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7.41 pm

Kali Mountford (Colne Valley): We have heard some extraordinary contributions from Members who are obviously gifted not only as speakers in the House, but particularly in their knowledge of and expertise in such legislation. I feel somewhat inadequate, but perhaps more adequate than some Conservative Members, not because I denigrate their speeches, but because it is a sad fact that

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too few are taking part in the debate. However inadequate my contribution, it must be better than no contribution at all, or at least I hope so.

Some speeches have shown the consensus across the House on the principle behind the Bill. To an extent, that surprises me. Some reminded me of speeches made in Committee, so detailed was their content, but I shall not go into such detail. I prefer to consider the broader points, especially those involving the principle of tax credits, what got us to this debate and where we are going in terms of the relationship between people in and out of work and the benefits that we can accrue to support them.

I must do that because it has been suggested today that we are limiting people's scope and disabling their progress through their working lives. I fundamentally disagree with that argument, even though it was proposed by a most well regarded Member, my right hon. Friend the Member for Birkenhead (Mr. Field).

Phil Hope: My hon. Friend wondered whether her contribution would be better than those of Conservative Members. Has she realised that no Conservative Back Benchers are present?

Kali Mountford: I am glad that my hon. Friend recognises that, whatever humble words I say to the House, they are better than none, although I am not sure whether he is damning me with faint praise. Thanks anyway.

I have a problem with the assertion that giving in-work benefits of any kind limits people's prospects. We are acting as though the debate is taking place in a vacuum, but we are in an extremely stressed world economic market. I cannot remember a time in the past 20 to 25 years when we could say that we could do nothing to benefit the low paid. Often the battle-cry was, "A fair day's work for a fair day's pay." People also said, "I want enough pay for a working family to live on." That presents another problem.

Employers may say, "My business can support only so much, those skills attract only so much pay and the economic situation allows my business to develop only at a certain rate in this market." To follow the argument through to its logical conclusion, we could say, "Pay a higher rate for the job—not the market rate—and skew the market so that people are paid according to what they need rather than what the market demands." Then we would be in a completely different situation. We would be telling employers, "You must pay what your business cannot afford." That begs a question about the minimum wage.

It now seems to be accepted across the House that a minimum wage underpins the labour market and provides a base below which people cannot fall. That wage in itself is an interference in the marketplace, but it is minimal and we are telling employers, "There are standards that we expect you to keep." We are right to do so, but are we also saying that they should never employ people with several children, many obligations or high housing costs, because their businesses could not afford them on such a basis? That cannot be right.

Dr. Palmer: Does my hon. Friend agree that the minimum wage and the working families tax credit are

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two sides of the same coin? If we had the working families tax credit without the minimum wage, we would subsidise people paying low wages.

Kali Mountford: My hon. Friend shows his wisdom in anticipating my next point. I would go further and say that family credit acted as a dynamic. It was argued often and rightly that family credit interfered in the marketplace. Tonight, however, we must consider not only the new tax credits that we are putting in place, but what the working families tax credit achieved and what happened previously. There was a difficult dynamic acting between people who were in work and out of work, and the tax regime.

My meagre thinking on the subject before 1997 took in examples such as benefit tapering rules to get round the problems of a lumpy system that dealt with problems in a lumpy way. I cannot think of a better word for it than "lumpy", as people got benefits in lumps, their assessment was done in lumps and the system was a lumpy instrument for dealing with what was, for people whose circumstances changed routinely and regularly, a complex and difficult problem.

I did not have the imagination to consider the tax system instead, but I am glad that someone did, because we are moving to a more flexible system that will change the relationship between people in work, taxation, benefits and their ability to pay their own way. My right hon. Friend the Member for Birkenhead pursued the argument that we will damp down wages by interfering in the marketplace and that we are preventing people from aspiring to break out of the cycle. I would argue that that was true under the benefits system and that the flexibility in the tax credits system allows people to develop their skills.

The hon. Member for Arundel and South Downs (Mr. Flight) advanced the argument that the skills base would be damped down completely by the introduction of tax credits, but both he and my right hon. Friend are completely wrong. People excluded from the marketplace who cannot get into the world of work have no opportunity to extend their skills. If people have no opportunity to extend their skills, they have no opportunity to develop in the workplace, get better pay and break out of the downward spiral of decline that comes with the poverty of worklessness.

Phil Hope: My hon. Friend has shown by her eloquence that she knows a lot more about this subject than she has let on. I agree with her that low wages and low skills hold people back, and are a problem for people on low incomes living in deprived areas. The tax credit system provides the trampoline for them to get into work, which is essential if they are to develop skills and go beyond the minimum wage.

Kali Mountford: I refer my hon. Friend to the contribution of our hon. Friend the Member for Regent's Park and Kensington, North (Ms Buck). In her eloquent and detailed speech she explained how people are affected by lengthy periods of worklessness. No one in the House should suggest that the tax credit system is a panacea for all ills, because there will always be people who, for a variety of reasons, are not able temporarily or

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permanently to enter the world of work. However, for those who can—I am not sure whether we can put it as strongly as an obligation or even a right—there is an opportunity to do so. We should encourage people to understand the effect on their lives of lengthy periods of worklessness, and its effect on generations.

Before I came to the House, I lived in Firth Park in Sheffield, which is one of the poorest areas in the country. There was great deprivation after the closure of the steel mills. Generations of families were out of work, and great social change resulted from that. It was burdensome for individuals, because their working lives, their relationships with colleagues and their sense of self-worth were altered, and their children did not grow up in an atmosphere in which people expected to go to work and look after themselves throughout their lives. There was also a cost to us all socially and economically. There is a cost to us if we do not have a full employment strategy. Recognition of that lies at the core of the tax credit system.

My hon. Friend the Member for Mitcham and Morden (Siobhain McDonagh), who is on my left—politically or literally—rightly referred to the relationship people have with work in her very good speech. We must recognise the intrinsic nature of that relationship: it is how people identify themselves and how they move forward in their lives.

Both those contributions from my hon. Friends were telling. I was disappointed in the contributions of Conservative Members—if I can be even more disappointed in them than I was by the absence of those Members—because they rarely touched on poverty and how people get themselves out of economic poverty and poverty of expectation. Values and aspirations come from the world of work, and although the tax credit system is not a panacea, because some people will be excluded from the world of work for a variety of other reasons, there are measures to encourage and give people hope when, through disability or illness or other circumstances, they have been unable to work. Under the tax credit system they may be able to change those circumstances some time in the future.

We can at least give support to people who are currently able to work, so that they can move into the world of work and it can make some sense to them. What I value about the system is that it gives people advice before they take final decisions about what job to take and what job they can afford to take. The in-work benefit advice is crucial and has made a significant change.

When we try to combat fraud in the system, we should consider the main motivations for fraud. It is easy to get into a major argument about organised crime—I put it no less than that—in the benefits system. It has been suggested that we cannot handle fraud in the tax system. If anyone has ever made a mistake on their tax form, they will know only too well how responsive the tax system can be when people make mistakes—honest mistakes by some of us, but less so in other cases. The tax system has proved itself well able to deal with fraud. To compare the ability of the tax system and the benefit system to deal with fraud is to underestimate why people get themselves in a pickle. In the benefits system, it often arose out of ignorance.

Some useful suggestions were offered about how we deal with such ignorance. Ignorance in the benefits system often stemmed from people's belief that if they moved

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into the world of work they would be worse off, not only because of the loss of passported benefits, but because the work they would get would not pay enough to cover their rent or mortgage and their bills. I have frequently come across people who make a false judgment that if they take a particular job they will be worse off, so they take work on the black market. They put themselves at risk, as well as the whole economic structure, because the black market does nothing for any of us. Giving them advice beforehand prevents that problem and by moving people into a world of work where they are given the correct advice about how their employment can affect them, we are helping them to help themselves and to help their families into a world of aspiration, which they have so far been denied.

Other criticisms have been made about means-testing. I have discussed that issue in the House on many occasions. Some call it means-testing, but I prefer to call it targeting because that makes me feel so much better about myself. The hon. Member for Northavon (Mr. Webb) referred to the subject. I was concerned about how we think about targeting and how we help people through targeting—the hon. Gentleman may want to call it means-testing. There is a growing acceptance that we cannot afford everything all the time. Even the Liberal Democrats realise that we cannot afford everything we would like to deliver. I accept that there is a place for universal benefits in some circumstances, but our money is sometimes better spent by focusing it on the people who need it most.

I was intrigued by the hon. Gentleman's seemingly simple and attractive notion that by changing the threshold for income tax we would offer a quid pro quo for people like us and those worst off would gain a great deal, and that it would cost us little compared with a tax credit system. On the face of it, that sounded like a clever idea and I wanted to applaud the hon. Gentleman, until I gave a little moment's thought to the objective of the tax credit, which is to help the poorest. I understand his argument that those of us who are better off would pay more tax—we could talk about other ways of doing that, such as considering the starting and the top rate of tax—but we would not necessarily help those who need it most.

The hon. Gentleman says that he does not know of many people who earn so little that they are below the tax threshold. Unfortunately, I do know some people in that situation who are outside that threshold. I suggest to him that tax thresholds change for other reasons, not least if a person has paid too little or too much tax in the previous year. It is a mechanism used by the tax office to amend someone's tax for the following year, so it is not quite the tool that it seemed when the hon. Gentleman set out his proposals.

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