Tax Credits (Working Families)

Part of Opposition Day — [5th Allotted Day] – in the House of Commons at 4:05 pm on 7th July 2015.

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Photo of Shabana Mahmood Shabana Mahmood Shadow Chief Secretary to the Treasury 4:05 pm, 7th July 2015

I am going to make a little more progress.

As I have said, we also know that a number of indicators suggest that the recovery is not feeding through to job security and pay growth for those who have to rely on tax credits. The number of jobs in low-paid sectors grew at twice the rate of those in non-low-paid sectors between the second quarter of 2010 and the second quarter of 2014. The number of working people paid housing benefit has risen by 400,000 since 2010, because working people are not bringing home enough money to pay the rent. The number of people earning less than the living wage has increased by 1.8 million since 2009. Now it seems that these same people—the strivers, the doers and the workers whom the Chancellor claims to want to put his arms around and hug close—are, having been hit hard over the last five years, going to bear the brunt again.

Labour believes the way into work and off welfare is by tackling the real causes of high welfare costs: the underlying drivers of low pay, high housing benefit costs and insecure working conditions. The Government’s failure to address these underlying causes in a meaningful way over the past five years has meant they have spent £25 billion more than they expected to spend on welfare in 2010. The welfare bill remains higher than expected for the same reason as the deficit remains high: we cannot disconnect what happens in household budgets from the economy overall, and that means we cannot remove tax credits for working people without creating the conditions which allow that to be done in a way that does not penalise workers on low pay.

We want a higher-wage economy where people are less reliant on tax credits to make ends meet. That is why we set out plans to raise the minimum wage to at least £8 an hour by 2019, and it is why we support the living wage and set out proposals in our manifesto to encourage and incentivise business to pay it. I strongly encourage the Government to steal our policy, and if they do steal it they should do so as a first step to embedding higher wages in the economy before they consider going ahead with any changes to tax credits.

The Government also should remember that the way in which the living wage is set assumes that families are already taking up their full tax credits entitlement. The Greater London Authority, which works out the London living wage, says:

“If means-tested benefits were not taken into account (that is, tax credits, housing benefits and council tax benefit) the Living Wage would be approximately £11.65 per hour.”

That is more than £2 higher than it is at the moment. The living wage already has tax credits priced in, and it will not be a living wage in the face of tax credit cuts. If the Government come forward tomorrow with proposals on the living wage, they will have to explain either that they are going to go for a much higher living wage than we have at the moment or why they are going to hit working people again and again.

The proposed tax credit cuts tomorrow have attracted widespread criticism across the political spectrum. Everyone agrees that people should be better off in work than unemployed, but removing or significantly cutting tax credits without having charted a course towards a high-skill, high-wage economy means that this Government are not tackling low pay, but are attacking the low paid. That is wrong; those people will be punished for circumstances outside their control as they try to do the right thing. Hon. Members from across the House should send a clear signal to the Government that that is wrong approach and vote in favour of our motion.