“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.
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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.
Dr Huq: I have already given way once, so I will not do so again. Reduced tax credits are being introduced alongside a gamut of other welfare changes, the cumulative effect of which is an assault on the lowest paid in our country.
Jason McCartney (Colne Valley) (Con): Please stick to the motion.
Dr Huq: What I am saying is relevant to the motion, because we need some context.
Madam Deputy Speaker (Mrs Eleanor Laing): Order. If the hon. Lady was not speaking to the motion, I would stop her.
Dr Huq: 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.
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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.
2.10 pm
Dr Tania Mathias (Twickenham) (Con): 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.
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2.13 pm
Vicky Foxcroft (Lewisham, Deptford) (Lab): 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.
Ms Buck: 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.
Vicky Foxcroft: 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.
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Jeremy Quin (Horsham) (Con): 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.
Vicky Foxcroft: 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.
2.18 pm
Scott Mann (North Cornwall) (Con): 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.
Alan Brown (Kilmarnock and Loudoun) (SNP): 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.
Scott Mann: I accept the hon. Gentleman’s point, but we are looking to increase the living wage to ensure that people are better off in work than out of work.
Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP): 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.
Scott Mann: 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
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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.
Steve McCabe: Is the hon. Gentleman saying, therefore, that the Prime Minister could not answer because the Government are not committed to protecting families from this problem?
Scott Mann: 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.
Jeremy Quin (Horsham) (Con): 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?
Scott Mann: I would indeed welcome that. We have heard nothing from the Opposition to illustrate how they would deal with the £30 billion deficit.
Kevin Foster: Does my hon. Friend agree that those comments were surprising because Labour has voted against every welfare change made over the past five years?
Scott Mann: Absolutely correct. It is ultimately our responsibility to look at all the financial provision that we make as a Government and ensure that that money is distributed to people who are trying to do the right thing.
Rob Marris (Wolverhampton South West) (Lab): Will the hon. Gentleman give way?
Rob Marris:
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.
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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.
Scott Mann: 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.
2.26 pm
Hywel Williams (Arfon) (PC): 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
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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.
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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.
2.33 pm
Bob Blackman (Harrow East) (Con): 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.
Mr MacNeil: 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.
Bob Blackman: 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.
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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.
Richard Arkless (Dumfries and Galloway) (SNP): Will the hon. Gentleman give way?
Bob Blackman: I will not give way again.
That is a lifestyle choice that people make. What we can see is that Government proposals and Government restrictions on taxation and benefits change people’s habits, so what we have to do is enable people—
Marie Rimmer (St Helens South and Whiston) (Lab): Will the hon. Gentleman give way?
Bob Blackman: 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
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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.
2.42 pm
Liz McInnes (Heywood and Middleton) (Lab): 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.
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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
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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.
2.48 pm
Jason McCartney (Colne Valley) (Con): 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.
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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.
Madam Deputy Speaker (Mrs Eleanor Laing): 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.
2.54 pm
Alan Brown (Kilmarnock and Loudoun) (SNP): 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
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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
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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.
3.1 pm
Peter Aldous (Waveney) (Con): 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
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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.
Martin Vickers (Cleethorpes) (Con): 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?
Peter Aldous: 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
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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.
3.9 pm
Mr Graham Allen (Nottingham North) (Lab): 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—
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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.
Huw Irranca-Davies: 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.
Mr Allen: 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.
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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.
Liz McInnes: 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.
Mr Allen: 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.
Guto Bebb: 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.
Mr Allen: 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
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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.
3.20 pm
Kevin Foster (Torbay) (Con): 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.
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Ian Blackford: Will the hon. Gentleman enlighten us on how the Chancellor’s forecast for budget and debt reduction worked out in the last Parliament?
Kevin Foster: 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.
3.27 pm
Richard Arkless (Dumfries and Galloway) (SNP): 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.
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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.
Brendan O'Hara: 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?
Richard Arkless: 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
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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.
3.34 pm
Jeremy Lefroy (Stafford) (Con):
It is a great honour to follow the hon. Member for Dumfries and Galloway (Richard Arkless). Indeed, I am one of those who have
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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.
Stephen McPartland: Does my hon. Friend agree that the real poverty in this country is poverty of education, of opportunity and of aspiration and that the people on the lowest incomes are trying to work their way out of that poverty?
Jeremy Lefroy: 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
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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.
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3.42 pm
Sammy Wilson (East Antrim) (DUP): 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.
Dr Lisa Cameron (East Kilbride, Strathaven and Lesmahagow) (SNP): 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.
Sammy Wilson: 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.
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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.
Mr MacNeil: 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.
Sammy Wilson: 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
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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.
3.53 pm
Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP): 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
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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.
Mr MacNeil: 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!
Drew Hendry: 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.
Mr MacNeil:
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
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peers—perhaps at one time there were signs of socialism in their lives—voted with the Tories for these obscene welfare measures?
Drew Hendry: 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.
4.2 pm
Kate Osamor (Edmonton) (Lab/Co-op): 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
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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.
4.7 pm
Marie Rimmer (St Helens South and Whiston) (Lab): 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
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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.
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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.
4.15 pm
Ian Blackford (Ross, Skye and Lochaber) (SNP): 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.
Imran Hussain (Bradford East) (Lab): 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?
Ian Blackford: 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.
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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.
Ian Blackford: 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”—
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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.
Ian Blackford: 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.
4.24 pm
Rebecca Long Bailey (Salford and Eccles) (Lab): 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.
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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.
Frank Field: 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.
Rebecca Long Bailey: 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.
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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
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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
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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.
4.37 pm
The Exchequer Secretary to the Treasury (Damian Hinds): 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.
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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.