committees on the ideas being presented. I do not have all the solutions today, but the appeal made by the right hon. Gentleman was, in effect, a political version of the Hippocratic oath: we should try to do good for our constituents, or at least do no harm, before proceeding with this policy. The evidence for that is very clear.
I thank my right hon. Friend the Member for Birkenhead (Frank Field) for initiating the debate, and for setting out so eloquently not just some of the basis of the problem that confronts the Government, but some of the possible solutions. They may not be binding solutions, but they are possible. It is as clear as day, and has been made clear by Members on both sides of the House, that the Minister needs to speak to Cabinet colleagues and other Ministers and rethink this policy. There has been talk today about lost sheep wanting to return to the flock. I suggest that those lost sheep are in some ways on the sunlit uplands. They are saying, “Come and join us up here.” They are not lost; they can see the way forward. We need to make sure we do no harm to our constituents.
I am sure the Minister is very aware of the impact of this, but let me explain the impact in my constituency. The number of working families currently claiming tax credits is in excess of 4,000. The number of working families with children claiming tax credits is nearly 3,500. The number of children in those families—low-paid families—is nearly 6,000. That is why my mailbag at the moment and my emails every night are full of letters from people who are terrified, for good reason, of what is coming down the track. It is not because of scaremongering; it is not because of unreal expectations of what might happen. They know; they are seeing daily the analysis of the situation for them and their families. They have read the analysis in Conservative-supporting papers, not in my newsletters or briefs submitted by the Joseph Rowntree Foundation, the Children’s Society or others.
Mention has been made of the impact on different communities, and it certainly does have a differential effect, but let me lay out the effect in Wales. The number of working families in Wales claiming tax credits who will be potentially affected by this directly in their pockets is over 167,000, and over 250,000 children will be affected. We cannot do this; a quarter of a million children in Wales will be affected by what we are doing to their families and what we are taking away from them directly. It is as clear as day that we have to change our way on this policy.
Let me look at one particular aspect where this hits really hard. We know that on average a fifth of women’s income is made up of welfare payments and tax credits, compared with around a tenth for men. Benefits make up twice as much of women’s income as they do of men’s. Women are disproportionately represented in many of those low-paid sectors we have talked about already, including hospitality and retail. When we go out and enjoy ourselves and have that coffee on our shopping excursion, we are typically served by women, not men. Other such sectors include care and domiciliary care and similar professions. Women are also more likely to be working part time. Nearly 80% of employees in those sectors where we so often say we respect the people who work in them, such as health and social care, are women.
You can see where this is going, Minister: we are hitting directly those who are most unable to go out and find another job, another few hours, or some other means of support for them, their family and their children. We are going right at the most vulnerable in our communities—and in huge numbers. Analysis by the Resolution Foundation suggests 1 million single parents in work will be left £1,000 a year worse off.
All of this has to shout out that Ministers going forward at such a rate of knots has created an almighty, cataclysmic mess. I ask the Government to slow down a little, listen to what has been said today, and work with parliamentarians and outside agencies who operate on the frontline with some of the people who will be affected. I ask them to work as well with the Select Committees. This issue is too difficult for the Government to address on their own.
The aim is to make work pay, and that is excellent, but it has to pay for everybody, not just some. At the moment, the crude impact of this on our communities will be devastating. It will wash right through not only individual families but the wider communities and will have a regressive, knock-on effect on spending power in those communities.
I ask the Minister to consider the options put forward today and to look at what other options there might be. There is no way on earth it is saleable politically to do this and, more importantly, there is the basic human issue of, “Do no harm to your constituents.” I cannot go and sell what is being proposed on the doorstep in my constituency. I will not do it. I want to tell these people, “It is worth going out to work, go and get a job if you can, go and upskill if you can, and we will make it worth your while.” That is our job here.
I very rarely stand up in the House of Commons and congratulate an Opposition Member on initiating a debate of such magnitude, but I thank my friend the right hon. Member for Birkenhead (Frank Field). Many in this Chamber see him as a leading light on the welfare of the people of this country. I remember very plainly from before I was in politics the right hon. Gentleman being sacked for thinking the unthinkable, and here we are debating tax credits.
The tone of the debate is very measured. We are hearing balanced views from all sides. Tax credits were brought in for the right reasons, but they spiralled out of control. When nine out of 10 people can claim a tax credit, we have to ask ourselves whether it is a sweetener for working or a benefit, as it was originally set up to be.
I thank the hon. Gentleman for giving way. In acknowledging the contribution of the right hon. Member for Birkenhead (Frank Field) in securing this debate, will he also acknowledge the role of the other place in creating an entirely different context for this debate, because we would not have been hearing the tone he has remarked upon had it not been for Monday night and the position forced on the Chancellor?
I disagree with my hon. Friend on the debate in the other place, because I think it was unprecedented that that motion was passed. However, I have my own words to say about that in another context, which he will probably read about over the weekend.
We were in a position where almost everyone was on a tax credit. They were a stepping-stone to gainful employment. The right hon. Member for Don Valley (Caroline Flint) said it right: employers do not know if their employees are on tax credits. I know that; I employed over 100 people and some were claiming tax credits, but I found that out only down the line in certain circumstances. So it is mainly a hidden benefit.
I applaud what the Chancellor is trying to do. I do not think this idea of a £1,300 average loss to 3 million households stacks up, because it is based on estimates. We do not know what is going to be in the spending review. However, we do know what has already happened by raising the personal tax allowance to £11,000 in April, with the aspiration for it to be £12,500 in 2020. That will help out and create a tax break worth about £1,000 to people all across the country. We are also offering 30 hours of free childcare, which amounts to £5,000. Fuel duty has been frozen, too, and the economy is on the up.
I hear what the hon. Gentleman says about 30 hours of free childcare, but I think most people listening in the Gallery or outside will think that is for all children in any form of childcare. We need to have an honest debate. That is 30 hours of free childcare only for those three and four-year-olds in nursery education. That does not begin to help those families that have different-age children, and the cuts to working tax credits fundamentally affect families who get access to support with their other childcare costs to enable them to take up a job and stay in work.
I thank the right hon. Lady for her eloquent intervention. She demonstrates that there is confusion in the whole sphere of tax credits and child tax credits. When tax credits were brought in, they helped families who were struggling in a time of great austerity. It has to be acknowledged that we are still in a time of great austerity, but the economy is now on the up and we are seeing projections that we are starting to come out of recession mode and that we will move into a lack of deficit within the next five to 10 years.
What do all these figures mean? Put simply, they mean that we have to balance the books and we have to look at every possible way of doing so. We have to think the unthinkable, as my right hon. Friend the Member for Birkenhead—I keep calling him my “Friend”—did all those years ago. I do actually have faith in the Chancellor. I know him personally, and he is a good, decent, caring man, despite what we read in the newspapers and despite what is said about him. I know that he will be watching this debate and hearing what we are saying. He will be thinking about this. Yes, nine out of 10 people were claiming tax credits. My right hon. Friend the Member for Birkenhead said that these measures could benefit eight out of 10 people, but we must care for the other two people in every 10 and ensure that we get the right deal for them.
Like most people, I would prefer the Chancellor to scrap his tax credit proposals and go back to the drawing board. This is not because I am against the phasing out of tax credits. I am prepared to accept that there might be an argument for new measures of support, and if we can raise living standards for working families without tax credits, that would be a desirable aim. I also note in passing that freezing the value of tax credits is a clear indication that they are on their way out anyway. The truth is, however, that the Chancellor has made a pig’s ear out of this. He has blundered, and low-paid hard-working parents are going to pay the price for his mistakes.
If we can take the Prime Minister at his word, I think he suggested during his six non-answers yesterday that there would be some attempt to address this mess in the autumn statement. Normally, his word would be good enough for me, but of course this is the same Prime Minister who gave his word on national television that tax credits would be safe. Is it any surprise, therefore, that within five months of the election, people are beginning to wonder about the long-term future of this Government? Conservative Members have taken to telling us that they have a mandate. Let us just remind ourselves that this is a Government that did not expect to win, and that secured less than 40% of the popular vote—trade unionists, please note! This Government have a limited mandate, and if there are many more shenanigans like this tax credit debacle, they will have no moral authority.
As I said, there might be an argument for phasing out tax credits, and if the Government could give us a clear indication of their determination that wages and living standards will rise to compensate for that, I think most people would accept the change. In a still-fragile economy, however, there is no sense in taking money off the working poor before their wages have risen. It is also a mistake for some Conservative Members to attempt to demonise Gordon Brown, and to demonise tax credits as a policy instrument. The Adam Smith Institute recently pointed out that working tax credits were the best form of welfare we have, and that simply cutting them would serve as a disincentive to work and hurt those at the lowest levels of society. It also pointed out that the new minimum wage structure, which the Chancellor deliberately misleadingly calls a “living wage”, will do little to help those affected by these cuts. The institute states:
“Enticing more people into work was one of the stated aims behind the Working Tax Credit…and attacking it for achieving this end is somewhat perverse.”
I want to consider what changes the Chancellor might make. I have read that he might speed up the increase in the personal tax allowance, but that could cost about £12 billion, and 70% of that benefit would go to those in the top half of the income distribution curve. It would actually be worth less than £1.25 a week for working families. I am not at all convinced that, in these economically difficult times, such a costly measure would be the best way to help the low-paid.
The House of Commons Library has produced a simple way to calculate the impact of the combined effect of the reduced threshold and the increased taper, which form the centrepiece of the Chancellor’s plans. A family on £20,420 with two children will, in combination, be £2,200 worse off. The consequence is that 3.3 million working households will be losers, more than 8,000 of whom are in my constituency.
The Chancellor could decide to change the disregard level. That would not undo the damage he plans to inflict, but it would mitigate the effects. As Barnardo’s points out, such a change could mean that a single parent working 18 hours, with two children below school age, could lose only £376 rather the £805 the Chancellor currently plans to take from them. He could also scale back plans to increase the taper from 41p to 48p, which would mitigate the impact on those struggling to make a living. He might decide to turn the clock back and recognise family responsibilities in the tax system by reintroducing some kind of tax allowance for children as a feature of our tax system. He could also use the autumn statement to revisit his plans for inheritance tax cuts and the tax cuts he has already given to millionaires. If we are all in this together, as somebody over there once suggested, it is time we had some evidence to back up the empty statements.
As the former higher education Minister, now Lord Willetts, points out in his book “The Pinch”, the balance is wrong. Young people and young families are taking far too big a hit, and we need to restructure our welfare system. My hon. Friend the Member for Nottingham North (Mr Allen) has suggested that the Chancellor and the Government should involve Parliament in such plans. I would like to suggest that they also involve my right hon. Friend the Member for Birkenhead (Frank Field) and his Work and Pensions Select Committee. We desperately need a system that promises fairness and support for young people and families, and that encourages and incentivises people. Above all, however, the Government must make it clear that it is their sincere intention to row back from this mad cliff edge that they are now on.
I support the principle of mitigating the effects of the proposed tax credit changes on the lowest-paid workers. I agree with my hon. Friend the Member for Stevenage (Stephen McPartland) that sometimes even friends need to be critical, as long as they are constructive. I would also like to thank the right hon. Member for Birkenhead (Frank Field) for securing the debate.
I support the principle of reforms to tax credits. We need to get on top of our welfare bills. This financial year, central Government will spend more on debt interest repayments than on the education of our children or on the defence of our nation. We cannot keep on spending indefinitely. As my hon. Friend the Member for South Cambridgeshire (Heidi Allen) has said, we cannot keep adding to our debts and asking our children to pay them off. The hon. Member for Ogmore (Huw Irranca-Davies) talked about doing no harm, but we must also be mindful of the harm to our constituents of not tackling the deficit and of burdening future generations with more debt. I take his substantive point, however.
The current tax credits system is not sustainable, however well-intentioned it might have been. Costs have skyrocketed from £4 billion in 1999 to £30 billion this year. This has had the effect of depressing basic wages and subsidising businesses, instead of driving investment in skills and training. The former Labour Chancellor, Alistair Darling, has said of tax credits:
“One of the unintended consequences is that we are now subsidising lower wages in a way that was never intended”.
We all know that the welfare system provides a safety net for the most vulnerable in our society and for those on the lowest incomes. I fully support policies that move Britain to a high-wage, low-tax, low-welfare economy, but I am concerned that the proposed tax credit changes could be very tough on some of our lowest-paid families. More needs to be done to ease the transition for those losing tax credits next year.
Many families who have worked hard and done the right thing—everything we have asked them to do—will immediately be hit with a drop in their income next year. The Government have introduced a package of measures to increase the pay of the lowest paid: the new national living wage, which will go up to £9 by 2020; the doubling of free childcare—although, having a child of three and a half, I take the point of the right hon. Member for Don Valley (Caroline Flint) that the measure is restricted to three and four-year-olds; and the raising of the income tax personal allowance to £12,500. None the less, I am well aware that many of those actions do not take effect immediately in 2016.
I am also concerned about the effect that the tax credit cuts might have on some of those who work in the public sector. Like my hon. Friend the Member for Stevenage, I have a wife who is also a teacher. Many of the biggest employers in Colchester are in the public sector. Public sector pay over the next few years has been frozen at 1%, which means that many of these workers who rely on tax credits to top up their income will not benefit from rises in private sector pay. Moreover, cost-saving measures in the public sector mean that those workers cannot easily take on more hours to raise their income.
I have had concerns about some of these measures since the summer Budget and have met the Chancellor and Ministers to raise my points with them. They have listened carefully to what I have had to say, and I know that they are alive to the concerns of Members who want to ensure that the most vulnerable and the lowest paid are protected. That is why I welcome the news that the Chancellor will be taking steps to ease the transition of some of these changes on the poorest workers and those on the lowest incomes. I look forward to seeing more detail on the extra measures in the autumn statement.
In general, I urge Treasury Ministers carefully to assess how we can introduce transitional measures. That will give families more time to adjust to the changes in tax credits and allow time for the additional policies that I have mentioned, such as free childcare and progressive rises in the living wage over this Parliament, to boost families’ incomes.
I care deeply about helping the lowest paid and making sure that work always pays. I welcome the thrust of the Government’s drive to move us to a low-welfare, low-tax, high-wage economy, but more consideration needs to be given to those low-paid workers who are trying to do the right thing and who could be caught with a gap in their income when tax credit changes kick-in.
I also add my congratulations to my right hon. Friend the Member for Birkenhead (Frank Field) on securing this debate in a week of such high drama on this subject. I am very encouraged by the things that I have heard from some Members on the Government Benches, and I hope that that is conveyed to their leadership.
Yesterday’s headlines made for confusing reading. The Guardian went for “Osborne ready to change tack on tax credits.” The Express plumped for, “Defiant Osborne says that tax credits will be cut despite defeat in Lords.” It is not the first time that there has been confusion over this issue. Before the election, the Conservative manifesto promised to “work to eliminate child poverty.” Two months later, the Government scrapped existing targets and child poverty measures. That is not just moving the goal posts, but ripping up the pitch.
The Prime Minister said:
“We must eliminate the scourge of poverty.”
That is difficult to reconcile with cuts set to put more than 200,000 working households into poverty. Those cuts are being put into effect to fund an inheritance tax cut that will benefit the 60,000 wealthiest estates, which probably explains why we no longer hear the words, “We are all in this together.” This is all such high drama, and we do not know what the next instalment will be.
I think that we have a similar number—6,500 families—in Ealing Central and Acton. It is the children whom we should be thinking about. They are not just columns on a spreadsheet, but real people.
There was great drama at PMQs yesterday. The leader of the Labour party asked the Prime Minister six times about these plans and whether working people would be worse off next year, and six times, the Prime Minister refused to answer. Even The Sun—not the most Labour friendly paper—referred to that exchange. As my hon. Friend the Member for Islington North (Jeremy Corbyn) said:
“This is not a constitutional crisis; it is a crisis for 3 million families”.—[Official Report, 28 October 2015; Vol. 601, c. 339.]
We could go further, even further than this motion. The Chancellor could still perform a full U-turn, which I would welcome, as I did the rapid conversion to feminism in this place yesterday. As my hon. Friend the Member for Hayes and Harlington (John McDonnell) said, if the Chancellor were to make a U-turn, we would welcome it on the Labour Benches. We would not taunt the Government if they were to do that. There is still time.
The Chancellor has a choice before him. He can continue hell-bent on his tax giveaways to big corporations and to the wealthiest in our country, or he could reverse those tax breaks to the few and go for a lower surplus target in 2019-20 while still sticking to his self-imposed charter. He would still be in a position not to hit those 3 million working families with these tax credit cuts. After all, this is a Government who claim to be on the side of working people. The ball is now firmly in the court of the Treasury Ministers.
My hon. Friend the Member for Birmingham, Selly Oak (Steve McCabe) said that, often, the lifting of people out of taxation is used to justify these measures, but such a move is not as progressive as it initially appears to be. It helps dual earner households the most, but only those who earn enough. It makes no difference if the Government start taxing at £6,000 or £11,000, because there is little help for those on £5,000—the lowest paid on the distributional curve.
Studies have shown that the national living wage, which is not an actual living wage, will only affect a small minority of people and it will never help those under the age of 26. My right hon. Friend the Member for Don Valley (Caroline Flint) also pointed out that the childcare element is quite limited. In my own constituency, parents would be hard-pressed to find a nursery that could offer a place, because there is not the commensurate resource to match the policy.
People have been wondering, even before the mess of this week, how they can trust a Prime Minister who blatantly said one thing on TV as recently as 30 April and then quite a different thing just a couple of months later in July. He made a promise of no cuts to a voter on a phone-in programme. That was then followed up by David Dimbleby to check that what he said was clear. By July, that promise had gone. That must be the fastest U-turn in history. In PMQs yesterday, we heard some MPs say that they had claimed tax credits. I do not know whether that is true. Perhaps we can put that down to the theatre of PMQs.
We need to look at tax credits in a wider context. There is the four-year benefit freeze, and the reduction in the household benefit cap. New claimants are no longer entitled to the “family element” of tax credits and, controversially, there is the proposal that, after April 2017, families will not be able to claim for their third child. I cannot imagine that happening in any other policy area. Can Members imagine the Government saying that a third child could not go to school? If such a policy had been in place, my sister Connie would never have been educated.
A number of millionaire Tory lords voted on Monday to cut help for Britain’s poorest workers. Lord Lloyd Webber was even flown in from New York for the vote. It did seem as though the Government were throwing the kitchen sink at this whole issue. There is growing awareness of the consequences of such a measure. Etched into the consciousness of those on the Government Front Bench should be the words of that caller who phoned in to that programme before the election, or the words of the woman who cried on “Question Time” the other night. Through old and new media, we have all received hundreds of messages on this point so we await the next instalment, the autumn statement. I hope that kids have been saved the unseasonable tidings of the notices that would have been plopping onto doormats at Christmas.
At the very least, the Government should publish a full impact assessment of their cumulative cuts to tax credits and benefits in the so-called emergency Budget. The Prime Minister said at his own conference that it is not pounds and pence but people that fire him up. Those 6,500 children in Ealing Central and Acton are real people with real lives, not columns on a spreadsheet. Some 70% of the money that the Treasury will save will come from working mums, so I urge the Government to reconsider their proposals and protect those on the lowest incomes.
I pay tribute to the right hon. Member for Birkenhead (Frank Field) for securing the debate. I will support the motion and will make a short speech.
I support the motion because of the perspective I gained from having worked and lived abroad and from my experience more locally. I have lived and worked in communities with no welfare system whatsoever and I have also lived and worked in a community where almost everybody has been on some form of welfare or credit assistance. Neither of those are situations that I would wish for my constituents. That is why I am fully supportive of the Chancellor’s vision of a high wage, low tax and low welfare society and I know that in the places where I have worked they would wish for that in their communities if they could achieve it. I am also supportive of what the noble Lord Lawson said in the other place about welfare and tax credits having ballooned, but I also agree with Lord Lawson and my right hon. Friend the Member for Haltemprice and Howden (Mr Davis) that we must protect those at the lowest end of the income scale.
As an NHS doctor and therapeutic counsellor in this country and in the area local to where I live, I have come across people going through some of the most challenging times of their lives. Contrary to what the right hon. Member for Birkenhead said, those people do not have weak shoulders. Their shoulders are stronger than mine or anybody’s in this place. I have met single parents who have escaped domestic violence bringing up their children in difficult circumstances and going out to work for some hours during the week. They go out to work because they want to and because they want to be a role model for their children. They are doing their best for their families and we must do our best for them. Ultimately, they become role models for our society. I support the Chancellor in looking for mitigation measures and am happy to support the motion today.
The past few weeks have been a rollercoaster. We have heard passionate speeches from both sides of the House urging the Government to find another way forward. Time and again, the moral argument has been made, but time and again political games have been played and votes have been lost. This is not about scoring points in this place, but about real people and about how we look after and care for those who are most in need. It is about fairness, morals and building the kind of society we want to see.
During Prime Minister’s questions yesterday, the Prime Minister was asked six times to confirm that no one would be worse off under these changes, but declined to do so. Earlier this week, I asked the Chancellor directly what he would put in place to make sure that 9,000 families in Lewisham, Deptford, of which 5,500 are working families, were not out of pocket by £1,300. At a time when rents are rising and people are having to turn to food banks because they are struggling to pay their bills and feed their families, people will turn to credit. People will fall into arrears with their rent, and people will be made homeless. What does the Chancellor have to say about that? That he is listening; well, that is a start. That he will change his plans? No such luck as yet. He says that he will introduce a national living wage—what a cheek! The Living Wage Foundation does a fantastic job of campaigning for a real living wage, but this is no living wage. It is quite simply spin and the Chancellor is grossly mistaken if he thinks that people will be fooled. He has stolen the brand of a fantastic organisation and, in an instant, contaminated it and muddied the waters.
When tax credits were introduced by a Labour Government, they were introduced because there was a real need for them. The Government’s failure to build a better economy means that that need is still there.
Does my hon. Friend agree that although we have heard a lot from the Conservatives about the rise in tax credits over the past decade, the Institute for Fiscal Studies has stated very clearly that child poverty would have stayed the same or risen rather than falling substantially without those increases in tax credits? There is evidence to suggest that the reforms prevented a large rise in inequality. That is what tax credits achieved and that is why the expenditure was worth while.
I thank my hon. Friend for her intervention and completely agree with everything that she says.
Personally, I think that it is wrong that Governments subsidise large employers, who can and should pay their staff more. That is the solution we should all be working on together, not tit-for-tat political point scoring. One of the best ways for staff to organise and put pressure on their employers is through their trade unions. If the Government had any sense of a moral code they would be working with the trade unions to raise wages and, in the long term, eliminate tax credits altogether. That must be the goal, but the Government are doing anything but that. They are attempting to hamper the great work that trade unions do by introducing their negative Trade Union Bill.
I hope that the hon. Lady recognises that the national living wage, which has been applauded, is already addressing exactly the concern that she has just raised. It has been a very effective way of raising the wages of those in employment.
The national living wage that the hon. Gentleman is talking about is not a national living wage that would drive up people’s standards. People will be worse off because of the cuts to tax credits and people’s wages. That is why we are having this debate today.
The Government are a joke. The left hand does not know what the right hand is doing and their policies are simply not joined up. While those on the Front Bench have been laughing at stories of people in housing trouble, Members from my party are working with trade unions to improve the lives of millions. I urge the Government to halt the cuts to tax credits until we can guarantee that no family will be worse off.
I thank the right hon. Member for Birkenhead (Frank Field) for securing the debate. This is the first opportunity that I have had to contribute to the tax credits debate.
The primary aim of this Government is to pay down the deficit, reduce public spending and unshackle the £3,000 that hangs around the neck of every child that is born in the UK. The Prime Minister has lifted thousands of people in my constituency out of income tax altogether, given 30 hours of free childcare and introduced the new living wage. I am proud to associate myself with those measures.
When tax credits were first introduced by Labour, they cost £4 billion a year. This year, I believe, they cost £30 billion, so they clearly need reform.
Does the hon. Gentleman understand that working tax credits and tax credits are means-tested welfare benefits, so if the welfare bill has gone up, it is because families’ incomes have not risen significantly? That is the real reason why the bill has increased, so we need to get incomes to rise.
Surely the Government are tackling the problem the wrong way round. They should have got incomes up before they cut people’s wages. What they are doing is cutting people’s earnings now, and in four years’ time they may introduce what they call a national living wage, which in fact is not a living wage.
I thank the hon. Gentleman for his contribution. I will deal with that as I continue my remarks.
The proposals presented by the Opposition over the past few days would maintain the status quo. They believe that we should not change the £30 billion tax credit bill at all. [Interruption.] I do not accept that. They have offered no credible plan to take this burden off our children. [Interruption.] I was elected on a manifesto to reduce the welfare bill and I hope we will do that. We on the Government Benches know that we have to take the difficult decisions that lie ahead in order to bring about spending reductions. It is all very well for the Leader of the Opposition to ask six questions on tax credits yesterday, but a policy that affects 3 million families cannot be changed on a whim. I welcome the Chancellor’s announcement that he will deal with the matter in the autumn statement.
Absolutely not. We are looking seriously at the proposal and we will make some announcements in the autumn statement.
North Cornwall, which I represent, is a modest-waged economy. We benefited from the economic improvements that the country has seen. We have seen rising school provision and many people in my constituency have benefited from the Help to Buy scheme. They are trying to improve their lot in life and trying to do the right thing. As my hon. Friend the Member for Tiverton and Honiton (Neil Parish) said so eloquently, the Government must ensure that we make it better for people to be in work than out of work, but we must support those who work.
I do not want to put my hon. Friend off his stride, but remarks were made from a sedentary position on the Opposition Benches during the earlier part of this speech. In the course of this debate we have had a non-partisan discussion. I thought I heard Opposition Members say that Labour is keen to see changes in tax credits and would move to cut the £30 billion of expenditure. Does my hon. Friend, like me, look forward to hearing such remarks made from the Opposition Front Bench, with an explanation of how the Opposition would cut the bills?
I am grateful. Let us be clear. The hon. Gentleman attacks Labour for having a policy that we do not have. That is unacceptable. Our policy is not to continue with £30 billion of tax credits for ever more. As my hon. Friend the Member for Lewisham, Deptford (Vicky Foxcroft) said, we want to change that. It is a question of phasing and whether we cut incomes from tax credits before wages go up. That is the Government’s policy and that is what we oppose.
Forgive me—I thought the two Opposition-day debates were aimed at abolishing the proposal completely.
This Government know they need to make tough decisions, but they need to make them with fairness and compassion. The measures that we are putting in place to manage the transition are to be welcomed, and the national living wage, the free child care arrangements, and the social rent reductions of 1% a year that are being implemented for those who live in social rented homes will help some people to manage the transition. However, it is evident that some people will fall between the cracks. People with older children aged between eight and 14, for example, who do not necessarily have child care provision that they can allocate, single parents who currently earn more than the living wage, and those in private accommodation who do not benefit from the rent reductions will be affected.
There are many better economists in the House than I. It is not a subject that I profess to be particularly good at, but I would like to offer some financial solutions. How about going after VW, which seems to owe a huge amount of money to our Government from the vehicle excise duty that it has not paid? We should use some of that money. How about abolishing national insurance for anyone who is under the income tax threshold? We could also give tax breaks to grandparents or provide a transferable allowance for that 30 hours of free childcare. Many working families use grandparents to provide care. I see no reason why we could not change the childcare arrangements to take account of that. We could consolidate tax credits for new claimants, which would reduce the welfare bill.
I welcome the opportunity to get on the record in this debate, and I welcome this moment of pause that has been presented to us by the other place. I am here today to stand up for the thousands of working people in North Cornwall and I urge the Chancellor to assist them in their efforts to work and to earn.
I congratulate the right hon. Member for Birkenhead (Frank Field) on securing the debate. When he first proposed it, he wrote to me and a number of other Members and I readily agreed. That was, of course, before the storm broke. We have moved on, as he acknowledged in his remarks earlier.
Unfortunately I am old enough to have worked not only with tax credits, but with family credits and even family income supplements. The inherent problems with such systems was apparent from the start. There have been low-wage subsidies, to a lesser extent than now, initially with tapers of well over 100%, and the cost to the taxpayer was apparent. These problems have not gone away.
As I said in the debate on 20 October, I have no problem in principle with removing low-wage subsidies, so long as we ensure a decent living wage for all; family support to make up for the variation in income when people have families of different sizes; and proper, affordable childcare provision, available universally, particularly in deprived and rural areas where the current provision is very poor and patchy. For rural areas in Wales, support for small businesses is extremely important to enable them to earn and to pay a living wage. Those are the sorts of changes that I would like to see. Then I would gladly agree to the Chancellor’s proposals.
I do not have much of a problem with tapers. Tax credits should lessen as people earn more and, as I said, tapers over 100% are, thankfully, a thing of the past, but the disincentive effects remain when high rates of combined tax credits and benefit withdrawal reduce people’s incomes substantially. The Chancellor’s proposals will worsen this effect. What incentive will there be for working harder and earning that extra marginal pound if it melts away in reduced tax credits and benefits, as we heard earlier in the debate? The figure of 93p in the pound was mentioned.
As the minimum wage or the national living wage rises, the taper reduces tax credit payments—an obvious point—and the cost to the taxpayer goes down. All this is well known and well understood, but what the Chancellor intends goes well beyond what is normal and what is acceptable. Had he been happy to operate the tapers as they are and keep the thresholds as they are, he would have gained tax revenue. Had he been satisfied with that course of action, people earning more would be paying more tax and claiming less in tax credit. Significantly, many would be claiming less housing benefit, which is a problem that Members on both sides of the House recognise. However, he has deliberately gone further. Tax credits will be withdrawn earlier and at a faster rate. That is on top of the freeze on tax credit levels for four years, as set out in the Welfare Reform and Work Bill, and the decision to limit the child care element to the first two children in a family.
With regard to childcare, what discussions have the Government had with the Welsh Government, because provision in some parts of Wales differs significantly from provision in England? If we are tailoring a system to promote proper childcare, there needs to be consultation with not only the Welsh Government, but the Scottish Government and the Northern Ireland Executive. I am also concerned about the effects on the under-25s. My concern is that these measures will reduce work incentives and deepen child poverty—we have heard the figure of 200,000 for the number of children who will be pushed into poverty.
There are also geographical effects, as I mentioned in an earlier intervention on the right hon. Member for Birkenhead. There are communities in Wales in which a large percentage of people take advantage of tax credits, so whole communities will be hit as tax credits are cut. That is particularly true in west Wales and the valleys, which at European level is recognised as a very poor region that is subject to various European grants. Actually, it is on a par with parts of former-communist, eastern Europe. Many people in those communities claim tax credits in order to go out to low-paid work, and I am concerned that they will be struck hard. Therefore, adding to what the right hon. Member said, I repeat my call for data to address the geographical distribution of the effects of these measures, and not just the effects for poorer families individually.
Let me turn briefly to some of the other points the right hon. Member for Birkenhead made. As I have said, I hope that data and childcare have been discussed with the Welsh Government. There is almost a philosophical point here, which is that we recognise the value to society of bringing up children, because they are the next generation who will be caring for the elderly—perhaps my social administration slip is showing. I am a veteran of many campaigns to save and secure child benefit, and as far as I am concerned that is one of the central arguments.
Postponing the introduction until after next April is clearly a good idea. Restricting it to new claimants is something that I would agree with, although that would put them in the difficult position of going out to work for reduced tax credits, and I have already mentioned the disincentives to taking up work that that might provide, so we have to be very careful.
Pensions tax relief has been mentioned. I am afraid that I am also a veteran of previous debates on tax credits. That was one of the suggestions my party made when Adair Turner was reviewing pensions. Of course, the circumstances are different now. Certainly, we could have seen that happen then, which would have meant that the Government might not be in the position that they are in now.
It is a pleasure to follow that thoughtful contribution from the hon. Member for Arfon (Hywel Williams). I, too, congratulate the right hon. Member for Birkenhead (Frank Field) on securing this debate, and the Backbench Business Committee on its wisdom in granting it—I had the pleasure of chairing that meeting. This is the first opportunity I have had to contribute to a debate on the vexed issue of tax credits.
It is a great shame that the right hon. Member for Birkenhead was unable to convince his party when it was in government of the wisdom of transforming the welfare system in this country, but we are where we are. My big criticism of the previous Labour Government is that instead of reforming the welfare system, every time a new problem arose they set up a new benefit. The system therefore became unwieldy and unworkable. When I was elected in 2010, a series of people came to see me about the hugely complicated financial arrangements they faced, both with working tax credits and child-based tax credits.
The hon. Gentleman says that when the previous Labour Government had a problem they increased tax credits. The real problem is low wages. This Government are weakening trade unions and undermining the right to collective bargaining, which is what allows workers to strive for higher wages, and that will not help the situation at all.
That is not quite what I said. I mentioned the welfare system and said that we had a series of different welfare benefits. Whatever the problem was, the Labour Government set up a new benefit, whether a tax credit or another arrangement. During a period of relatively high employment they failed to deal with the fundamental issue, which, as the hon. Gentleman rightly points out, is low wages.
This debate was billed as the last chance to review what the Government are proposing before it became fact, but events in the other place mean that we are now in a position to make alternative proposals. Contributions this afternoon will therefore be helpful to the Chancellor in deciding what to bring forward in his autumn statement. Clearly, we have to strike a balance. The Conservative party manifesto laid out that we were going to save £12 billion in welfare. The challenge is therefore to come forward with alternative proposals on how welfare savings of £12 billion will be found. Some £4 billion of savings are envisaged from this change.
I start with sympathy for the people affected. When we reduce people’s benefits, they will always complain. When we increase the tax threshold so that they pay less tax, they will be quite happy and will not complain. When their wages are increased, they will not complain. But if we take benefits away, they will squeal. We clearly must look at the effect on individuals in the round. We must have the utmost sympathy for those people who are working full time and have no alternative but to receive tax credits to top up their wages. What can they do? They suffer a loss of income, and that will have an impact on their families. Therefore, the first thing I would like the Chancellor to do is examine the measures so that people in full-time work suffer no impact whatsoever, because this is grossly unfair on them.
Equally, we face a challenge in both the public and private sectors. Over time the Government have quite rightly reduced business taxation to encourage businesses to grow and to locate within the United Kingdom. That has got to be good news, because it has created jobs. However, they have also kept wages artificially low, and that has to change. Therefore, I greatly support the principle of a living wage, but clearly it is far too low at the moment. We need to see it increase dramatically so that work pays, instead of relying on the taxpayer to subsidise work in private industry, which cannot be right. I hope that the Government will look at that, in particular, so that we can encourage businesses to pay their staff more for the work they do. That has to be the right way to demonstrate that work should always pay.
We hear constant criticism from the Labour party about the creation of large numbers of part-time jobs in this country. One of the reasons for that is the fact that a large number of people know that if they take on a part-time job, perhaps working 16 hours a week, they will still have access to a large range of benefits. That is a lifestyle choice.
I am not giving way again.
What we need to do is look at how people can change their behaviours to make sure their income is increased. The first area we have to look at is childcare. Working mothers and fathers who have childcare responsibilities need access to proper, decent childcare. I applaud the Government for the 30 hours’ free childcare, but that is not good enough for parents who, as a result, can only work part time. Please will the Government consider improving the amount of free childcare given—not the limited range we are discussing now, but more extensively—so that more people in this country can choose to take on more hours at work, and therefore improve their income at no cost to themselves? That would reduce the tax credits bill and ensure greater productivity in our industry.
Those two measures would start to alleviate the problem, but I believe that the Government, now in listening mode, need to consider where else we can save money in the welfare system. There is also a challenge for the Opposition: if they do not agree with reducing tax credits, from where else within the welfare system should the money come? That is a clear challenge, and I look forward to hearing in the winding-up speeches some of the answers to some of the questions raised in the debate.
The reality, and my greatest concern, is my constituents’ uncertainty about how they will be affected next April if the changes are introduced. As the right hon. Member for Don Valley (Caroline Flint) said, one of the problems is that people are making lifestyle choices now. It is not fair to those families and individuals who are thinking about what they should do in terms of work, where they study and so on to leave them in limbo. The quicker this is resolved, the better for everyone concerned.
I thank my right hon. Friend the Member for Birkenhead (Frank Field) for bringing this debate to the House.
A wiser Chancellor would not have cut tax credits to some of the poorest families in Britain in the first place, but I believe that the right hon. Gentleman now has some wriggle room and that he can put right the mess he has created for Britain’s families. The Child Poverty Action Group believes that the proposed changes to tax credits will damage work incentives and increase child poverty. I think we have got the message loud and clear that the cuts will mean that work pays less.
The changes affect recipients of working tax credit, who by definition are in work. Analysis by the House of Commons Library finds that 3.2 million people will lose an average of £1,350 next year, and although doubt has been cast on that figure by the hon. Member for Morecambe and Lunesdale (David Morris), I find that, generally, Library staff are fairly thorough and reliable. The same Library analysis finds that more than 750,000 families earning between £10,000 and £20,000 a year will lose up to £2,184 next year. More than 580,000 families—Britain’s poorest working families, earning between £3,850 and £6,420 a year—face being taxed for the first time. They will lose 48p in tax credits for each pound they earn. Some low-income families will keep just 3p in every extra pound they earn after the changes are made. Child poverty will increase as £4.4 billion is taken from low-paid families.
The cuts are not compensated for by other changes, such as the so-called national living wage, the rising income tax threshold or the free childcare offer. Importantly, the impacts of the cuts have not been thoroughly assessed. Some working families now face an effective 97% tax rate on each extra pound they earn: they will lose 32p in income tax and national insurance payments, 17p from entitlements to other benefits, and 48p in tax credit entitlements, leaving them with just 3p in the pound.
At his last party conference speech before becoming Prime Minister, the right hon. Member for Witney (Mr Cameron) argued against high effective tax rates on low-income families, saying,
“if you’re a single mother with two kids earning £150 a week, the withdrawal of benefits and the additional taxes mean that for every extra pound you earn, you keep just 4p. What kind of incentive is that?”
What has changed? Two thirds of poor children live in a family where somebody works, and it is inevitable that taking £4.4 billion away from low-income working families will force more children into poverty. Child poverty is rising: independent projections from the Institute for Fiscal Studies show clearly that the falls in child poverty rates seen at the beginning of this century are at risk of being reversed. In my constituency of Heywood and Middleton, the number of working families with children claiming tax credits is 5,500 and the number of children living in working families receiving tax credits is 9,700. In the neighbouring constituency of Rochdale, the figure is 14,900. Nearly 25,000 children across the borough of Rochdale will be affected by the changes.
My constituent Emma Divine emailed me to say:
“I’m dreading going back to work. I’m a single mother of three children and I know I’m going to go back soon, but I’m scared how we will survive—I’m already struggling as it is.”
Another constituent—a public sector worker—wrote to me to say that she provides essential public services and that tax credits are an important part of her household income. She said that although she would gain from the £80 increase in personal tax allowance, overall she would be much worse off, especially, as she said, if we
“take into account the fact that the government only wants me to get a 1% pay increase over the next few years.”
Those women and many more like them speak to the reality of life for the working poor—something that some in this House are comfortably insulated from. Indeed, when I worked for the NHS, child tax credits helped me. They helped me to remain in full-time employment because I was able to afford a childminder for my school-age son.
Of course we welcome the higher minimum wage and the increase in free childcare provision, but, as many hon. Members have pointed out, that only goes so far. We need to get work incentives right. That is critical to tackling in-work poverty. What we need to do first is push employers to pay the living wage—the real living wage, not the Government’s new national minimum wage, which is lower and does not apply to workers under 25. We need to tackle the causes of low pay before we start to cut tax credits.
I agree with my hon. Friend the Member for Darlington (Jenny Chapman) that the vote on Monday may have done the Chancellor a favour, giving him breathing space and a chance to put this situation right by supporting working families instead of penalising them for doing the right thing. Although the right hon. Gentleman may have only just discovered that the House of Lords is unelected, I hope that he will take this opportunity to reverse the tax credit cuts.
I congratulate the right hon. Member for Birkenhead (Frank Field) and thank the Backbench Business Committee for granting us this very timely debate to reconsider the impact on the lowest-paid workers of the proposed changes to tax credits and to call for the Government to bring mitigation proposals to this House. Early next year it is the centenary of the birth of Harold Wilson. That Huddersfield lad coined the phrase, “A week is a long time in politics.” A lot of ermine and a flood of emails have flowed under the bridge since I signed this motion last week.
I want to make it clear from the start that I absolutely support the Chancellor in getting Britain to live within its means. In fact, I often suggest to folk back home in Yorkshire who are talking about austerity that we should replace it with the phrase “living within our means”. That brings a whole new meaning to the campaign slogan “anti-living within your means”.
Since last week, many constituents have echoed my position. To follow the style of the Leader of the Opposition, Martin from Holme Valley says that he agrees with the shift from tax credits to increased pay but shares my concern about the transitional impact of the changes. Bob from Salendine Nook says that he understands the point I make about employers underpaying staff and agrees with me on the need to reconsider the pace of change. Nicola from Oakes says that she agrees that the tax credits system is imperfect, as is the whole benefits system. She says that she would be better off financially reducing her hours, as she works full time, and that a change to the system needs to be implemented. She says that she feels she is currently being punished by the benefits system for trying to bring home more money by working her way up, and that a single person on income support, disability living allowance, housing benefit and other benefits could, in effect, be paid more in benefits than she brings home, including with her tax credits, to support a family. Dorothy from Marsden says that she fully understands the need for reform. As the motion clearly states, this is about the pace and the impact on the lowest-paid workers.
I firmly believe that work should always pay. People should always be better off in a job than on benefits. I say that as someone who did not go to university. When I left school, I did a succession of low-paid, part-time jobs before I joined the Royal Air Force at the age of 19, worked my way up, and travelled the world. I am proud that since 2010 unemployment is down by 51% in my constituency. I am proud that youth unemployment is down by more than half. I am proud that there is a net increase of 170 new businesses and there have been over 4,700 new apprenticeship starts. I am proud to say that I have just taken on my first apprentice and that I am paying him the living wage. On Friday 20 November I will hold my latest jobs fair at Holmfirth civic hall, where over 30 local businesses and organisations will be offering quality jobs and apprenticeships. We must build a low-tax, low-welfare, high-wage economy. As a compassionate Conservative, I want to live in a country where everyone has the opportunity of a decent, well-paid job. So let us crack on with it, and let us stand up for working people.
I welcome the Chancellor’s announcement that he will lessen the impact on families and will set out these plans in the autumn statement. I hope that he and his Treasury boffins will be listening very carefully to the various suggestions, some of them very inventive, for transitional arrangements. Let us show that Britain can live within its means while, most importantly, looking after the most vulnerable and supporting those who go out and work every day.
Order. I am going to make a very unusual statement. Members have been so disciplined, have taken so few interventions and have been so careful in their remarks this afternoon that we have more time than I had anticipated. I am therefore going to increase the limit on Back-Bench speeches to eight minutes, so we will hear even more from Mr Alan Brown.
I welcome this debate and, for the most part, I welcome its tone, particularly that of the earlier speeches of Conservative Members. I hope that their speeches are a sign of a mood swing across the whole of the Government Benches, although I must say that recent contributions have been in stark contrast. If I may, I will outline some of the previous actions of the House and the contributions of Members during the past week. The focus of the House has had me scratching my head, as I am sure has been the case with my constituents.
Last Thursday morning, the hon. Member for Corby (Tom Pursglove) said his constituents had suggested setting up a public fund for them to make donations towards the restoration of this House. I find that incredible. I know that if I took that suggestion to my constituents, the only way I would raise money would be by getting them to donate to a swear box when I asked them such a question. On the same day, the Leader of the House showed his usual vision by suggesting there was no need to reform the House of Lords. That afternoon, we had the debate on English votes for English laws. Much of that debate was predicated on the fact that, as many Conservative Members said, EVEL is the No. 1 issue for their constituents. Again, I find that difficult to believe, because there is absolutely no doubt that the No. 1 issue for my constituents is tax credits.
As I was trying to relax over the weekend, I heard that the bill for Trident has gone up to £167 billion. Apparently, the figure of £167 billion still does not make the Government flinch. It is a 67% increase, but they do not flinch. At that point, they still looked hell-bent on taking forward the tax credits proposals. Monday night was a lost opportunity to kill the tax credit changes stone dead, but at least the other place flexed some muscle and caused the Government to think again. Obviously, plenty of suggestions have been made about how to take that forward.
I should add that the previous tone of some of the debates on tax credits has been really unhelpful. I welcome the speech by the hon. Member for Aberconwy (Guto Bebb), who condemned his fellow friends for suggesting that one solution for making up the income lost in tax credits was to take two jobs and just work longer hours. That is not practical, and it is actually one way for someone to work themselves into an early grave.
I have already said this, but I want to put it on the record again. Let me be clear that this is the No. 1 issue for my constituents. I am pleased that the SNP has been very consistent in arguing against the cuts in tax credits. In my constituency, an estimated 3,800 working families are currently in line to be affected by the tax credit proposals unless they are amended. In previous debates, we have heard the mantra about having a high-wage, low-tax, low-welfare system, but that has clearly been blown out of the water by independent analysis.
I again welcome the fact that many Conservative Members have acknowledged that and have called for action to make sure we protect those on the lowest wages. However, we should not forget the people who are not working, but are looking to get into work. They are in line to lose £2,000 a year. It is impossible to lose that money and sustain a family. We must remember that a lot of people move in and out of work. They will not only lose money when they are in work, but if they are out of work and need support—if they are on a zero-hours contract or are unfortunate enough to lose their job—they will find that the support mechanism has been cut drastically.
What should we do? Some good suggestions were made earlier. The first thing that we need is a proper living wage. We need to bring the living wage in line with when the cuts are made to tax credits, so that we can balance cuts in welfare and ensure people’s incomes are protected. I suggest that the Chancellor could provide greater support for small and medium-sized enterprises to enable them to take on new employees and help more people into work. I have mentioned the cost of Trident, which we could easily scrap. Even though we welcome the decision that it made the other day, we are still calling for the other place to be scrapped.
It is perfectly obvious that there should be a cut in tax avoidance and evasion. The other night, the SNP put forward a proposal to close the Mayfair loophole. Unfortunately, the Government would not agree, but that should be revisited. We should scrap the proposed right to buy in relation to social housing, and the obscene subsidies that might go to people who opt to buy under the Government’s plans. There is no way that the taxpayer should pay up to £100,000 for somebody to purchase a home in London.
It would have been helpful if the UK Government had allowed the Scottish Government to have better borrowing powers so that we could use them to invest in infrastructure and capital spend, which would create jobs. The UK Government should be building more houses in Scotland. We are already showing the way in building more social housing, which creates jobs and a better standard of living. Building energy-efficient homes means that families pay less for heating, which makes their lives easier because they no longer have to make the difficult choice between heating and eating.
The SNP has suggested other measures, including the reintroduction of the 50p tax rate. We should not raise the upper threshold so quickly. We could have a bank levy and a mansion tax, and go for the complete abolition of non-dom status. The Government do not have to aim to get a large surplus so quickly; they could easily slow down their measures and adopt a more balanced approach.
Overall, we should not be hurting those low-paid workers with families who could lose on average £1,300 a year. There is also the cringeable policy of exempting families who can show that their third child is the result of rape. That has not been mentioned today and I note that Conservative Members have chosen not to intervene on me. It is an obscene policy that nobody can justify or explain.
I ask the Minister to speak to the Chancellor and revisit the whole package, because it will save only £4.6 billion. We need a proper strategic overview, which might get us to a long-term recovery plan based on action, not just the words of those on the Government Benches.
Although the Government are pursuing the right strategic course of supporting working families through the tax system and by encouraging earnings growth, it has become clear over the past few weeks that the way in which the policy was being implemented would leave many poor and vulnerable families harshly exposed. Today, as a result of the efforts of my right hon. Friend the Member for Birkenhead (Frank Field) in securing this debate, we can properly consider what other transitional measures can be bought in to support those families.
The current arrangements are in need of reform. The Government’s proposed transition measures are welcome. The increase in the personal tax threshold will enable working taxpayers to keep more of the money they earn. The introduction of the national living wage is a bold and radical move for which my right hon. Friend the Chancellor of the Exchequer should be applauded. The Government have rightly prioritised working families through the offer of 30 hours’ free childcare. However, it is clear that those initiatives alone do not go far enough and more transitional support is needed.
In my Waveney constituency, there are many people on low wages, often working part-time. They would like to work longer hours and earn more, and through hard work and training they would like to climb up a ladder of workplace progression. The problem is that that option is not currently available to them. There has been an economic decline for 40 years: traditional industries have gone, the factory gates have closed and the fishing industry is a very poor shadow of its former self. That scene is repeated in many places around the country.
To their credit, the coalition Government and this current Government have recognised that fundamental flaw in the country’s economy, and they are putting in place policies that will reverse that decline and bring new jobs to many areas. Such policies will ensure that, in the long term, we will have a balanced economy where growth is not concentrated in a few places and opportunities are available across the country. Policies such as devolution and investment in infrastructure and in education and skills will work, but they will not do so overnight. They will need time and they may well need to be refocused, redesigned and rebooted.
In the short term, there is a need for support to ensure that the removal of working tax credits does not punitively hit those on low wages. There is no silver bullet and there may well be a need for more than one initiative. The Treasury will need to weigh up very carefully what alternative tax raising measures may be necessary in order to produce a balanced budget and to remain on course to eliminate the deficit. It is very important that any tax increases are progressive and do not hit unfairly the poorest members of society.
On additional mitigating measures, I make four suggestions. First, full consideration should be given to phasing in the withdrawal of working tax credit. Spreading it out would be fairer and rising wages would help to reduce the impact. Secondly, increasing the point at which employees start to pay national insurance should be considered. That would be more effective than a further increase in the personal tax threshold, as people will pay national insurance from £8,164 compared to £11,000 for income tax. Thirdly, the offer of tax breaks for businesses that voluntarily and more quickly move to paying the national living wage should be looked at.
Finally, we need to review the design of universal credit. It is in many respects bizarre that the introduction of universal credit and the withdrawal of working tax credits are being carried out at the same time by different Departments. That might explain why the Government are in the position that they find themselves in today, with policies that are not properly co-ordinated. Working tax credits were introduced by Gordon Brown when he was at the Treasury, with apparently limited consultation with the Department for Work and Pensions. That is a fatal flaw at the heart of Government that should have been addressed a long time ago.
The great advantage of universal credit is its simplicity. It will boost employment and make it easier for people to understand why they are better off in work. However, it should be made more flexible. Much of the current emphasis is on getting one person in a household into work. There should be more focus on boosting employment within the household as a whole. There is a need to rebalance the incentives that universal credit creates to better support single parents, second earners in families with children and the disabled. Universal credit should be made easier to use. It should not penalise families whose earnings and outgoings do not fit into a neat monthly pattern.
The 800,000 self-employed households that will move on to universal credit have a particular problem in having to start reporting their income on a monthly basis, rather than annually through the HMRC self-assessment. That will create a huge bureaucratic burden that could hit low earners hard.
I agree with my hon. Friend. Like me, he represents a coastal community with low pay. Does he acknowledge that, as well as the help that needs to be given to those who are in receipt of tax credits, we must consider the spending power that will be taken out of the local economy if we proceed with the proposals that were outlined by the Government, which will be very detrimental to our areas?
My hon. Friend is quite right. There are some very clever people in the Treasury, but they often look at the country as a whole. They need to realise that things are very different in different places.
I have two final points on universal credit. The requirement to provide childcare bills on a monthly basis could mean that parents whose childcare costs are higher at certain times of the year will be financially worse off than they are under the current system. For those who receive help with their rent, the option for payments to go straight to the landlord should be more easily accessible.
In the longer term, the Government need to take stock of their approach to welfare reform. They have been right to rise to the challenge and most of their policies have been successful. How they move forward needs careful thought and reflection. Perhaps alongside the benefit cap there should be a benefit ceiling. In the short term—in the next four weeks—there is a lot to be done to get this policy right: to ensure that it is fair, that it does not penalise the working poor and that it provides them with a ladder of workplace progression.
This has been a strange debate. It is as if we have managed to collect in the Chamber all the sensible people from all the parties, and to have a serious debate on some of these issues. It is unnerving to step out of the comfort zone of yelling at each other, and instead to hear sensible contributions from across the House, including the speech by the hon. Member for Waveney (Peter Aldous) that we have just heard.
Perhaps the lesson for us all is that this is how we should have done it in the first place, before the Chancellor made his announcement. He could have set out broad principles, as he is entitled to do, and said: “We need to reduce the welfare budget because we made a commitment in our manifesto. We would like to consider these issues. We need to find £12 billion, so how might we best do that?” By using the wit of Members from across the Chamber—including those who are appointed to Select Committees and work incredibly hard on our behalf—I am sure we could have come up with something less painful, crude and crass, while also saving the Chancellor some grief. However, we did not do things that way; we are doing it the other way round, so let us hope that we can reach a sensible result by listening to Parliament.
I also hope that we will listen to people out there. This is a classic debate, and we must listen to those who will be impacted on and influenced by these changes. Often, those people are not necessarily very articulate or in touch with their Member of Parliament, but I want to speak up for them, particularly those in my constituency. Dinner ladies, check-out and administrative staff, nursing and teaching assistants and manual workers all need us—whatever our political persuasion—to stick up for them right now.
We should all be in it together, but it often feels that we are not. I looked for the number of people in my constituency who will benefit from changes to inheritance tax, and after a lot of searching I came up with a large zero. Unfortunately, it did not take long to find the number of people in my constituency who will not be benefiting from the changes to tax credit, because 12,300 children will be affected. That is important because I am the Member of Parliament for the second most deprived area in the United Kingdom in terms of child poverty in low-income families, which is a matter of great concern. We are not “all in it together”, because those kids are not in it with those whose families have higher incomes and should be shouldering a fair share— nothing more—of the tax burden in our country. Colleagues who know their food banks will unfortunately know that this measure is a food bank recruitment scheme on behalf of the Government, and we must be careful about how we tread forward with it.
No one was ready for this change. Some of us believed the Prime Minister when he was on television before the general election and said that there would be no changes to the tax credit system. It is the same Prime Minister who, sadly, was in this House a week ago and said he was “delighted” that the cuts had been voted through the previous evening. That indicates a contempt for institutions other than government—I know I labour this point, but listening to Parliament and to people outside does not mean that someone gets diverted from their principles; it means that they can better enable those principles by listening to those who might be able to help in a slightly better way.
These cuts will have a broader impact on families. Four out of five families in my constituency receive tax credits because of the low-income nature of my area—my constituency is among the 20 most deprived—and we can do a job for them. We will not necessarily overturn what the Chancellor thinks, but Members of the House can do what my right hon. Friend the Member for Birkenhead (Frank Field) has done and consider tapers, thresholds, transitions, and the time needed to allow people to adjust to a massive change in their life. We must look consistently at that family element, and review and analyse the impact of the changes in future years, so that we can mitigate the worst cases.
I am delighted that we have not heard the word “scroungers” in this debate, or heard people being described as having a free ride on the state or the system. As it happens, two-thirds of people in my constituency who are in receipt of tax credits are at work. They are being subsidised by the rest of us to be at work, and low-paying employers are being subsidised.
Perhaps one reason the debate has not been disfigured by such terms is that the people my hon. Friend is talking about are the friends, families and neighbours we stand alongside in supermarket queues and on the side of the rugby pitch on a Sunday morning. These are people we know. This is not a matter of “them and us”. They are us and that is why, as we stand alongside them at the rugby and in supermarkets, we must stand alongside them here, too. They need us.
My hon. Friend is absolutely right.
We, and some of the media, think this is a big issue right now, but you would be amazed how many people do not know that this is going to hit them, and they will not know until that letter drops and it actually happens. A wise old bird—Joe Ashton, who used to be the MP for Bassetlaw—taught me this lesson: passing a Bill will not influence anybody’s real life until whenever—in this case, I believe, next April—it takes effect. Then there will be a shock. Then there will be a tidal wave of people saying, “My god, what are you doing to us? Why did you allow this to happen? We don’t care which way you voted, why are you allowing it to happen?” That is why between now and then we have to bend our backs to ensure that we mitigate the worst consequences.
The national living wage is a bit like English votes for English laws: it is such a smart slogan that one could perhaps run an election on it. Does the reality, however, have the substance and the detail that people need in their lives? Saying that we are going to have a national living wage sounds fantastic, but if it does not actually mean that incomes will be at least as good as they were before, it is a fraud.
Does my hon. Friend agree that the Government’s national living wage is not the actual living wage, which is set by the Living Wage Foundation? The actual living wage is far higher than the Government’s national living wage. To call it a living wage is a misnomer.
I totally agree with my hon. Friend. The Living Wage Foundation has already blown that myth straight out of the water and said it is not actually what everybody else seems to think of as being the living wage. Indeed, the Institute for Fiscal Studies and our own House of Commons Library have both said that the so-called national living wage does not make good what people will lose. Both those highly authoritative, independent organisations say it will only cover about a quarter of the loss that families will incur. On top of that are a lot of other factors. Difficulties relating to the introduction of universal credit are compounding the situation for people on low incomes.
For my constituency, all this shows that society is not addressing deprivation in the way it should. In the past five years, the indices of deprivation have indicated that in my constituency 5.9% more people are in the category of being deprived than they were five years ago. I ask the Chancellor to try to understand that it is not always about Tatton or Witney. The 20 most deprived constituencies—such as Nottingham North, Liverpool Walton, Birmingham Hodge Hill, Manchester Central and so on—are where our people live. That is where people need their representatives to stick up for them. That is where the free market politically does not work. Inviting people over for a weekend of shooting, riding or whatever—that is not where I live, and it is not the way our people will get the message over and have their voices heard. It is by sensible people, from all parties, putting the case forward.
In the spirit of cross-party co-operation, does the hon. Gentleman not accept that there are small businesses in constituencies such as mine, where we do not go shooting and are not involved in that type of behaviour, which appreciate that the Treasury is allowing them time to adapt to a new living wage? The concern we have about the tax credit issue is that the time allowed for small businesses to adapt was not necessarily made available to the recipients of tax credits.
I hope the hon. Gentleman will forgive me. I was not trying to characterise all his constituents as people who hunt, shoot and fish; on the contrary.
We must work together and make our points collectively so that the Government will listen, which they should have been doing before. I represent places such as Bilborough, Aspley, Broxtowe, Bulwell, Basford and Bestwood. These are areas not known to anyone in the Chamber, but they are where real people live—every Member will have the same sorts of places in their constituencies—and they are the people who will be hit hard by these changes. It will not be about the little debate I had with my right hon. Friend the Member for Birkenhead earlier about the technical knowledge. Let us work together, put our shoulders to the wheel and make the best of a bad job.
It is a pleasure to speak in this debate and to follow the hon. Member for Nottingham North (Mr Allen), whose comments about the tone of the debate I echo: it has been far more positive than some of our debates. I also thank the right hon. Member for Birkenhead (Frank Field) for securing it. I knew I could look forward to a measured speech from him, and he duly delivered.
I believe that the tax credits system needs reform. Six out of 10 families receive them, meaning that one in five families in the top half of the income distribution does so. A person can receive them on an income of up to £32,960. The House of Commons Library indicates that some families with an income of more than £40,000 get them. It was interesting to hear the hon. Member for Wolverhampton South West (Rob Marris) agree with us that the bill of £30 billion needed to be reduced. It will be interesting to see what proposals he brings forward.
I support the Chancellor’s aim of creating a high-wage, low-welfare economy. In my constituency over the past five years, we have seen the number of people on unemployment benefits fall, more people getting an opportunity, and investment in things such as the south Devon link road. This is inspiring and creating more jobs, helping people get on in life and making a difference to them and their families. That is what I support, and it is at the core of the reason I came here and why I am proud to be a Conservative MP.
Members might ask why I am supporting the motion, which I will vote for if we end up having a Division. My family was rich in love if not in money when I was growing up. My father worked as a labourer and painter, and my mother was a teaching assistant. It was a family that wanted to get on in life. I disagree with Opposition Members: it is right that we give people the opportunity to own their own home. I am not being hypocritical. I grew up in a house my parents could buy because of a scheme that helped working people buy their own home back in the 1970s—introduced, ironically, by a Labour Government. I am proud that those opportunities will be made available. It is not that long ago that those on the left were arguing that people should be owning their own homes, not paying rent. It is strange how that has changed, and it is right that the Conservatives give that opportunity to a new generation by increasing the housing supply coming on stream.
We need to have some clear ideas of how to mitigate the impact of these reforms. I noticed the usual magic money trees being presented—by the same people whose oil revenue projections were not exactly accurate last year either. I have confidence that the Chancellor will come forward in the autumn statement with proposals to mitigate the impact on the lower-paid. That is why I am happy to support the motion, which asks the Government to reconsider. It is fine to talk about the destination of a high-wage, low-welfare economy.
We have an economy moving forward, and we have increased health spending, unlike in Scotland. According to last Thursday’s Daily Record—one of my favourite reads over porridge, obviously—our failing NHS is the SNP’s fault. I am happy to get talking about politics any day of the week.
Returning to the key issue—[Interruption.] It is always lovely to have an accompaniment from these Benches. The key part for me is not the e-mails I have received or the stuff in the media; it is thinking about the thousands of families I now represent in this Chamber who are like the family I came from. Whatever we may think of the destination of this policy area, we should ensure that the journey we travel to get to it does not impact unduly on people who are trying to do their best in life.
I listened with interest to the speech of the right hon. Member for Birkenhead, but it is important to have alternatives that do not make things worse or create the wrong incentives. The hon. Member for Airdrie and Shotts (Neil Gray) made a point about what the Library figures mean for the right hon. Gentleman’s initial proposals. However, if that model were adopted, there would be an effective taxation rate of nearly 100%—higher than virtually anyone at the highest levels of income is paying anywhere in the world, so it would be strange to have such a system applying in this country to those earning just under £20,000. I can appreciate the sentiment of those proposals, but at that sort of level it would provide a clear disincentive to work, just as tax rates of 88% or 98% were back in the 1970s.
I look forward to seeing what the Government will bring forward, and I look forward to continuing engagement with Ministers on the Treasury Bench. I thank my hon. Friend the Member for Kingswood (Chris Skidmore), the Chancellor’s Parliamentary Private Secretary, who I see in his place, for the engagement so far. It is right that we should not oppose without offering up alternatives. I hope that there will be clear engagement with Members and Parliament about what things can be done to mitigate the impact within the envelope of an affordable and deliverable financial settlement that allows us to achieve our overall fiscal goals, which were so strongly endorsed in the UK general election not very long ago.
It has been a pleasure to sit through and speak in this debate, and it will be even more of a pleasure to welcome the Government’s proposals that will come forward in the near future to mitigate the impacts on the lowest paid, as is called for by the motion.
I welcome the Chancellor’s announcement that he made on Tuesday to bring measures forward to mitigate the changes to tax credits. I suppose the question on all our lips is how far his inclination to mitigate will stretch—will he mitigate for some or all? My message to the Chancellor is very clear: changes must be offset in full; tax credits should be tapered so that people do not lose out; the changes should be phased in; and the so-called package of changes must increase incomes at the same rate as tax credits are tapered off.
It is easy to admit that I have some sympathy with the principle. I think every sensible Member would agree that work should pay—of course it should. I would much prefer it if the cost of subsidising poor wages were borne by business. In an ideal world, the Government would not need to prop up wages, but we do not live in that ideal world at the present moment. The economy is not in that position. The Government had intended to put the cart firmly before the horse.
As a cynic, I do not believe that the Chancellor’s statement had compassion at its heart. For me, it was driven by fear—fear of losing power in the phoney constitutional war now started with the other place.
I agree with my hon. Friend that the second Chamber has forced the Chancellor’s hand, but does he agree with me that its intervention does not legitimise the constitutional absurdity of an unelected, unaccountable and ever-growing legislature at the end of the corridor?
Members will not be surprised to learn that I agree completely with my hon. Friend’s statement. The fact that the other place has seen sense on one particular issue does not legitimise the mess, in my view, that the other place represents. The Chancellor’s statement the other day was predicated as much on the fact that the other place was an unelected Chamber that had stuck its nose into financial matters as on anything else. If anything, that corroborates our view that the other place should go.
Our urge to change these proposals comes from compassion: from putting ourselves back in the shoes in which many of us walked not so long ago; from figuring out what ordinary people in our constituencies would lose; and from finding that completely and utterly unacceptable. We were elected to this place to protect vulnerable people, not to punish them.
I was going to use this time to talk about some of my constituents in detail, and to explain precisely how the tax credit changes could destroy their lives. I was going to tell the House about Katy and her son Olly, and I will tell the House a little bit about them. They will lose more than £100 a month from a budget that is already impossibly tight. That could mean that Katy and Olly may no longer be able to go on mountain bike trips at weekends. Katy tells me that she will move from fresh to frozen food. Katy has no support network for Olly. She has no choice but to work part time. Her sister Nikki recently passed away, and when Olly is not at school, she must be available to be with him. She already works all the hours that are available to her. She has absolutely nowhere to go with this.
I was going to tell the House about Jenny, who is a self-employed child minder. Her partner is also self-employed. They will lose about £130 a month. Jenny worries that her customers who are receiving tax credits will no longer be able to use her service. She told me that she literally lies awake at night wondering what this place is going to do to destroy her life.
I was going to tell the House more about Jenny and Katy, and about some others, but then I realised that those stories would only have an impact if they were listened to by Conservative Members who displayed some compassion. It is true that most of the speeches that we have heard today have moved into the realms of compassion, and I welcome that, but it is the compassion of the 300 Conservative Members who are not present that really concerns me.
Instead of considering how the cuts will affect Katy and Jenny, perhaps Conservative Members should consider how the cuts will affect them, as Members of Parliament. What have they to fear? One of the first changes that they may notice—and all us of may notice them in our constituencies—is that our high streets start to struggle even more than they are now. High streets are already struggling in my constituency, and the removal of £4.4 billion from people’s pockets—these are not internet bargain hunters; they are people who shop in our high streets—will compound an already precarious situation. If we remove the disposable income from the very people who shop in our high streets, the failure of small businesses will inevitably follow. We must prepare for more charity shops.
Members may begin to notice that the police in their local areas are busier than they used to be, and they may wonder why the number of instances of crime has increased. It will be because desperate people—young people with no hope; people who have been disfranchised from their communities and the Government—often turn to crime. If we can mitigate these changes in full, it may well be cost-effective.
Over the course of the next Parliament, Members may notice that the performance of their local schools is beginning to drop. They may see those schools falling down the league tables, and they may wonder why that is happening. It will be happening because hungry children do not learn well. Katy is beginning to worry about Olly’s education because of the proposed cuts.
Inevitably, the food budget will be the first thing that struggling families will cut, and that will have an immediate impact on the educational achievements of children in all our constituencies. How many Conservative Members—how many absent Conservative Members—enjoy dining out? Quite a few, I suspect. It is nice to have a range of different restaurants to choose from. Well, they should enjoy those restaurants while they can, because they, too, will be under threat.
The hospitality industry, in which I was brought up—in a rural area—depends entirely on a thriving local economy to sustain it. Many of the people whom we welcome to Dumfries and Galloway when they go there on holiday are people from the rest of the United Kingdom who cannot afford to go abroad: people who are receiving tax credits. The holiday will be one of the first culls from the annual budget.
Do I need to continue? Make no mistake: these tax credit cuts will have an impact on the absent Tory MPs as well. If the Government cannot mitigate the cuts in full, they will be responsible for the demise of all our communities. Those in Tory constituencies will not thank them, and I doubt that they will re-elect them. I look forward to hearing how the Government will mitigate, in full, the wide and far-reaching effects of these unnecessary and wholly ideological cuts.
It is a great honour to follow the hon. Member for Dumfries and Galloway (Richard Arkless). Indeed, I am one of those who have visited his constituency on holiday, and I remember one evening being bitten alive by midges on Clatteringshaws loch. We had to escape into our car and smoke cigars to keep them away—of course nobody under the age of 18 was in the car at the time, I hasten to add.
One noticeable thing that happened earlier this month, and which may not have come to everybody’s attention, was that the International Monetary Fund—not an organisation I have always had a lot of sympathy for, particularly when I was living in Tanzania in the 1990s—made a remarkable statement under its excellent managing director Christine Lagarde: excessive inequality damages growth and the economy. It is amazing and very welcome that the IMF has come to that conclusion. It has come to that conclusion not just in respect of developing countries, but in respect of any country.
In my opinion tax credits have been a means of reducing inequality and particularly excessive inequality in this country. That is why when I spoke in the Opposition-led debate last week I urged the Government to look again at the policy, especially its timing. I am very glad the Chancellor has said he will do that and will bring forward measures. I pay particular tribute to my hon. Friend the Exchequer Secretary because he has always been listening and is a great credit to his position, as indeed is the Chancellor’s Parliamentary Private Secretary sitting behind him, my hon. Friend the Member for Kingswood (Chris Skidmore).
I mentioned two other things last week, one of which was predictability. Income is about predictability; it is not just about levels of income, and if we cannot predict our income it is a great driver into relative poverty. We see that all over the world. The proposals originally before us would lead to cuts of perhaps 10% or 15% in people’s income without their knowing what is going to happen, as the hon. Member for Nottingham North (Mr Allen) and others have said. They would be getting a letter in December or January for something starting in a couple of months and would not have an opportunity to correct that.
I also mentioned the problem of scarcity. For those with a low income things are more expensive. The inflation rate is much higher for people on low incomes than for people on higher incomes. They are not buying electronic equipment, which comes down in price every year, or flying with Easyjet on holiday, both of which have brought the inflation rate down. We need to bear that in mind. The inflation rate may be 0% at the moment, but it is certainly not 0% for people on the lowest incomes.
Absolutely; if we see everything in terms of income we are a poorer society, as John F. Kennedy once so magnificently said.
Members have also talked about the fallacy of trickle-down economics—and it is a fallacy. It was supposed to be the way in which the poor would get richer, but, as I have seen around the world, that is rubbish. What we need is surge-up economics, because those on lower incomes spend their money locally, and it goes into taxes and VAT. Of the £4.4 billion, probably several hundred million pounds will be spent on VAT and will come straight back into the Treasury. So we have to remember the consequences and effects on the local economy of the loss of this spending power, as the hon. Member for Dumfries and Galloway said. If one thing is to be reduced, we must see the other sources of income increase simultaneously.
There is also the impact on those on fixed incomes such as carers, which I mentioned last week and other Members have mentioned. Full-time carers who will not see rises in their income often have no opportunity to go out and work more hours. There is also the impact on the self-employed, and indeed on farmers in my constituency who have seen their milk prices, their only source of income, fall. They are reliant on tax credits as much as anyone else. Sometimes, people see them as asset-rich because of their farmland, but they are the ones providing our milk, wheat and other things on which we rely, week in and week out. Their incomes are low, and they, too, rely on tax credits.
I want to look to the future. Other hon. Members have mentioned areas in which we could raise the extra income to offset the cost of delaying the tax credit reductions. I mentioned a couple last week and I shall not repeat them. I want to make a couple of points about the future, however. The first is about national insurance. There has been talk in the past about merging national insurance and income tax, but I think that would be a big mistake. It is incredibly important to have a progressive national social insurance system to which people contribute—even those on low incomes, perhaps at a very low rate—in which they feel they have a stake and from which they are entitled to receive benefits if the need arises. I urge the Government to look closely at how we can improve the national insurance system, rather than getting rid of it. Perhaps we should consider adopting something like the German system, to which we would contribute more but which would provide guaranteed benefits for when people were sick or out of work and for when they eventually retired.
Secondly, we need to look at our savings. We do not save enough; that is a fact. If we look at other countries around Europe, such as Italy, we see that they are far better at saving than we are. The Japanese are excellent at saving. We have one of the lowest savings rates. When my colleagues and I produced a report on social stability last year, we emphasised the importance of introducing a lifetime savings account, which could perhaps be supported through tax-free contributions over the course of a person’s lifetime. People would be able to draw down funds from such an account at difficult times in their lives, perhaps if they became seriously ill or were out of work. Such an account could eventually be converted to become part of their pension. That would encourage people to put aside money, supported by the state, to top up any benefits they might need to claim. Those benefits are always likely to be fairly basic, because they are paid out of the state system, but it is to be hoped that people would still be able to live on them.
I welcome the Chancellor’s statement this week, but I encourage him to look at all the incredibly important points that have been made by Members on both sides of the House in a spirit of co-operation. Above all, I thank the right hon. Member for Birkenhead (Frank Field) for his initiative and his sagacity in bringing forward this debate.
As other Members have said, this has been a measured debate—thanks in no small part to the way in which it started, with the contribution from the right hon. Member for Birkenhead (Frank Field). He approached the debate from the point of view that this proposal will adversely affect many of the people in our constituencies who want to improve their lives and who go out to work every day. The subject deserves the measured response and thoughtful ideas put forward by the right hon. Gentleman. He set the standard for the debate, and his approach has been replicated by other Members. A debate like this can lead to the kind of knockabout that we sometimes get in a confrontational Parliament such as this one. Some of us enjoy that kind of knockabout, but I am not so sure it would serve those whose lives are being affected by the proposal.
In the light of that, the way in which the Government respond to the debate will be important. They could rail against the constitutional outrage of the unelected House of Lords defying the elected House of Commons. They could even call, Henry II-like, for someone to rid them of those turbulent toffs down the corridor, and then bring in minimal changes. That would be a mistake.
Another option is for the Government to bring forward minimalist proposals in the autumn statement, which will deal with those who are uneasy on the Back Benches but will still not address the real problems. The Government could have a complete rethink and involve those who wish to make a constructive contribution. As Members have said, a number of Committees could be engaged in the process. The devolved Administrations should not be exempt from the process. The Northern Ireland Statistics and Research Agency has done extensive work for the Northern Ireland Executive on the impact of these changes on a wide range of groups. That work should feed into the data that the right hon. Member for Birkenhead referred to in his comments.
There are good reasons why the Government should take that constructive approach. There is widespread recognition—Members from all parties have made this quite clear—that we cannot continue to have taxpayers subsidising low wages from employers who can afford to pay more. That is the whole basis of the Government’s policy. It is about rebalancing the economy, and there is now a recognition that that needs to be done.
There is also a willingness to look at the matters that need to be addressed, the first of which is timing. If we are to make the change, there must be an assurance that the safety net currently available to the low paid will not be removed until the problem of low wages has been fixed. That must be the central premise.
Does the hon. Gentleman agree that issues such as public sector pay increases must also be looked at? Often, very low paid public sector workers—school cleaners, cooks and nursing assistants—are the bedrock of our society.
That issue will be addressed if we deal with it as I have suggested, by which I mean that the safety net is not removed until the issue of wages has been dealt with. That is the first important principle.
The second proposal is that we must be sure that we have identified all the groups that are likely to be affected during the transition. The one group I have mentioned time and again in debates includes those who will not be affected by the national living wage—the under 25s. Many of them will have families. If we set the pattern that work does not pay at the very beginning of their working lives, they will stay in that pattern. Therefore, it is important that we address the needs of that group.
Then there are the families with children. On that point, I would appreciate some answer from the Minister on the childcare allowance and the extra childcare funding that is available. It is a devolved issue in Northern Ireland, but will there be a Barnett consequential so that the same arrangements could be put in place as the Chancellor has suggested for England and Wales?
Thirdly, there must be recognition that different sectors in different regions are at different points in the cycle. There are some places where the labour market is buoyant, and where profits are increasing. In those sectors and regions, an increase in the national living wage can be afforded. However, there are other sectors and other regions where that may not be the case. There is no point in simply treating everywhere as if it were the south-east of England and the IT or banking industry and then imposing burdens on them. Small businesses and retail sectors have been identified here today. It is important that cognisance is given to the fact that there is uneven performance across the economy.
We must also pay some attention to the larger picture. In the United States of America, for example, the top 0.1% have as much wealth as the bottom 90% and the gains of productivity go to those at the tops of firms, who get 350 times what the average worker in the firm can get. Certain people are taking the most and leaving the crumbs for everyone else.
That brings me to my last point, which is how we fund all this. It is a reasonable question, and the Chancellor and the Prime Minister ask it all the time. Are we simply going to keep on borrowing or should we find other ways to fund it? There is one thing that I do know. I had the pleasure of being the Finance Minister in Northern Ireland for four or five years—I cannot count, which was not a help. In my first year as Finance Minister, the previous Government took over and that July 5% was taken off our budget, three months into the financial year. It was still possible to make the changes required because necessity required that. We are now talking about two thirds of 1% of the total UK budget that has to be found. No one can tell me that with planning that is not possible. Many suggestions have been made and different people will have different political priorities for the cuts, but I believe that it is doable if we have the will.
My fear is that because the Government are cocky at the moment and because the Opposition are perhaps not in the shape that they should be—I will not start making points about that, but they are not in the best shape—the temptation will be to use that disarray to try to force things through. We have heard time and again that the Government have a majority for their measures in the House of Commons. That does not matter. The question is whether their actions will be perceived as fair. If they are not, they will not have support across the country, regardless of what happens here in the House of Commons. My fear is that the Government, which taunts Labour time and again with being unelectable, might well annoy and anger people so much that the unelectable become electable. People can judge whether that is a good or a bad thing, but if the process of making that happen means that the strivers in society suffer or that the low paid workers suffer, I do not believe that it is a price worth paying.
The hon. Member for East Antrim (Sammy Wilson) was right to talk about the rush to get involved in a policy. It is a pleasure to be in the Chamber today for that rarest of treats, where we all furiously agree on the right thing to do, which is to make a radical change to the approach. It is like seeing people who have been slumbering at the back of the bus awakening to see that the driver is about to drive them straight into a lorry that is coming the other way. The tone of the contributions has been terrific, and it is worth repeating as it is so rare in this environment. I was cynical and sceptical before I was elected, but it is great to be in the Chamber for this debate.
Let us talk about the basics. A lot has been said today that makes sense. We all know that there must be a change, as the policy means that more families will be driven below the poverty line and more children will be in poverty. There is a clear dawning of awareness that the minimum wage—what Government Members are calling the living wage, which it clearly is not—will not bridge the gap. It especially is not going to bridge the gap that will be created for people under the age of 25, who will not have the comfort of getting even the diminished living wage or minimum wage that is coming in, because it will not apply to them.
The right hon. Member for Haltemprice and Howden (Mr Davis) talked about the minimum wage cutting crime, and my hon. Friend the Member for Dumfries and Galloway (Richard Arkless) spoke about the effect of it on changing people’s circumstances. If we create a bigger division in earnings between young people and those over the age of 25, we may well find there is a problem. We should be aware of that. I do not believe that the outcomes that will be created by the Government’s policy have been taken into account by certain Members in this House.
The Office for National Statistics has provided the Scottish Government today with figures that show that in Scotland 250,000 families will lose £1,500 a year right away. As we heard earlier, that rises to £3,000 when the measures are fully implemented. The Centre for Social Justice already puts household debt in the UK at £34 billion. That devastating cocktail is a possible outcome if we do not make a change to the policy.
When families are put under pressure, the effects can be devastating, with overwhelming stress affecting mental health and work performance. We should be aware of the impact on productivity further down the line. The strain on personal relationships resulting from the measure could provide some of the stepping stones for more children going into care and so on. We will see the effects of these measures when they hit people. None of us will have to stare into an empty cupboard. None of us will sit in the cold in our own homes because we have no choice. None of us, as a result of the Government’s measures, will look at a pile of bills, afraid to open them.
My constituency of Inverness, Nairn, Badenoch and Strathspey has a unique problem of being a low-wage, low-unemployment community. Perhaps that is not unique, but it is a particular problem for us. In my constituency, 7,100 children will be pushed further into poverty. Low wages, coupled with the increased cost of living, will push 210,000 children in Scotland into poverty. In the highlands we have had a drain of young people over the decades. We have encouraged people to stay and to have larger families, yet the two-children cap is going to punish highland families disproportionately. I know that will affect other constituencies in exactly the same way, so our big family tradition is being attacked. We heard China mentioned earlier. This is an effect almost amounting to population control for us.
The limit to two children will cost £7.2 million, the removal of the family element £4.02 million, and the taper increase £7.77 million. We heard from my hon. Friend the Member for Kilmarnock and Loudoun (Alan Brown) about a range of measures that could be taken to put some money back into the system. It does not all have to come from the welfare budget. That is an ideological approach. We can make sure that we are not wasting money where we do not have to waste it.
It is an obscenity—it has to be repeated—an obscenity to seriously consider spending £167 billion on weapons of mass destruction that we can never use because if we do, what follows is mutually assured destruction. It is mad to consider using them.
My hon. Friend hits on an interesting point about the waste of money on the weapons of mass destruction programme of the British Government. They wrap themselves up in patriotism and speak of great Britain. The patriotism is never ending, but the sad fact is that we are dealing here with a time when all Britons cannot live greatly. Some Britons will be in terrible poverty, but the Government’s patriotism goes only to weapons of mass destruction. O that their patriotism would reach the people and the poor of the country as well!
I could not agree more. When we look at the choices that we are asked to make in this place—this was mentioned earlier—we see that the effect will be on people further down the line. That kind of nonsensical excess, when we are talking about people looking into empty cupboards or sitting in the cold, is simply obscene.
I am grateful that the motion in the House of Lords on Monday night has allowed us to have this debate, but it only delays the measures—one swallow does not make a summer. If we want savings that can make a difference, and if we want a better system of democracy in this country, we must get rid of the other place. We should not have an inflated second Chamber, with people claiming £300 a day while other people are having their benefits and tax credits cut.
I am grateful to my hon. Friend, who is being generous in giving way. Was he as surprised as I was to learn from a Twitter feed that seven Labour peers—perhaps at one time there were signs of socialism in their lives—voted with the Tories for these obscene welfare measures?
That was incredible, and it is worth repeating that fact in this House today.
There are lots of measures that the UK Government could take. They do not have to continue down this ideological path by squeezing the money out of the people who can least afford to pay it in order to ensure that other people enjoy the finery that they have had over many years. The words that have been spoken across the House today have been worth listening to. I hope that the Minister will take into account the thoughts he has heard expressed across the House, including from his Back Benches, and persuade the Chancellor to come back with something that is radically different and that supports the people in our constituencies who will otherwise be badly affected if this is not changed dramatically.
I thank my right hon. Friend the Member for Birkenhead (Frank Field) for securing this important debate. When I voiced my opposition to the cuts to tax credits back in July, I spoke of how they would hit the poorest the hardest. I spoke of how in my constituency 72% of people receive tax credits and over 42% of children live in relative poverty, so Members can well imagine how worried I am for those constituents, who I am sure are watching now.
The latest analysis from the Resolution Foundation projects that over 200,000 more children will be in poverty by 2016 if these unbelievable, wrong and—I cannot even get the words out, because I am very upset about this. This is going to affect the people I represent. The Government have done nothing to assess the impact of the cuts on children. Indeed, the changing definition of child poverty in the Welfare Reform and Work Bill totally fails to capture the true extent of child poverty. To be clear, two thirds of children in poverty live in households where women and men go to work. The situation for Edmonton, which is ranked as the constituency with the sixth highest level of child poverty, is critical.
The impact of tax credit cuts will be felt not only by the poorest constituencies, such as mine, but by constituencies across the country. The Institute for Fiscal Studies has shown that nearly 3.2 million working families on benefits or tax credits stand to gain, on average, only £200 a year from the so-called national living wage, whereas they stand to lose over £750 a year as a result of tax credit cuts. Also, the personal tax allowance does nothing to help the low-paid—those earning less than £10,000.
The value of free childcare to tax credit recipients is very limited. The measure has not been thought out. I have discussed it with the National Association of Head Teachers, whose members are worried about the intake and whether they will be able to expand to take on more children. This needs to be thought out as well.
To paint the reforms as a valid replacement rather than a necessary accompaniment to tax credits is quite untrue. The Government have broken their election promise. They are betraying the very people they claim to represent. I call on the Government to reverse the cuts to tax credits. The evidence is against them—we have heard it from Members in all parts of the House. It is plain that the changes will not work. They will not work because so many people will be living in poverty. I am sure that that is not what this Government are here to do, and if it is, they need to think again.
We need to think about our constituents and the surgeries we all sit in. I say to Government Members: listen hard to those who come to tell you how worried they are—how they do not know how they are going to survive, or how they are going to look after their children. We saw on “Question Time” a woman in tears, crying as she said she had voted for you and you let her down. It is time to stand with the people you claim to represent. Let me put it straight: if you push ahead with these plans—these disgraceful plans—you will only show those people who want to go out to work that it does not pay to go out to work. You need to look and think deeply about the decision to take these cuts forwards.
I thank my right hon. Friend the Member for Birkenhead (Frank Field) for securing this debate today, and I applaud the other place for taking the decision they took the other night. I am not in favour of an unelected Chamber, but this week just proves that we do need a second Chamber; it must be an elected one, though. None the less, I applaud the Members of the other place.
I have said it before, but my constituency suffers the seventh highest employment poverty and the 11th highest income poverty in the country. I have 5,800 families with 8,300 children who are living in poverty, but they are in work. At the high school where I am a governor, there are 400 children who take free breakfast in the morning. It is offered to all 1,100 pupils, but 400 take it, and they take it because they need to. We chose to make that offer because our children could not learn because they were hungry. They could not concentrate to learn, and that is why we do it.
It made my blood boil when I heard a Conservative Member talking today about people choosing to work part time, on a zero-hours contract, for 16 hours a week or something like that while other people pay to keep them going. I had to be careful not to react, but the people I represent are hard-working families. There are men who went into the bowels of the earth to get coal to make industry work. Many of them are still of employment age. Many are on zero-hours contracts. They know what hard work is and they do not mind it. They miss the camaraderie of the colliery but they love to work hard and to earn their money.
Many of my constituents worked in glass furnaces. Let me tell the House a tale about what happened at one of them. Two years ago, a glass furnace closed—the last one at the factory where I worked. A hundred and twenty men lost their jobs and were secured employment, with the help of their employer—a very large multinational car manufacturer—in a neighbouring constituency. They got employment because they were skilled and hard workers who could use the technology and drive vehicles in the factory. They were told, though, that they were employed through an agency on £10 an hour—not the rate that the other workers in the factory were on—and would work for 12 months before getting a permanent contract with the employer on the other rate of pay. Just weeks before those 12 months were up—10 and a half months in—120 of those men came home from an afternoon shift on a Friday. On the Saturday afternoon they received calls saying they were not needed on the Monday.
Eight weeks went by, and a few of the men got calls saying that there was extra work that they could be given until Christmas. They had not been able to find other work, and they went back to those jobs for three weeks. In the weeks previous to that, many of them were living in rented accommodation and had phoned the housing association every week to explain that their benefits had not come through and so they could not pay the rent. I have to say that universal credit will make this simpler, because they were waiting for housing benefit, council tax assistance, child tax credit and working tax credit, and each one comes through separately. One woman rang me literally in tears, and I had to go round to see her. She had a letter—a notice of possession. We sorted that one out, and we sorted another few out. We secured a mechanism so that this should not happen.
When the men were offered those jobs back until Christmas, they took them. They only lasted three weeks, so back they went again to applying for all these tax credits. These are not people who choose to work on zero-hour contracts or as agency workers. One of the chaps—the woman’s husband—got a call a few weeks ago, from an agency, saying that he had got a job. People have to register with agencies now; they cannot get jobs round there without going through an agency. When he got the call, he was made up, but just 30 minutes later he got another call saying that he had to work two weeks for free, without pay, and would then be guaranteed an interview for a job. Thank goodness, his wife would not let him go. This is modern-day slavery and a stand has to be taken. The same gentleman has now got two weeks work with pay, and has gone off to do it.
I ask the Chancellor to give due consideration to the 700,000—three quarters of a million—people on zero-hours contracts and the hundreds of thousands of people in agency work. Something simply must happen. These agencies are exploiting unemployed people. What is going on in this country is modern-day slavery. Employment has risen—yes, it has—but I wonder how many Members in this Chamber realise that one hour’s work in a month counts as being in employment. I could not believe it, but it is true. There has been an increase of 400,000 in the number of people claiming housing benefit since 2010, despite the 14 cuts, including the bedroom tax and the cap. That is because wages are going down, not up. We have 4,300,000 people earning less than the living wage.
There is a national shortage of heavy goods vehicle drivers, but can anyone get the training for that job? When I told the men that there is a national shortage, they asked at the employment exchange whether they could be trained as heavy goods vehicle drivers, and the answer was no, but some were sent away to get training—upskilling—for a stacker truck licence. Some of them were sanctioned because they did not turn up somewhere. The same people who sent them for the training sanctioned them for not turning up.
My ask of the Chancellor is that he does not play games with this mitigation, and that he puts a stop to these tax credit changes, puts hard thinking in, listens to the many excellent contributions that have been made today, and gives consideration to how we can protect those hard-working people who want to work but have been punished through zero-hours contracts and being agency workers.
It is a pleasure to speak in this debate. I am delighted that we again have an opportunity to try to hold the Government to account. I thank all the speakers who have argued that the Government should change course. In particular, I pay tribute to Conservative Members who have said many wise words, but those wise words will be acceptable only if the Government listen and change tack.
Why are we discussing tax credits again? Frankly, the Government have got themselves into a mess and they need to find a way out of it. The proposals agreed in the statutory instrument and now rejected in the other place are wrongheaded and punish those who are hard-working. We all agree that work must pay, but we do not make work pay by taking money from those in work who rely on tax credits to achieve a modest standard of living.
There is no economic, or indeed moral or ethical, rationale for ripping £4.4 billion out of the tax credits programme. Let us look at and examine the impact of the changes to tax credits. Perhaps I can start with a quote from the Adam Smith Institute, which used to be much loved by Conservative Members:
“Working tax credits are the best form of welfare we have, and cutting them would be a huge mistake. The government has long claimed to want to make work pay for everyone, but cutting tax credits would disincentivise work and hurt those at the bottom of society.”
The average negative impact of the reduction in tax credits will amount to £1,300 in 2016-17, or £25 a week, off each family’s budget. In the period of Margaret Thatcher’s Government, there was the line that if it was not hurting, it was not working. This is going to hurt, and it will hurt millions of families throughout the country. Is that what we want? Is it right and is it fair? Let us have a real debate about improving living standards, but let us also recognise that we have to reverse the growing inequality in the UK. Driving sustainable economic growth and a fairer society will, as an end result, negate the need for tax credit cuts.
As always, the hon. Gentleman is making a very persuasive case. He is absolutely right that the cuts will negatively impact some of the poorest families. Does he agree that it will also disproportionately affect black and minority ethnic communities?
The hon. Gentleman often speaks up, rightly, for those in BME communities, for which I thank him. He is absolutely right: those in disadvantaged communities will feel the brunt of the cuts—and not only them, but those in constituencies up and down the land. This must be stopped to protect people throughout the whole of the United Kingdom, regardless of where they come from.
We keep hearing that we cannot afford tax credits. This is bunkum. The reverse is true: we cannot afford to impact families in the way these measures will. We all want to reduce the deficit and the national debt. We need to drive sustainable economic growth in order to drive up tax receipts and improve our financial position. We cannot do that by taking £4.4 billion out of the economy.
It is the failure to deliver sustainable economic growth that constrains our ability to reduce the deficit and the debt. If the Government’s fiscal policy had been working, the Bank of England would not have intervened to the extent it has had to during the past few years by establishing an asset purchase programme—so called quantitative easing—to the tune of £375 billion. When we talk about our debt crisis and the need to reduce spending, we seem to airbrush away the fact that we owe £375 billion to ourselves—debt created by ourselves. SNP Members understand that quantitative easing was necessary. I might add that the financial markets have benefited massively from this injection of liquidity. The FTSE 100 index was at 3,700 in March 2009 when the programme started; today it is at 6,370—a gain of 73% over six and a half years. The Bank of England has acknowledged that those with financial assets have benefited enormously from the quantitative easing programme over the course of the past six years, and 40% of the benefits of higher asset prices have gone to the top 5% in society. Do not talk to us about all of us being in this together.
This is important because the outcome—I am being charitable in using that word—of fiscal and economic policy has been to enhance inequality, and today we are being told that the poor, particularly the working poor, must pay the price of the Government’s desire to balance the books. That is unfair and it is wrong.
In yesterday’s Prime Minister’s questions, the Prime Minister said:
“printing money, hiking up taxes—we see that it is working people like Karen who would pay the price.”—[Official Report, 28 October 2015; Vol. 601, c. 340.]
I gently point out to the Prime Minister that it is his Government who, through quantitative easing, have in effect been printing money and that the tax credit cuts are in reality a tax increase for Karen and millions of others.
The point is that this is about political choice. Those who have benefited enormously from the quantitative easing programme are now getting an additional bonus for the changes to inheritance tax. The poor are getting their income cut. Where is the social justice in that? Where is the social cohesion that we should be striving to deliver going to come from?
In the spirit of co-operation, let me help the Government.
Indeed they do. The Public Accounts Committee report on fraud and error stocktake, which was published yesterday, states:
“High levels of benefits and tax credits fraud and error remain unacceptable. Overpayments cost every household in the UK around £200 a year and waste money that government could spend on other things…Since 2010 both departments”—
the Department for Work and Pensions and Her Majesty’s Revenue and Customs—
“have made progress in reducing headline rates of fraud and error, particularly HMRC in tax credits. However, in 2013–14, DWP and HMRC still overpaid claimants by £4.6 billion because of fraud and error”.
The fact that in 2016-17 the Government are expected to save £4.4 billion from tax credit changes just goes to show that if the DWP and HMRC were not making errors in overpayments, that money could be used to protect those low-income families who are reliant on tax credits, if the proposals were reversed.
I say to the Chancellor and his colleagues on the Treasury Bench: cut out the mistakes and fraud inflicted on HMRC and you will achieve the savings. Do not go after the poor. Eliminate fraud and mistakes and it’s job done.
The Government’s economic policies have created inequality, and the coup de grâce is that the poor are having to pay again. Before Christmas, letters will be delivered to our constituents who receive tax credits, informing them of the cuts they will experience from next April.
As my hon. Friend says, happy Christmas from Ebenezer Osborne!
We will all be faced with constituents writing to us and coming to our surgeries in despair about how they are going to make ends meet.
Let me turn briefly to the proposals of the right hon. Member for Birkenhead (Frank Field). I commend him for seeking a way out of the difficulties the Government face. His alternative tax credits plan would involve introducing a secondary earnings threshold, which would be paid for by a steeper withdrawal rate for those earning above the new minimum rate. We do not agree, however, that only those earning less than £13,000 should be protected from the cuts. Everyone in receipt of tax credits ought to be protected.
It is admirable that, under the right hon. Gentleman’s proposals, those earning very modest amounts would be protected, but those on modest means would still be hit. For example, a family with two children and gross earnings of £20,000 would still lose £1,656. Simply put, that is not acceptable. The tax credit cuts in their entirety should be stopped. They must be reversed, and reversed in full.
As you are no doubt aware, Mr Speaker, I am new to the Front Bench. This is the second time that I have been let loose at the Dispatch Box this week. Earlier this week, I had the pleasure of facing the Financial Secretary. Today, I am delighted to face the Exchequer Secretary for what I hope will be the first of many lively debates.
I thank the Backbench Business Committee, my right hon. Friend the Member for Birkenhead (Frank Field) and the other hon. Members from across the House who secured this important debate. I place on the record my thanks to the IFS, the Resolution Foundation and other groups for their ground-breaking work on this issue.
We have heard some extremely thought-provoking contributions from Members today. My right hon. Friend the Member for Birkenhead set out his case eloquently, stating that to make the reforms next April is not acceptable and that the Government must carry out proper due diligence, focusing on a range of data groups, such as decile groups, family types, annual effects and life chances, to name but a few.
I commend my right hon. Friend for realising that his nil-cost reform suggestions would create a greater work penalty. That is the beauty of debate in this Chamber—sometimes we are convinced to change our minds.
I am grateful to my hon. Friend for giving way. Perhaps I may address the Scottish nationalist spokesman. I emphasised that I had put forward one idea to initiate debate. I have put forward three others today. I hope that the Scottish nationalists will not use that as an excuse for a cop-out, but will send a clear message to the Government on the very point that my hon. Friend has just made.
I thank my right hon. Friend for that intervention. I want to highlight one more comment that he made earlier: the people we should be saluting and cheering are sick with worry.
Countless Government Members spoke out against the Government’s plans today. I commend them wholeheartedly. The hon. Member for Stevenage (Stephen McPartland) said that he could not support the Government’s statutory instrument because families were coming to his surgery all the time who were frightened. The hon. Member for Aberconwy (Guto Bebb) said that we need to look at this issue again to create a system that does not penalise the poorest in society. The hon. Member for Tiverton and Honiton (Neil Parish) said that everything he believes in as a Conservative is about getting people into work, but there is a risk that these proposals will do the opposite. The right hon. Member for Haltemprice and Howden (Mr Davis) said that this policy was a mistake and highlighted the absence of a proper impact statement.
We had a refreshing change from that kind of dialogue when the hon. Member for Morecambe and Lunesdale (David Morris) became one of the few Government Members to applaud the Chancellor and champion some of the so-called measures that the Government say will offset the tax credit losses.
The hon. Member for Colchester (Will Quince) supported the call for mitigation. The hon. Member for Twickenham (Dr Mathias) fully supported the Chancellor’s claims about higher wages, but agreed that those at the lowest end of the income scale must be protected. The hon. Member for North Cornwall (Scott Mann) broadly supported the Government’s proposals. In stark contrast, the hon. Member for Harrow East (Bob Blackman) supported an examination of the proposals.
The hon. Member for Colne Valley (Jason McCartney) supported other Members on the need to reconsider the pace of change. The hon. Member for Waveney (Peter Aldous) agreed that there is a need to review the measures and that more transitional support is needed. The hon. Member for Torbay (Kevin Foster) supported the motion because his family was rich in love as he grew up, but poor in money. He realised the effect that the proposals may have on aspiration in the long term.
The hon. Member for Stafford (Jeremy Lefroy) cited JFK and stated that if we see everything in terms of income, we are a poorer society. I applaud his condemnation of trickle-down economics. He also made refreshing comments about improving the national insurance system.
Moving over to the Opposition Benches, we heard from my hon. Friend the Member for Darlington (Jenny Chapman), who said that the fear of what may happen is out there already and that the Government must act quickly. My right hon. Friend the Member for Don Valley (Caroline Flint) highlighted the fact that the distributional impact of the cuts will be severely regressive. My hon. Friend the Member for Ogmore (Huw Irranca-Davies) said that his mailbag was full of letters from people who are terrified about what is to come, and my hon. Friend the Member for Birmingham, Selly Oak (Steve McCabe) highlighted Labour’s desire to ensure that we build an economy where families do not need to rely on tax credits. He said it was a mistake to take money from the working poor before their wages have risen. My hon. Friend the Member for Ealing Central and Acton (Dr Huq) stated that the Chancellor could still change his mind and that Labour would welcome such a move, and my hon. Friend the Member for Lewisham, Deptford (Vicky Foxcroft) highlighted the risk that struggling families may fall into debt.
My neighbour and hon. Friend the Member for Heywood and Middleton (Liz McInnes) mentioned the potential increase in child poverty, and my hon. Friend the Member for Nottingham North (Mr Allen) said how lovely today’s debate had been, as it seemed to be a collection of all the sensible people in the House. He said that perhaps the Government should have done things that way in the first place, and I share his sentiments. My hon. Friend the Member for Edmonton (Kate Osamor) said that 72% of people in her constituency receive tax credits, and my hon. Friend the Member for St Helens South and Whiston (Marie Rimmer) outlined—worryingly—that her constituency has the seventh highest levels of unemployment poverty.
The hon. Member for Airdrie and Shotts (Neil Gray) confirmed that we can do better than we are currently doing, and the hon. Member for Arfon (Hywel Williams) highlighted the disincentivising effects of the changes, and especially the impact on under-25s. The hon. Member for Kilmarnock and Loudoun (Alan Brown) rightly asked the Government to revisit their tax avoidance policies, and the hon. Member for Dumfries and Galloway (Richard Arkless) highlighted the worry that his local economy would be affected by cuts to tax credits because those on low incomes are less likely to holiday in Scotland.
The hon. Member for East Antrim (Sammy Wilson) was broadly supportive of the Government’s proposals but questioned their timing, and the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) highlighted household debt and the potential of the changes to exacerbate an already serious problem. Last but not least, the hon. Member for Ross, Skye and Lochaber (Ian Blackford) said that we need to drive sustainable economic growth, which we will not do by taking £4.5 billion out of the economy.
The motion before the House is timely in light of events in the other place this week. Labour supports the position of our noble Friends, which is that the proposals should not go ahead until there has been proper consultation, a Government response to the distributional analysis conducted by the Institute for Fiscal Studies, and mitigation, reform, or indeed withdrawal of the changes if appropriate.
Given the names on the motion and the contributions from across the Chamber, it is clear that widespread pressure spans all parties in the House for the Government to carry out and publish a detailed and adequate impact assessment of the cuts to tax credits. Following such an assessment, they should detail proposals that will ensure that no family is worse off. Labour is clear that if the Government commit to ensuring that no family will be worse off as a result of amended proposals, we will put the interests of those families above party political considerations, and we will not attack the Government for such a move. I cannot think of any recent occasion when any Opposition have made such an offer, so I call on the Minister to listen to the contributions made today.
This House is at its best when we use the power of debate to convince other Members of the merits of a particular argument, whatever our deeply held values or ideologies, and on rare but welcome occasions such as this we can reach a consensus in the House on certain issues. I hope that the Minister and hon. Members will agree that the Government’s policy on tax credits needs to be reviewed and changed.
Let me anticipate what the Minister might say in responding to the debate, because he and I agree on one key point: it is necessary to reduce the deficit over the economic cycle. What we disagree on is the economic strategy used to achieve that, and I do not believe that the Government’s plans achieve that goal fairly or effectively—indeed, in the long term, these savage cuts and the resultant pressure that they will place on other parts of the welfare system will achieve quite the opposite. As we were reminded during the debate, the Prime Minister denied any need or plan to cut tax credits during the election, and the Minister must understand that members of the public—especially those who voted Conservative—are rightly angry.
Cuts to tax credits would mean that more than 3 million families will be on average £1,300 worse off next year. Some working families will lose nearly £3,500 a year, yet £2.5 billion pounds has been found for a cut to inheritance tax that will benefit the wealthiest 4% of people in this country. At the same time, £4.5 billion is being taken out of the pockets of low and middle-income families. The Treasury’s own analysis, and that of the Resolution Foundation, shows that the cuts to tax credits, based on the Government’s current proposals, will put another 200,000 children into poverty. There are already half a million more children in poverty than there were in 2010.
We are told by the Government that cuts to tax credits will be compensated by the so-called living wage. Let me be clear: they will not. In fact, the Institute for Fiscal Studies made that clear:
“the increase in the minimum wage simply cannot provide full compensation for the majority of losses that will be experienced…That is just arithmetically impossible.”
We are grateful for its analysis of course, because the Government have refused to publish an adequate version of their own. The IFS research shows that because of the different profile and scale of families and individuals on the minimum wage versus those in receipt of tax credits, an increase in the minimum wage, though welcome, will not mitigate the effect of the cuts. The average family will still be significantly worse off.
The rise in the minimum wage was accompanied by £4 billion of giveaways in cuts to corporation tax. We are also told that the Government will compensate for losses to income by providing 30 hours’ free childcare for three and four-year-olds. In my constituency of Salford and Eccles, our Labour council already provides 25 hours’ free childcare, but demand for nursery places currently far outstrips supply. The Pre-School Learning Alliance has warned that councils are already paying childcare providers insufficient hourly rates to provide the existing hours of free childcare, and that going up to 30 hours would push many providers to breaking point. If the Minister intends to cite childcare as the answer to tax credit cuts, perhaps he will confirm that the 30 hours scheme will be properly funded and will not push providers to the limit.
In conclusion, in my constituency more than 61% of families are receiving tax credits. They are not the so-called scroungers we hear about; they are men and women who are working hard to try to build a future for themselves and their children. They are trying to lift their children out of poverty and provide them with the nourishment and financial support they need so that maybe, just maybe, they will not have to endure the same hardship their parents endured. We have heard about the American dream, but there is no equivalent British dream for these people. They work hard and get nowhere. Low-paid, unskilled work is often the order of the day for many. For some, it is a case of trying to build up a business to be proud of. For others, they simply juggle work with the responsibility of caring for loved ones. It is clear that the Government’s claims that tax credits cuts will not cause any family to be worse off simply do not stand up to scrutiny. These families deserve a future. As such, we will support this motion.
I am grateful for the opportunity to respond to this debate on behalf of the Government.
I must start by thanking most sincerely the Chair of the Select Committee, the right hon. Member for Birkenhead (Frank Field), for his continued work in this area. His expertise and commitment are well known and respected by all. I also welcome the hon. Member for Salford and Eccles (Rebecca Long Bailey) to her post. I, too, look forward to many opportunities to debate across the Dispatch Box.
I am grateful to all 32 right hon. and hon. Members, from both sides of the House, who participated in the debate. The Government are listening and this debate forms an important part of that process. I have heard the arguments put forward by hon. Members today. We are all united in wanting to implement policies to deliver the best possible settlement for our constituents now, in the near future and for the generations to come.
The Government’s belief, which underpins every aspect of our policies, is that without a solid basis of economic stability, the long-term security of the nation’s citizens cannot be protected. When economic stability is lost, the entire system falls apart. As a rule, those who end up losing most are those who started with the least.
I acknowledge, as does my right hon. Friend the Chancellor, the concerns expressed today and those expressed elsewhere and earlier by Members of this House. The Chancellor has said he has listened to concerns from colleagues and will make proposals in the autumn statement to achieve the goal of reforming tax credits, saving the money needed to secure our economy while at the same time helping in the transition to these changes. In that context, I fear that today I am not telling the House too much that is new, but I respect the reasons that hon. Members have wished to hold this debate. I and others have spoken at length about how spending on tax credits was allowed to get out of control; about how the costs trebled in real terms to 2010 and ended up costing £30 billion; and about how the level of in-work poverty rose over the same period.
Reforming welfare is part of the new settlement we are offering working Britain. Fundamentally, we have a choice about how people should be paid: through low wages topped up by high state benefits, or through higher wages, taking home a greater part of those wages, topped up by less in state benefits. We believe in rebalancing the economy so that employers provide decent wages for their employees. By 2020, when it will be worth more than £9 an hour, the national living wage will mean over £5,000 more gross full-time pay for someone on today’s minimum wage. With record employment, low inflation, rising wages and a rising standard of living, this is the time to be making structural reform.
Our record on helping working people stretches far beyond this. Since 2010, our mission in government has been to get wages up, tax down and welfare under control. The best route out of poverty is work, so we have created the conditions for 1,000 new jobs to be created every day—2 million since 2010—and have plans for 3 million more apprenticeships. We have increased the tax-free personal allowance radically. We are doubling our childcare offer to working families with three and four-year-olds. We have frozen fuel duty and council tax and protected spending on our schools and national health service.
As the Prime Minister said yesterday, we remain committed to the vision of a high pay, low tax, lower welfare society. We believe that the route to ensuring everyone is better off is to balance the finances, keep growing the economy, keep creating jobs, keep inflation low, keep cutting people’s taxes and introduce the national living wage. Hon. Members have asked about the distributional analysis and the effect of Government policies on different income groups. Considering all measures together, the burden of deficit reduction is spread evenly across income groups, albeit with a proportionate increase in the tax burden at the top of the distribution.
The right hon. Member for Birkenhead asked specifically about the data made available or what could be made available. The Government have provided an analysis by quintile of the overall distributional effect of Government measures since 2010, but—to answer his question—it does not include the effect of the national minimum wage because that is not a fiscal measure. He also asked about the interaction with the income tax personal allowance. As the Prime Minister said the other day, with the improving labour market, additional childcare support and the introduction of the national living wage, more people will come into income tax and so will benefit from those raised thresholds.
The right hon. Gentleman rightly asked, as did my right hon. Friend the Member for Haltemprice and Howden (Mr Davis), about the key subject of marginal rates of withdrawal—or, as the hon. Member for Nottingham North (Mr Allen) might prefer, the rate at which money is taken away. I agree with them on the importance of these rates and their effect on work incentives, and I acknowledge that the proposals did imply a high peak marginal withdrawal rate for people earning above the personal allowance while also on the tax credits and housing benefits tapers. It is important to remember, however, that this compares with a top rate today that is only 2 percentage points different. I am afraid that high marginal withdrawal rates have long been a feature of the UK benefits system—and, indeed, of most welfare systems in developed nations.
As hon. Members will know, the key reform in this area is universal credit, which will simplify the system by merging six benefits into one, lower the marginal withdrawal rate and move the hours thresholds—the various spikes—to 16, 24 and 30 hours.
I genuinely welcome the broad tone of the Minister’s contribution and the fact that he says the Government are in listening mode, but he makes it seem as if there will be no impact from these changes. According to House of Commons Library statistics—this goes to the heart of the debate—a family with two children on £20,420, after all the other changes he has talked about, will lose £1,233.60 from these changes. Does he not believe there will be impacts on those families?
None of the third-party analyses takes into account all the different changes and elements of support that are coming in. Of course, depending on exactly how many earners there are in the family, the age of the children and so forth, any proposals will impact differently. My point, as discussed in the debate, is that the Government are in listening mode and the Chancellor has said that he will come back and say more at the autumn statement.
The question of childcare came up more than once, including in the summing up of the hon. Member for Salford and Eccles. A review is taking place on the cost reimbursement for childcare providers, and it is important that the model is sustainable.
Questions about the devolved Administrations were raised by the hon. Member for East Antrim (Sammy Wilson) and, indirectly, by the hon. Member for Arfon (Hywel Williams). The 30-hour offer is an England offer, but there are Barnett consequentials—I hope I have the terminology right—that go with it, and it is up to the devolved Administrations to proceed in the way they think right. I am happy to be corrected by SNP Members, but I believe that the Scottish Government have committed to bringing forward 30 hours from 2020. I wonder whether they might think about doing that sooner.
Further questions were raised, although they were batted away quite effectively at the time, about the ability of the Scottish Government to pursue their own course on overall tax and benefits. Let me make it clear that from as early as 2017 the Scottish Government will be able to set rates and bands for income tax on earnings. That is clear in the Scotland Bill, which is also very clear that the Scottish Government can top up benefits and make discretionary payments to claimants. The Secretary of State for Work and Pensions cannot reasonably withhold consent for that.
I am very grateful to the hon. Gentleman for being so gracious with his time. We have demonstrated that the Scottish Government have mitigated some of the worst effects of the welfare cuts over the last few years, with £100 million invested to offset the impact of the bedroom tax. We want to protect the people of Scotland, but we need the powers to be able to do so. That means we need full powers over our economy, over taxation and over social security. Give us the tools, and we will protect the people of Scotland that Westminster is letting down.
SNP Members have managed to use that line for quite some time. I am not sure how much longer it will be credible to continue to use it, given the powers that are coming to them.
The reforms to the tax credit system have been discussed a number of times and voted on by the whole House on five occasions. The case for change is clear—not merely on fiscal grounds, but because a labour market dependent on a high level of welfare is not the way to deliver the stability and independence that working people deserve.
We acknowledge, of course, the concerns expressed in recent weeks. My right hon. Friend the Chancellor said we would listen—and that is precisely what we intend to do. He believes and I believe that we can achieve the same goal of reforming tax credits, saving the money we need to save to secure our economy while at the same time helping in the transition. That is what my right hon. Friend will set out in the autumn statement.
We are determined to deliver the lower welfare, higher wage economy that we were elected to deliver, that the British people want to see and that working Britain deserves.