Tax Credits

Oral Answers to Questions — Treasury – in the House of Commons at 11:30 am on 21st July 2015.

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Photo of Teresa Pearce Teresa Pearce Labour, Erith and Thamesmead 11:30 am, 21st July 2015

What estimate he has made of the number of people who will receive a net reduction in income as a result of the policies on tax credits announced in the summer Budget 2015.

Photo of Damian Hinds Damian Hinds The Exchequer Secretary

The Government want to move from a low-wage, high-tax, high-welfare society to a higher-wage, lower-tax, less welfare-reliant society. That means more emphasis on support to hard-working families on low incomes by reducing income tax, increasing the personal allowance, increasing wages and topping up low wages through tax credits.

Photo of Teresa Pearce Teresa Pearce Labour, Erith and Thamesmead

Many large, profit-making employers currently pay low wages and enjoy a state subsidy of their staff costs via the tax credit system. What ideas and options did the Treasury team consider for clawing back that subsidy from the employers before it decided to take it from the low paid?

Photo of Damian Hinds Damian Hinds The Exchequer Secretary

The hon. Lady highlights an important point and agrees, I think, with the analysis of Alistair Darling who said that an unintended consequence of the tax credit system was that it would end up making that subsidy in this way. We are introducing the national living wage. For someone working full-time, that will be worth £5,200 more in cash terms by the end of the Parliament.

Photo of David Davies David Davies Chair, Welsh Affairs Committee, Chair, Welsh Affairs Committee

Does my hon. Friend agree that the number of people losing out will be vastly outweighed by that of those who will benefit from the higher minimum wage, the higher tax threshold, and the incentive to be out there looking for work?

Photo of Damian Hinds Damian Hinds The Exchequer Secretary

I can confirm that, when we take the fiscal measures of the summer Budget altogether, eight out of 10 families will be better off.

Photo of Tasmina Ahmed-Sheikh Tasmina Ahmed-Sheikh Shadow SNP Westminster Group Leader (Trade and Investment)

The consequence of this Budget is that 1.8 million women in low-paid work across the UK will lose an average of just over £1,000 a year over the next five years. Cuts to child and working tax credits will hit 2.8 million women in total, two-thirds of those affected. Why is it that this Government’s policies are having a disproportionately negative impact on this country’s women?

Photo of Damian Hinds Damian Hinds The Exchequer Secretary

I can confirm that Scotland has the second lowest rate of female unemployment in the European Union, and the second highest rate of female employment. Women will disproportionately benefit throughout the UK from rises in their personal allowance and the introduction of the national living wage.

Photo of Gareth Johnson Gareth Johnson Conservative, Dartford

When tax credits were first introduced by Gordon Brown, he said that it would cost £2 billion a year. It is now costing £30 billion, which is twice the Home Office budget. Surely the prudent thing to do is to address that ballooning expenditure, which too often simply subsidises low-paying employers.

Photo of Damian Hinds Damian Hinds The Exchequer Secretary

My hon. Friend is absolutely right to say that the cost of tax credits has ballooned. They had trebled in the 11 years to 2010. To get the country back into the black, it was absolutely necessary to take control of it, but doing so at the same time as taking these other key measures.

Photo of Shabana Mahmood Shabana Mahmood Shadow Chief Secretary to the Treasury

Research from the House of Commons Library shows that the effect of the Chancellor’s decision to increase the tax credit taper from 41% to 48% is that workers earning above the income tax personal allowance threshold will face a marginal effective tax rate of 73% in 2015-16, which increases to a staggering 80% in 2016-17. How does the Minister reconcile the Chancellor’s rhetoric about standing up for workers with the reality of a marginal effective tax rate of 80%, which is a hefty work penalty by any measure?

Photo of Damian Hinds Damian Hinds The Exchequer Secretary

The great reforming summer Budget is an integrated package of measures and people cannot just take one element alone. It includes the new national living wage, the increases in the personal allowance and a lot more support that the hon. Lady did not mention on childcare and on skills building. When all those things are taken together, it is a Budget in which the great majority of people will be better off and more supported into work.

Photo of Shabana Mahmood Shabana Mahmood Shadow Chief Secretary to the Treasury

High tax rates are normally loathed by Conservative Members, but obviously not when they affect ordinary working people. The Chancellor has been busy trying to suggest that his national living wage will compensate for this work penalty, but he knows that the real living wage is calculated on the basis of a full take-up of tax credits—the very thing he has now cut. Is it not the case that, regardless of the rhetoric, all that this Budget has delivered for ordinary working people in our country is a hefty work penalty and a living wage con?

Photo of Damian Hinds Damian Hinds The Exchequer Secretary

As the hon. Lady knows, the Budget contains a large number of measures to help hard-working families, including the rise in the personal allowance, allowing people to keep more of what they earn. Of course the big reform of universal credit is still to come, and it will further help on incentivising work. Throughout all this it is important to help to support people into work and progress on hours, particularly through our increases in childcare support, which are worth thousands of pounds to some families.

Photo of Chris Philp Chris Philp Conservative, Croydon South

Does my hon. Friend agree that working families will be enormously helped by the 30 hours per week of free childcare, which, speaking as a father of two-year-old twins, I particularly appreciate?

Photo of Damian Hinds Damian Hinds The Exchequer Secretary

Indeed, families with twins will get double the benefit, but everybody with children aged three and four will get that particular benefit, which is part of a suite of increases in childcare support, including through universal credit and tax-free childcare.