New Clause 2 — Childcare

Part of Welfare Reform Bill (Programme) (No. 2) – in the House of Commons at 4:30 pm on 13th June 2011.

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Photo of Stephen Timms Stephen Timms Shadow Minister (Work and Pensions) 4:30 pm, 13th June 2011

Certainly the Bill should encourage aspiration, but if it prevents people from saving in the way that I have described, as clause 5 will, it will undermine aspiration. That is the point: we want to change the Bill so that it will allow people, even those on universal credit, to save. We believe that everyone should be encouraged to save, rather than being punished for having saved.

The Secretary of State used to agree with us. In 2008, he said that

“poverty is not just about how little you earn; it’s also about how little you own.”

If we want people to work their way out of poverty in the way in which the hon. Gentleman suggests—and I agree with him about that—we need to offer them the chance to save. I am afraid that if the Government press ahead with making saving on a low income impossible, the phrase “compassionate conservatism” will be revealed as a sham.

For similar reasons, I hope that Government Members will share my concern about the Bill’s discouragement to self-employment. Schedule 1 provides for a minimum income floor when calculating universal credit for self-employed people. Under that provision, Ministers are making the assumption that self-employed people will be earning at least the minimum wage for every hour they work, but anyone with even a passing knowledge of what is involved in starting up in self-employment will know that that is absurd. While establishing their business, many self-employed people work extraordinarily long hours and earn hardly anything at all, and their income fluctuates hugely month by month. It is absurd to assume that they will earn the minimum wage for every hour they work, and that they should therefore have their universal credit reduced accordingly. That is why the Chartered Institute of Taxation has warned that this new system will be much less supportive of self-employment than the current one.

Our amendment 27 therefore seeks to align the universal credit definitions of income for self-employed people with those used in the tax system and in tax credits. The Chartered Institute of Taxation’s low incomes tax reform group has pointed out that allowances are made in the tax credit system for investment in business assets and equipment and for trading losses that can be set against other income or the profits on later periods of trading. Those arrangements reflect the reality of being self-employed. The idea that the self-employed are earning at least the minimum wage for every hour they work in self-employment is a complete illusion, and if the Bill is not amended it will destroy the very effective support that the tax credit system currently offers to self-employment.