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Working Tax Credits

Volume 737: debated on Monday 14 May 2012

Question

Asked By

To ask Her Majesty’s Government whether they will reconsider the changes to working tax credits.

My Lords, the changes to the working tax credit are necessary in order to tackle the record peacetime deficit which this Government inherited. Tax credit spending increased to around £27 billion in 2010-11 and extended to those high up in the income distribution. This was unsustainable. The package of changes to tax credits introduced in April will save £4 billion in 2016-17 while ensuring that the most vulnerable are protected. For that reason, they will not be reconsidered.

My Lords, this year, more than 200,000 low income families who work less than 24 hours a week will lose thousands of pounds as a result of the withdrawal of the working tax credit. In the present economic situation, a great many employers are not able to offer these people extra hours. Does the Minister agree that the phrase “making work pay” must seem pretty hollow to these impoverished families? I plead with the Government to take an interest in the poorest in our society and do something about this group who desperately need our help.

My Lords, what underlines this change and the need for it, as well as the unsustainability of the huge cost of working tax credits, is some of the unfairness and behavioural incentives in the system. This Government firmly believe that working people on low earnings should gain through money that they earn rather than from government subsidies. The switch from reducing reliance on benefits to increasing personal allowances is part of a significant change to getting more families to gain more from working than has been the case to date and for incentivising second earners into work. There was also a basic unfairness in the system as it was in that a single parent had to work 16 hours but a couple had to work only 16 hours between them. Therefore, underlying what the Government have announced are a fairness and an incentivisation and behavioural change that are very important.

My Lords, what advice would the Minister give to the woman interviewed on the “Today” programme last month? She is in a part-time job that she loves. Her husband is an unemployed builder who cannot find work. She is at her wits’ end because her employer will not give her extra hours and no alternative work is available to her. What is she and thousands of others in a similar situation supposed to do when they are struggling to manage without working tax credit and the only alternative realistic option is to give up work, which is the very opposite of what the Minister says that this Government believe in?

My Lords, I did not hear that particular case and it is very difficult to comment on individual cases, particularly when one has not heard the details. I appreciate that many of the changes we are making across the tax and spending playing field are painful for very many people in this country. I do not minimise the effect on the 200,000 or so, including couples with children, who we are asking to find another eight hours on top of what they may do otherwise.

We should not play down the prospects for finding employment in this country. Nearly 1.1 million people found a job in the fourth quarter of 2011. Some 600,000 of those had been unemployed and had got into employment, and 459,000 were previously inactive. At the moment, the number of job vacancies is rising. At the last count, it was 464,000. I do not underestimate at all the effect on individual cases but there are jobs out there and more than 1 million people in one quarter found employment.

My Lords, I think that a significant number of companies are somewhat fixated around the idea that 16 hours is the gold standard for part-time work. Given that for many people affected by this change, 24 hours becomes the standard number of hours they would wish to be in employment, are there means by which the Government could communicate, through the trade associations and others, to try to change some of the cultural attitudes towards the various shift structures and others that set part-time hours?

First, I congratulate my noble friend on her new responsibilities as her party’s spokesman on the economy. I can see that she is not going to give me an easy time. It is an important question. First of all, there are important elements of the present tax credits system, such as the child tax credit, which do not relate to hours worked. Of course, when universal credit comes in, the link to hours worked will go altogether. As my noble friend knows, that change will start with natural migration, coming in from October 2013. Then managed migration will take place from August 2014 in a way that means that nobody loses out in cash terms. So it is a transition that has been carefully thought about by my noble friend Lord Freud.

My Lords, the examination by the Institute for Fiscal Studies of the impact of the April measures demonstrates that the greatest proportionate burden of those measures falls on those in the lowest deciles of the income distribution. In the light of that independent finding, would the Minister like to correct his inaccurate first Answer to my noble friend Lord Touhig?

My Lords, of course I shall read the record very carefully, and if I made any inaccurate response I shall correct it—but I do not believe that I did. There were, of course, a large number of tax and benefit measures announced to come into effect in the last Budget, including 24 million households that will benefit by up to £6.50 a week from the changes to allowances as well as benefits. There are the significant above-indexation increases to child tax credits as well. Therefore, one should look at the total effect, which is very much designed to make sure that those at the lower end of the income scale are protected.