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I beg to move,
That this House
calls on the Government to reverse its decision to cut tax credits, which is due to come into effect in April 2016.
Today’s debate is incredibly important, but it is a shame that we have to hold it at all. It is deeply disappointing for the 3 million families across the UK who are set to lose an average of £1,300 from April that the Government have not taken the opportunity to step back, do the right thing and rethink these unfair proposals. The Conservatives omitted to mention these unfair proposals in their manifesto. Indeed, given another chance today to stop the changes—in the Welfare Reform and Work Public Bill Committee—they chose to vote against doing so.
Last night, we heard the latest arguments in favour of the cuts, which are already backfiring. The Government are seeking to make this a binary choice between cutting the incomes of the working poor and funding nurses, when in fact many of those in receipt of tax credits are our nurses, teaching assistants, care workers, civil servants and so many others who work day and night to keep our public services and our economy moving.
Order. We will not have shouting from the Back Benches. Nobody will ignore anyone in this Chamber. We will have a measured debate on an important subject.
I do not think I even need to respond to that intervention. The hon. Gentleman is seeking to trivialise this debate. We have been very clear about what we would do and about what we are calling on the Government and his party to do. His constituents will be watching him today and asking: who he is standing up for—his constituents or his party?
Several hon. Members rose—
I will make some more progress and then give way.
These cuts will also hit the self-employed and those who run our local businesses. It is bizarre for the Government to take £1,300 off each family by highlighting how much more they have already taken in tax credits. Today, it has become even clearer that the Government have chosen to balance the books on the backs of the poor. The Chancellor has made this a debate about taking from the non-working poor or from the working poor, rather than a choice recognising that, in tough economic times, it is fairer that those who have more should contribute more.
My hon. Friend is absolutely right. It is not on the basis of one occasion that we are saying that the Government have changed their mind or have not told the truth; they have not told the truth on this measure step by step since it was first introduced in the Budget. They have tried to hide the impact on hard-working families across Britain. My hon. Friend is absolutely right that the £1,300 figure is an average, and many families are set to lose much more.
The hon. Lady will be aware that the Conservative manifesto made it very clear there would be £12 billion of welfare savings, so this was clearly flagged up. Will she explain where, if she opposes the measure, she will find the savings—which other benefit would she cut, or which tax would she raise?
Chris Philp talks about the Conservative manifesto, but the manifesto cannot have outlined that 689,000 carers might be affected. Those who care 35 hours a week and then try to work 16 hours on the national minimum wage will be hit. What do Conservative Members have to say about that?
My hon. Friend makes her point incredibly well. It is those who are working so hard to support us in every sphere—in our public services and the economy—who will be hit the hardest by this move. I hope that the Government will change their mind today. I will make some more progress before I take further interventions.
The Chancellor says that he wants a low-welfare, low-tax, high-wage economy—this may come as a surprise, but of course we all do—but what he says and what he does are two different things.
I will give way in a moment.
The Chancellor decides to cut tax credits at the same as cutting income tax and inheritance tax for some of the wealthiest in our society. His failure to grow wages in the last Parliament not only led to a drop in living standards, but meant that tax receipts were lower than they would otherwise have been. In addition, as the
Institute for Fiscal Studies has highlighted, welfare spending was virtually unchanged during the last Parliament because of the growth in tax credit payments and the explosion in housing benefit payments caused by his low-wage economy. Indeed, the number of people earning less the living wage has risen by 45% since 2009. The Government may seek to hide what they are doing and to make this a debate about the Labour party, but it is a debate about the quality of life for millions of families who are working hard to make ends meet.
I will give the hon. Lady another opportunity to answer the question. If she were to reverse these reforms, how would she pay for it—would she raise taxes, cut spending or simply borrow more money?
Perhaps the hon. Gentleman has not read any blogs or listened to any media in the last two days. We have been on the media repeatedly and have explained very clearly that we would do that through long-term growth, making sure that we invest in high skills and increased—[Interruption.]
Order. I cannot hear the hon. Lady, so I assume that nobody else can hear her. This is a debate and we must be able to hear the opening speeches. Everyone will have a chance to shout in their own four or five minutes.
I will give way in a moment if I can make some more progress.
It is shocking that the Government continue to avoid telling the truth about these changes, including the Prime Minister, to whom I wrote last week, asking him to clarify his comments that after all the Government’s changes a family where one earner is on the minimum wage will be £2,400 better off. He is yet to be clear about how he reached that conclusion, how many families will gain in the way he suggests or what assessment he makes of the analysis by the Institute for Fiscal Studies, the Resolution Foundation, Barnardo’s and so many others who are against these changes.
The Chancellor chose either not to perform or not to publish an impact assessment of these changes for the Commons—a move that was criticised in no uncertain terms by the Social Security Advisory Committee. There are only two ways to interpret that: the Government either do not want to know or do not want to tell.
My hon. Friend talks about the impact of these changes. Let me give her one simple example from my Walthamstow constituency of a working mum. When her tax credits were delayed, we had to refer her to a food bank because they were literally the difference between being on the breadline and having bread. Does my hon. Friend agree that that will happen to working people across the country if these changes go ahead?
My hon. Friend is absolutely right. She highlights, too, the impact of the Government’s appalling administrative processes on our constituents. They are left trying to make ends meet and having to go to food banks. More than 60% of the use of food banks is due to issues with benefits and benefits administration.
After an intervention, the hon. Lady asked whether Government Members had been listening to the media. I listened to an interview she gave on Radio 4 this morning. She gave only two examples of changes that she would make to the tax system. One related to inheritance tax and the other was to raise the tax threshold to 50p. In 2017-18, that would raise only £270 million. Where would she get the other £4.2 billion?
I thank the hon. and learned Lady for her comments. Perhaps she will say what she is doing for the 6,300 families in her constituency who will be affected by these changes. Perhaps she should speak to those in her party who have raised serious concerns about the changes, including Lord Tebbit.
Before the debate on the statutory instrument in September, the Government chose either not to perform or not to publish an impact assessment of these changes, so one was not available for the debate in the Commons. The Exchequer Secretary seemed to suggest that they had done that, when clearly they had not. The distributional analysis that the Chancellor finally submitted to the Secondary Legislation Scrutiny Committee in the other place last week has been described by my right hon. Friend Frank Field, the Chair of the Work and Pensions Committee, as a “sleight of hand” and an attempt to “bamboozle”.
I will make a little more progress first.
It is worth reminding hon. Members exactly what the Government propose to do with these changes. First, they will effectively halve the threshold at which claimants start to see their tax credits award tapered away, from £6,420 a year to £3,850. Secondly, they will increase the rate at which the award is tapered away to zero. That means that for every pound that is earned above the threshold, their award will be tapered away by 48p. Previously, the rate was 41p. House of Commons figures show that a family with two children and two parents who earn the minimum wage will see a fall in their income of more than £1,800 next year. By the end of the Parliament, that family will lose a devastating £7,700.
Does my hon. Friend agree that this amounts to nothing less than a penalty for those in work? Such a work penalty is typical of this Government.
My hon. Friend is absolutely right. The Conservative party claims to be there for the workers, but it is going against everything that hard-working families are doing to make ends meet. It is time for the Government to rethink what they are doing and stand up for those they pretended to stand up for at the time of the election.
I will give way in a moment.
A family with one earner on the minimum wage will be more than £1,500 worse off next year and almost £7,000 worse off over the Parliament.
The claim that we have heard most is that working families should not be concerned because the minimum wage will see significant increases in the next few years. As the Institute for Fiscal Studies has made abundantly clear, the claim that those increases will close the gap is arithmetically impossible. Paul Johnson, the director of the IFS, summed it up:
“The key fact is that the increase in the minimum wage simply cannot provide full compensation for the majority of losses that will be experienced by tax credit recipients”.
“Unequivocally, tax credit recipients in work will be made worse off by the measures in the budget on average.”
My hon. Friend is absolutely right. I hope that Government Members will make that decision today.
The IFS has found that, as a result of all the tax and benefit changes in the summer Budget, by 2020, households with incomes in the second, third and fourth deciles will be worse off by £1,250, £860 and £530 respectively. Indeed, the Resolution Foundation’s recent report showed that the changes are likely to result in 200,000 more children being pushed into poverty at a time when the Welfare and Work Bill is effectively erasing Labour’s Child Poverty Act 2010, the duty in it to eradicate child poverty by 2020 and the measures to monitor child poverty. Perhaps a Government Member would like to ask their own Front Benchers a question about that.
The hon. Lady will know that when the tax credit system was created it cost £4.4 billion to administer, whereas this year it will cost £30 billion. Will she admit that the only credible welfare system is an affordable welfare system?
Perhaps the hon. Gentleman should ask what will happen to the 4,500 working families in his constituency who are set to see an average cut in their household income of more than £1,300. What impact will that have on whether they can keep their home, put food on the table or afford clothes for their children? I suspect that he will have a lot to answer for in his constituency.
A million single parents who are in work are set to be £1,000 a year worse off and 1.5 million married women will be £600 poorer.
I will in a moment.
These cuts will also hit the self-employed who are on tax credits. Since 2010, self-employment has grown at twice the rate of overall employment. We know that, on average, self-employed people earn 40% to 50% less than those who are in regular employment.
I will in a moment.
This weekend, The Observer included the case of somebody in Manchester who is self-employed. He expects his tax credits to be reduced to virtually nothing from next April. I hope that in his response, the Exchequer Secretary will be straight about what these changes mean for the self-employed.
That is absolutely incredible. We have answered that point in the media and in articles, and I do not need to keep going over that ground. The hon. Gentleman might want to respond to the 3,000 families in his constituency who will be hit by these changes, and say how he will reply to institutions that have done hard research into these matters. The Government have chosen to carry out no impact assessment for what has been described as an “array of statistics”. This debate is about people’s lives, and the hon. Gentleman should stand up for his constituents, just as Labour Members will do when voting in the Lobby tonight—[Interruption.]
Order. The hon. Lady is clearly not giving way and hon. Members are wasting time in the debate.
I think that comment represents a misunderstanding about what tax credits are supposed to help with. I hope that the hon. Lady’s Government will be more successful this Parliament in increasing wages—hopefully to a level where people start to come off tax credits—but they do not have a very good record to date. As I said, the number of people earning less than the living wage has risen by more than 45% since 2009.
In their interventions so far, Conservative Members have already conceded the argument. They started by saying that low-paid workers were going to be better off, and that Britain needs a pay rise and will get one. They have conceded that argument, but now it is all about choices and how tough it will be to balance the books. They have lost the argument.
My hon. Friend is right, and as far as the public are concerned Conservative Members have lost the argument. It is now time for their constituents to ensure that they support the changes that we propose, and that they hold the Government to account at the next election.
Mr Davis has described the use of a statutory instrument as an attempt to avoid scrutiny, and on
“The Government has to balance the books, but the burden shouldn’t be on the poorest…I hope this doesn’t turn out to be our poll tax.”
Even the Bow Group, which perhaps speaks for several Conservative Members who may not be able to speak today, has said:
“Tax Credit cuts could damage Britain’s entrepreneurial economy and the Conservative Party’s claim to be the workers party”.
The hon. Lady is making a powerful case. In my constituency more than 4,500 families will be affected, in particular because of sky-high private sector rents. Does she agree that people will be hit particularly hard when cuts combine with the fact that Governments have not taken action to bring down rents in the private sector?
The hon. Lady is right, and cuts are being made without any recognition of rising rents and the cost of living that affects household budgets. We cannot make such a move without thinking about the impact on family budgets, particularly of rents.
Several hon. Members rose—
I will continue for a moment and then I will give way.
New House of Commons Library analysis that we have published today shows that at least £0.5 billion will be lost to the London economy if cuts to tax credits come into effect, and that will hit nearly 410,000 low and middle-income working families in London. In my borough of Hounslow, 13,500 working families will be affected, and the local economy will be hit by about £17.5 million of reduced purchasing power if the cuts come into effect.
I know from many conversations that I have held with Conservative Members that they agree that aspiration is key. I was on tax credits before coming to this place, and I also benefited from further education, so I plead with hon. Members to consider that. Does my hon. Friend agree that by cutting tax credits and further education the Government are preventing people like me from having those aspirations?
My hon. Friend makes a powerful point and indicates through her own story how this anti-aspiration measure will hit families that are working hard not just for themselves, but to give their children a chance in the future. As they continue to struggle, these cuts will impact on those children, and it is projected that 200,000 more children will be moved into poverty.
I am conscious that many Members want to speak, so in conclusion I will say that this measure is set to hit the poorest the hardest. The Prime Minister is fond of saying that he supports those who work hard and do the right thing. His Conservative election manifesto stated:
“The British character is renewed every day by the millions who work hard, raise their families and care for those who need help, do the right thing and make this country what it is.”
He also said:
“We are fixing the economy so that everyone feels the benefit”, but at the moment that could not be further from the truth. Far from being the party of the common ground or of workers, this move shows that the Government are no longer interested even in knowing how families are set to be hit by the choices they make. This decision is not just poor politics but poor economics, and families are concerned about what the impact will be as they struggle with paying the rent or their mortgage, and with putting food on the table at a time when food bank use continues to rise. The problem of low pay in the UK persists, and changes to tax credits are about to make things much worse. With 6 million people not earning enough to cover the basic costs of living, tackling in-work poverty is crucial, but we should not do that by making matters worse and hitting those who need help the most.
The Government have chosen to introduce these changes without even a transition plan, and when cross-Benchers and bishops start to express concern in the other place, we hear reports that No. 10 will threaten to suspend the other place if Members table and win a fatal motion. There is a chance today for every Member of the House to do the right thing and stand up for their constituents, by putting families in their constituency first and their party second. I urge Conservative Members to vote with us in the Aye Lobby today.
Protecting working people’s economic security is, and always has been, a priority for this Government. We are passionate about that, because we believe in people being allowed to meet their potential and fulfil their aspirations from wherever they come in life. Our mission is to get wages up, tax down, and welfare under control. The reforms to tax credits must be understood as part of a wider package of reforms that includes an increase to the personal allowance, increased childcare provision for working families, and of course the national living wage.
Next April the legal minimum pay for a full-time worker will be £1,300 higher than it was the year before. We have done that at a time when businesses have created record numbers of jobs—1,000 a day and 2 million in total, and the highest rates that we have ever reached. Coupled with strongly rising wages, more hours on offer and low inflation, our policy is delivering security and prosperity for working households up and down the country. That is what the country deserves and that is what we are doing.
As a matter of fact, living standards have this year reached beyond their pre-crisis point, or indeed any prior year.
We can make lasting economic reforms only because we have taken the tough decisions to get this country back on its feet after the financial crisis that crashed into Labour’s structural deficit, which was among the highest in the developed world. Some choose to indulge in a game of “What if we had unlimited money?” We face facts. In 2010, the Government inherited a deficit of £153 billion. That is almost £6,000 for every household in the country. Our budget deficit was 10.2% of GDP. For every £4 the Government were spending, £1 was borrowed. That could not be allowed to go on, because when Governments lose control of the national finances, those who lose the most are generally those who have the least.
The Minister is making some excellent points and I fully support his desire to reduce the deficit and reform tax credit. This is a listening Government, so I just wonder whether, in the coming weeks as we consider the impact of the reform and in terms of compassion, it might be worth looking at tweaking the child tax credit—or the marriage allowance, which is very low—to try to soften the blow. I do not expect the Minister to answer now, but that is surely worth considering.
Does the Minister not agree that the Opposition have completely ignored the background, which is that at the moment wages are rising at a rate of 3.5%? We are seeing wages rising. The policy is working and it would be wrong in those circumstances to continue to subsidise and act as a drag on wages by using tax credits in the way they have been used.
As a result of this Government’s strong economic management, we are indeed seeing strong wage growth coupled with strong employment growth. This is the right time to make lasting economic reform.
On the deficit, much progress has been made, but this year we are still having to borrow £3,300 for every household in the land. To tackle a deficit of that proportion requires all income groups to share the burden. I agree with Seema Malhotra that it is right that those with the broadest shoulders should bear the most.
To put this issue into context, will my hon. Friend confirm that the average taxpayer is paying £1,900 extra in tax this year just for the cost of Government debt interest? Is not the only way to reduce this debt tax on ordinary taxpayers to get rid of the deficit and pay down the debt, something which the Labour party seems incapable of grasping?
It is indeed an extraordinary amount. For every month we fail to deal with the deficit, not only would we be racking up more debts for all our children but we would be incurring greater interest charges in the here and now, which means money not spent on other essential services.
I am grateful to the Minister for giving way, although I am not quite sure he will be so grateful when he hears my question. I have to admit—in fact, I am embarrassed to say—that I voted with the Government on the cut to tax credits. I did so on the clear basis and understanding that there would be mitigation in the Chancellor’s autumn statement of the worst effects of the cuts to tax credits. The Minister cannot imagine my anger as I listened to his party’s conference, and the Prime Minister and the Chancellor ruled out any such mitigation. I will be voting with the Opposition this evening, unless the Minister tells this House today what mitigation the Chancellor will guarantee in his autumn statement. I give the Minister the opportunity to persuade me to change my mind.
The hon. Lady, who is a veteran and very experienced in the House, will know I cannot pre-empt anything in the Chancellor’s autumn statement on this or on any other subject. She was right to vote with the Government on the statutory instrument. As I will be outlining in my remarks today, this is a reform package of measures for working people. It is the right thing to do for the future of those families and the future of our country.
Nobody expects the Minister to be able to provide an answer on what will be in the autumn—or November—statement, but can he confirm that the figures that the Prime Minister uses to say that eight out of 10 people will be better off as a result of the Government measures include all of us and large numbers of other people, while the two out of 10 who will not be better off are all those claiming tax credits? Will he confirm that when we go into the next general election all the current 3.2 million tax credit claimants will not be better off as a result of the measures he has announced?
I hesitate to use a double negative, but I cannot say they will not be better off. Many, many people will be better off. On the specific point of the eight in 10, that refers first to financial year 2017-18, and, as the right hon. Gentleman will know, to all working families. Obviously, the precise impact of the different measures—tax credits, national living wage, income tax personal allowance, childcare, social rents and all the other different elements—will vary with precise circumstances, but many, many families will be considerably better off. The hon. Member for Feltham and Heston herself was good enough to cite one such example of one particular type of family being £2,440 better off by 2020.
Several hon. Members rose—
I must make some progress.
The tax credit reforms are an important part of fiscal rebalancing, but they are only one part. On the same day that the tax credits lower threshold and higher taper rate take effect, we are reforming dividend tax and pensions relief for those on high incomes, and initiating a further clampdown on tax avoidance. Those are three measures among a set that also includes: the end of permanent non-dom status, restrictions on landlords’ tax relief and the continuation of a top rate of tax that is higher than it was in 4,718 of the 4,753 days the Labour party was in office. If we look at how the burden of deficit reduction is spread through society, the simple fact is this: the distribution of spending among income groups is constant between 2010 and 2017, while the burden of tax has shifted towards the best-off.
My hon. Friend brings me on, quite handily, to my very next point. When tax credits first came in, their aim was entirely noble, but they quickly soared out of control. The total cost more than trebled between 1999 and 2010, ending up costing £30 billion in 2010. Scandalously, while spending spiralled under the previous Government, in-work poverty actually rose by 20%. Now, we can kick a problem down the road or we can do something about it. We chose to do something about it. Our reforms do not abolish tax credit or anything close.
Will the Minister confirm that the average tax credit bill to the Exchequer under Labour was £22 billion, whereas under the Conservative party, it has been £30 billion? So it has gone up on this Government’s watch.
I heard the hon. Gentleman make this extraordinary point on “Newsnight” last night. He talks about an average. If we have an upwards curve, and we draw a line through it, of course it is going to be lower in the middle than at the end. The point is the bill kept on rising—
I am afraid I could not put it better than my hon. Friend, and I will not try.
Under these reforms, fully half of families will still be eligible for tax credits, and the total cost will come down only to what it was as recently as 2008. They will focus support on the lowest incomes, while taking those on higher incomes off tax credits altogether.
How would the Minister, on behalf of a party that says it is on the side of working families, explain this change to the 2.7 million children affected? It is a disgrace.
Today’s bills will be paid at some point. We believe that the challenges for this generation should be dealt with by this generation, and we believe we need to get our finances under control and eliminate the deficit, and not just pass on the problem to our children and grandchildren.
I do not deny that pay restraint in the public sector is difficult, but that 1% restraint has also protected 200,000 jobs in the public sector, which is an important aim. In addition, since 2007-08, pay in the public sector has risen faster than in the private.
Several hon. Members rose—
I keep saying I must make some progress. For the moment, I think I must mean it.
These reforms to tax credits go hand in hand with the new settlement for working Britain that my right hon. Friend the Chancellor set out in the last Budget. At the same time, we are introducing radical measures to put more cash where it belongs—in the pockets of hard-working people. Our increases to the tax-free personal allowance mean that a typical basic rate taxpayer—
Several hon. Members rose—
Order. The Minister has just said he intends to make progress. Many people wish to make speeches today. If they continue to jump up and interrupt him and still wish to make a speech later, they will be disappointed.
We are making these necessary changes for the future of all sorts of families, but more than anybody for the sake of our children. The hon. Lady will know that the best way to address poverty is through work, and that is what we have been doing. She will also know the statistics—that where a child is in poverty and a parent moves into work, in 75% of cases they move out of poverty as a result, and that where a parent moves from part-time to full-time work, 75% of children also move out of poverty.
From next April, we will have the national living wage, which by 2020, when it will be worth more than £9 an hour, will mean over £5,000 more in gross full-time pay for someone on the minimum wage today.
Does my hon. Friend share my frustration that the Labour party does not seem to understand that tax credits involve the taxpayer subsidising businesses paying low wages, which has to change?
As always, my hon. Friend is correct, and she brings me on to my next point. Already, more than 200 firms, including some of our biggest employers, have announced they intend to pay staff at or above the national living wage before it comes into effect, which has helped to push private sector wage growth to 4.4%, according to latest figures, at a time of low or no inflation.
Then there are the wider things we have done on living costs. We have frozen council tax and fuel duty. On childcare, we have already introduced 15 hours for the 40% most disadvantaged two-year-olds, which is just through its first full year of operation and still ramping up. From 2017, there will be 30 hours for working families with three and four-year-olds, and just the additional 15 hours will be worth £2,500 per child per year.
The Minister can cut the waffle. To many of my constituents, this is a matter of trust. Why does he think the Prime Minister, on
The statutory instrument does not affect the level of child tax credits. The hon. Gentleman, being a keen student of these matters, will know about the taper for tax credit awards and the stacking effect of the different elements, but the child tax credit, as the Prime Minister said, is not being changed.
Several hon. Members rose—
I am conscious of time and know that many people want to speak.
Perhaps most important is the wider effect of the national living wage. The independent Office for Budget Responsibility estimates that as the national living wage imposes upward pressure further up the scale, 6 million people will get a pay rise. That effect starts now, but it will continue rising right up to the end of the decade. We are not just talking about a lower welfare, lower tax, higher wage economy; we are seeing it happen.
The Minister has made the point repeatedly that the new national minimum wage is meant to offset the reduction in tax credits. What proportion of those on tax credits are currently on the national minimum wage? I suspect I will not get the answer, so I will tell him. It is 25%.
The hon. Gentleman’s intervention is timely. Had he been listening—that might sound as I did not mean it to sound—he would have heard me talk about the wider effects of the national living wage. It affects not just people on the national minimum wage, but a much wider distribution. Most economists estimate that it would extend about 25% up the income scale.
It does answer the question. The hon. Gentleman was suggesting that this proportion would not benefit from a national living wage, which is incorrect. A lot of people who are not on today’s minimum wage will also benefit to a sum of about—[Interruption.] I am asked how many—the estimate is that about 6 million people will benefit directly or indirectly.
Let me ask the Minister about the subsidy point. We can all agree on the context that we need to reconfigure our labour market. Almost 6 million people are not earning a wage that they can live off. Ultimately, yes, a subsidy going to employers is not desirable, but surely the issue here is the order in which we transform our economy. The fact is that through a properly prosecuted industrial strategy—something that we have obviously not seen in our steel industry—it is possible to reconfigure the labour market. That should come first—before taking away the tax credits and support from people who are not earning enough. Ultimately, that is the difference between the two sides.
The harsh reality that we face is that we have a budget deficit equivalent to £3,300 for every household in the country. We need to take firm action on that now. It is right, as I said earlier, that the burden is spread right throughout society, but it is also right to shift the burden towards the upper end, which is what has happened with the tax burden.
The Minister will know that many Conservative Members, including myself, are concerned about these changes. I will not, however, vote with the Opposition because of the nature of the vote and its non-binding effect. However, further to the reference point—[Interruption.] If a few more Labour Members had turned up at the original vote, we might have won. Let me take the Minister back to the point made by Lady Hermon. Will he confirm that the autumn statement offers the opportunity for the Government to mitigate some of the these effects, whether it be through a change to the order or through other tax changes? Can he confirm to me and many others on the Government side who are concerned that the Treasury is looking at other things that can be done to help this group of people?
There are a number of mitigating elements involved in the package. We have been talking about the national living wage, and there are major—[Interruption.] These things are all new. There are major extensions to childcare provision. We have reductions in social rents, and increases in the income tax personal allowance.
Several hon. Members rose—
Before I conclude—I am very conscious of the time—I want to address a couple of points about poverty. The best route out of poverty is employment. We have created the conditions for the private sector to create record numbers of jobs—over 2 million since 2010. The best way to target in-work poverty is, first, by helping people move up the hours scale and, secondly, by increasing wages. We are seeing wages rise strongly, and we are seeing living standards rising by 3.1%, year on year.
Several hon. Members rose—
I am not giving way again, as many people want to speak and I am coming towards the end of my remarks.
The number of people in in-work poverty is 200,000 lower than it was at its peak in 2008-09. Let me remind Members of the surest way to create poverty and to dash the aspirations of working families up and down the country. It is to lose control of the public finances. We are making sure that that never happens again. We are driving down the deficit; we have set out the path towards surplus; and through our Charter for Budget Responsibility, we are making sure that we insulate ourselves against any future shocks the world economy might throw at us. We do all this while delivering a new settlement for working Britain—one where decent wages are not subsidised by the public purse, but met by employers; one that says to employers, “You can have very competitive tax, but you must pay your people properly”; one that allows hard-working people to keep more of the money they earn; and one that offers a way out of reliance on benefits and top-ups through work that pays.
Those have not been easy decisions to make, but we face a £3,300 per household deficit, and if we reduce the level of state support people are inevitably affected. But tough decisions become necessary decisions when we are working towards the most important and the most progressive goal of all—economic security for working Britain in an uncertain world. Our new settlement for working Britain is an integral part of that. We will continue down the path of economic security, stability and opportunity for working Britain.
I am pleased to have the opportunity to debate tax credits today, particularly in light of the wholly inadequate time we had to debate tax credit changes on
During the week of the tax credit debate, a damning report from the House of Commons Library was published on the effect on many people of the changes consequential on these proposals. Let me state that the Scottish National party wholly opposes the changes to tax credits, which are nothing less than an attack on low-income families in this country.
The Prime Minister told his party conference that he wants a “war on poverty”. I would tell the Government that actions speak louder than conference rhetoric when cutting tax credits is going to increase poverty, particularly child poverty. The reality is that this is not a war on poverty, it is a war against the poor. All of us came into politics to make a difference. I say to the Government and to all Conservative Members that they should examine their consciences. Do they want to push through these cuts that will damage millions of families, increasing inequality in this country?
Will the hon. Gentleman confirm that it is now the policy of the SNP to use the new tax-raising powers shortly to be introduced to increase income tax in Scotland in a year or two’s time to increase tax credits back up in Scotland?
I find that extraordinary. We fought in the general election on delivering home rule to Scotland, which meant full fiscal autonomy. Given the damage that the hon. Gentleman and the Conservatives are going to do to hundreds of thousands of families in Scotland, they should give us the power over our economy and over welfare so that we can protect people in Scotland from the damage they are going to do.
We hear that individual Tory MPs have been summoned to speak to the Prime Minister and Chancellor to be straightened out. I appeal to them not to be bought off. They should do the right thing and support today’s motion. This is a Government who cut inheritance tax for those wealthy enough to have £1 million-plus properties and punish those on low incomes. “All in this together”?—well, we can reflect on that line.
Will my hon. Friend reflect on the fact that the Government have also refused to close what is called “the Mayfair loophole”, allowing more than 8,000 people earning more than £1 million a year to pay only 28% tax, while hammering the poor?
My hon. Friend is absolutely correct. We have seen growing inequality over the course of the last few years, and the effect of the Budget will be only to increase it.
Let me make a little progress, and then I will.
Let us look at the facts of the matter. In Scotland, more than 500,000 children are in families that rely on tax credits, 350,000 of which are from the more than 200,000 low-income families who will be hit by these changes. If we take the UK as a whole, the Library tells us that 3.3 million in-work families received tax credits in April 2015, of whom 2.7 million had children. The Library tells us that the average negative impact in the reduction of the tax credit award in 2016-17 will be £1,300. As the Library puts it, the changes to tax credits will deliver savings of £4.4 billion in 2016-17. Of course, that is one way to put it; in reality, it is £4.4 billion that will be taken out of the pockets of the poor and the majority of working families, and £4.4 billion-worth of spending that will be taken out of local economies.
Do not people in lower income groups tend, in general terms, to spend money in their local communities, and will the cuts not therefore remove potential investment and growth from those communities?
Indeed, and I shall be saying more about that a little later. You do not fix the deficit by taking spending out of the economy. The point is that those hard-working families who receive tax credits tend to spend every penny that they get, injecting money into the local economy, paying tax, and so on.
I will make a little progress, but then I will happily give way again.
The House of Commons document also states:
“There is no transitional protection for existing families on tax credits.”
Let us just dwell on that statement. The harsh winds of a winter chill are brought to you by Her Majesty’s Government—or, as we might put it, Ebenezer Cameron. I do not believe that any of us came into this place to put our hands on our hearts and say that we want to do this to hard-working families. We have it in our power to stop it today. Just imagine the letters dropping through constituents’ letter boxes, telling them about the massive cuts that are about to afflict them, and for what purpose! We must pause, reflect, and change course. Today is the opportunity that the House needs to recognise that we have got this one wrong. We need to be brave, be bold, and collectively do the right thing.
Let us stop and think about this for a minute. Low-income families, on average, will lose £1,300 a year. Let us now look more specifically at a single-earner couple with two children, working a 35-hour week on the minimum wage. That couple will see their tax credit award fall by £1,853 in 2016-17. The impact of the so-called national living wage will only modestly offset the impact of a fall in tax credit income, and the net family income will fall by £1,525.
Will the hon. Gentleman concede that the parties represented on his side of the House have made a series of apocalyptic predictions about the British economy since the 2010 general election, and that, one after another, those apocalyptic predictions have been proved wrong? Why should we believe your predictions now?
We are not making any apocalyptic predictions about the economy. What we are talking about is the impact on hard-working families. We want to see investment in our economy. We want to see investment in innovation and skills, improving productivity and improving the living standards of all, in Scotland and elsewhere. We want to work with you so that we can improve those things.
I will give way in a second, but I want to make a little bit of progress.
Let me pose this question to Conservative Members. What will you say next year to constituents, hard-working, decent folk, many of whom will have voted for you, and who have just seen their incomes cut by more than £1,000? Are you going to tell them that their hard work is paying dividends—that for them, work is paying? You do not have an answer, because there isn’t one. The policy is wrong, and you have the opportunity to change it: to do the right thing for the country, and to do the right thing for hard-working families in your constituencies.
As the hon. Gentleman knows, he is making many points with which I agree. I know that he is keen to be honest with the House, but will he be clear about one thing? Tonight’s vote will not overturn the changes in tax credits, although a vote in the other place may do so at some point in the future. Today’s debate is a good opportunity for us to express our concerns, but I do not want the hon. Gentleman to lead anyone who is watching it to believe that the vote will be on tax credits. Even if the motion is passed, it will make no difference. Will the hon. Gentleman be clear about that, please?
Thank you very much for those wise words, Madam Deputy Speaker.
I agree with Andrew Percy that what the House has today is an opportunity to send a message to the Government that they ought to reflect on what has been proposed. I think that they have made an honest mistake. I hope that it is an honest mistake, that we can reflect on it, and that we will not punish people in the way that the tax credit changes will do.
I want to make some more progress, because I know that many other Members want to speak.
I mentioned that constituents would be coming to you, and asked what answer you would give them. I think that what we must do is the right thing: the right thing for hard-working families in all our constituencies.
Several hon. Members rose—
I am going to make some progress.
Every Member of Parliament should look up the online House of Commons paper, which contains a link to the number of tax credit recipients by constituency. Any Members who support the Government’s proposals can see exactly how many of their constituents will be affected by them. We remember Mrs Thatcher saying, back in the day, that there was no alternative. That, of course, was nonsense. We also heard that there was no such thing as society. That sort of behaviour should be a thing of the past. There has to be social cohesion. We have to demonstrate that we want to help people out of poverty, not remove a ladder that would take them out of it.
I know what people in my constituency are saying. They do not like this. It is seen as mean-spirited. It is punishing the poor: ordinary, hard-working folk. There is no excuse for it, and we can stop it. There will be a massive impact on families, and we know that the end result will push families with children into poverty. We hear—and we have heard it in the Chamber today—that many Tory Members have voiced concerns at the impact of the changes. We should say to the Government, “You need to listen to those of us on this side of the House, as well as some of your own voices that are reacting to the impact of what you are doing.”
Order. I am not having this any more. I have let a lot of people get away with it today, but this is an important debate, and we must observe the rules of the House. Just say “the honourable Gentleman”!
The hon. Gentleman asked just now what it was that we wanted in our constituencies. What we really want is a better future for everyone. We do not want people to be hard done by. Will the hon. Gentleman comment on this? We want more jobs, a better future, more money and better childcare, all of which the Minister has outlined today.
We all want a better future. We all want more jobs, and better-paid jobs. But the point is—the point that we cannot get away from—that you do not do that by punishing those who are in work, and who will be pushed into poverty. As the Government have often said, work must pay. You cannot do what you are doing and be consistent with your own objectives.
Does my hon. Friend agree that although it is of course indefensible for the Government to pick up the tab for employers who refuse to pay their staff decent wages, cutting the support from the working poor will not force wages up? A strong labour market will, as will rigorous enforcement of a genuine living wage and ending zero-hours contracts.
Absolutely. I hope that we will go on and have a robust debate about productivity in this country and about skills and innovation, because driving investment into the economy will drive wages up and negate the need for tax credits. None of us has a fundamental desire to see the long-term existence of tax credits, but they can only be removed when wages are driven up. What we cannot do is what the Government are doing and cut tax credits ahead of increases in wages.
I am going to make some progress, because I am aware of the time.
One has to ask about the moral compass of a Government who want to increase the inheritance tax threshold while the poorest in our society are being squeezed to such an extent. One nation, they tell us, but whose nation is that? It is not a country in which we want to live. Perhaps from an economic point of view we need to ask where the logic is in this policy. We are told that it is about getting the deficit down, but taking cash out of the pockets of the poorest means taking cash out of the economy and depressing economic activity. Those on low incomes tend to spend what money they have. This provision does not fix the deficit; it takes spending—[Interruption.] That is patronising? I will tell Government Members who is being patronised, and that is poor people in this country.
Let us make it clear, as we did during the election in Scotland, that we want to get the deficit down but that this is not the way to do it—[Hon. Members: “How?”] Members ask how we will do that, and I am happy to give them an answer since they have given me the opportunity. I remind them that we won the election in Scotland, with 56 MPs returned for the SNP, and we had a progressive message that we delivered to the people of Scotland of investing in our country by increasing spending by a modest 0.5% per annum that would have delivered additional spending in the UK of £140 billion and would have reduced the deficit to 2% of national income by the end of the decade. That is a much more responsible way to deal with the future of our country.
There is a philosophical question of whether effective support through tax credits for employers paying low wages excuses those employers from paying a real living wage that offers dignity for work. I would argue that we all want to reach a situation in which work pays, to the extent that those in work have a decent standard of living. The SNP has been championing a real living wage as a response to dealing with poverty and that would mean that hard-working families would become financially sustainable, driving up tax revenues, reducing the deficit, enhancing economic activity and, ultimately, leading to an enhanced fiscal position. The desire to make work pay, which the SNP fully supports through the idea of the living wage—the real living wage, not the Tory construct—has to go hand in hand with an environment that encourages productivity, but we know that that has not happened for the past eight years, with productivity flatlining and even the OBR’s forecast for the next four years showing only limited recovery in productivity. We cannot have sustained growth in wages unless we have growth in productivity.
No, I am going to make some progress.
We need a national debate about how we can strengthen and drive sustainable economic growth, driving up living standards and making work pay. We can only reach a high wage economy with investment in skills, innovation and business. That is not happening, and its absence is why we need the safety net of tax credits. That is why the Government must reconsider what they have voted through.
The Resolution Foundation has shown that the so-called living wage will boost wages by £4.5 billion by 2020, nowhere near the impact of the £13 billion of cuts to various working age benefits. It cannot be acceptable that working people pay such a price. We need to cut inequality, not drive it, which is what the Government are doing.
Let us come back to the example of the family losing £1,525 of their income next year. What will the Government say to such families when they are faced with difficult choices? Family budgets are already tight and something has to give.
I will not give way just now.
Just imagine what will happen when someone living hand to mouth faces an unexpected problem. Perhaps over the winter the central heating boiler will need to be fixed or a fridge will need to be replaced. What will Members say to their constituents when they knock on the surgery door? Where is the compassionate Conservatism we used to talk about? When their voters have their income cut by more than £1,500, all those problems will mean difficult choices. That is why this issue needs re-examining. I am appealing to the Government to listen to the many voices raising legitimate concerns.
The Government talk about being a one-nation Government, but if that is their desire they cannot square it with the rise in inequality that will be accelerated through these measures. We know that a report published by the Resolution Foundation on
200,000 children into poverty in 2016. Is that really a price worth paying? We cannot accept that that can be right. This is not just a question of the 200,000 who will fall into poverty next year; the figure will increase to 600,000 by 2020.
The hon. Gentleman has talked four or five times about doing the right thing, but is it not important to recognise that that includes doing the right thing by the next generation, which stands to be saddled with billions of pounds of debt that cannot be paid back?
Of course we need to make sure we are doing the right thing for people today for the next generation, but that comes back to what I explained to the House: the position the SNP had at the general election—a responsible position of investing today and for tomorrow, a responsible position of dealing with the deficit but investing in the future of the country.
Does my hon. Friend agree that part of the problem in making today’s children suffer in the short term is that child poverty has enormous long-term consequences?
My hon. Friend is absolutely correct. We must ensure that we deal effectively with child poverty in this country, but these measures will constrain that effort.
On Friday a lady called Edith came to my surgery to complain about her daughter’s situation. She is a nursery assistant earning £8 an hour. She works 30 hours a week and cannot work any longer because she has school-age children. Edith was mortified about the effect of the cut in working tax credits on her daughter and her family’s welfare. What does the hon. Gentleman think the Prime Minister should say to people like Edith up and down the land as to how they can trust his word in the future?
The sad reality is that I do not think the Prime Minister has anything to say to Edith in the hon. Gentleman’s constituency. That is why I am appealing to hon. Members on both sides of the House to reflect on the damage that these measures will do to Edith and others. We are having a good debate today.
Several hon. Members rose—
I want to finish off as I have spoken for quite some time.
Perhaps it is little wonder that the Government want to redefine poverty. The numbers being pushed into poverty are frightening. It is not a price that a civilised society can pay.
In conclusion, I am grateful that we are having this debate today, but it must not end here. I would plead with the Government to change course before it is too late. These millions of families should not be affected by these tax credit changes. I hope the Government act, but failure to do so would demonstrate yet again that we need full powers over Scotland’s welfare system to be in Scottish hands, not the hands of the Chancellor and the Work and Pensions Secretary.
There is a clear contrast, with a Tory Government in Westminster attacking the poor and a Scottish Government using their powers to protect the poorest and most vulnerable in our society. The Scottish Government have invested £100 million to ensure no one pays the bedroom tax and invested £40 million to protect council tax benefit. That is a caring, compassionate Scottish Government. If Westminster wants to punish the poor, give Scotland powers over tax and spending so that we can protect our own people from this heartless Conservative Government.
I shall endeavour to give a brief speech, but I think this is a rather big occasion.
We have reached a stage six months into the new Parliament where we are defining the issues in terms of how we are going to conduct the responsible management of the economy over the rest of the Parliament and achieve the healthy, long-term recovery that, as my hon. Friend Alex Chalk has just said, we are trying to give to benefit our children and grandchildren, and not just ourselves.
We won the election because, I think, we were regarded as more credible on economic policy. People had not always agreed with what we had done, but they realised we would take the necessary difficult decisions to keep the country on course with an economy in the process of recovering.
The Labour party has still not woken up to the fact that it lost the election because it was not credible on the economy and was simply presenting an uncertain collection of rather populist proposals that did not add up to a responsible future. That has been illustrated today. Labour Members are having a very enjoyable time because at this difficult stage for them they have found something they can all oppose. They have found nothing they can all support and they can present no alternative, but they are enjoying opposing on a populist basis what has been put forward. I would exempt from that Mr Umunna, a former shadow Secretary of State and briefly a contender for the leadership of the Labour party, who has just left his seat, because he made an intervention conceding that he was against taxpayers subsidising pay, but the message was, “Make us virtuous, but not yet.” He was quite happy to go along for the time-being with this flawed system until some uncertain date in the future.
The Scottish nationalists appear simply to be taking the view that this is a good popular occasion on which to give a harrowing description of the consequences of these proposals, and to imply that they are a deliberate attack on the poor that has been chosen by the class enemy on this side of the House. Fortunately, however, I see no prospect of the Scottish National party getting a UK majority—however successful it might be electorally—and of having responsibility for the economy on which my constituents are dependent.
The starting point, as usual in these debates, is that in modern Britain there is a wide community of interest in where we are all going. We all think that the economy should be managed to boost the overall prosperity of the country. At the same time, however, we live in a society in which we have to seek to alleviate poverty, to ensure that people are helped when they work hard to help themselves and to ensure that we have a system whereby we can provide a decent income for those people who are so vulnerable or so unlucky that they are unable to support themselves without help. That is the starting point, and that is why we have a welfare state and a welfare system.
My second point is that I have always thought that tax credits were one of the most flawed innovations to be brought into our welfare system. The idea was taken from the Clinton Administration in the United States and applied slightly differently here. It might have had some worthy intentions behind it, along the lines of providing negative income tax, but I always suspected that it was in fact introduced for politically populist reasons. The new Government could be seen to be giving money to add to the pay of a wide section of the population, and we have had that system ever since.
Several hon. Members rose—
I will give way in a moment, but I want to make some progress. I do not want to speak for long, as lots of Members want to speak. Let me just finish my outline, then I will start to give way.
When tax credits were introduced, the then Government were confined by their election promise to stick to the spending and tax programme that they had inherited, because of the deficit. I seem to recall—I have not looked this up—that they therefore introduced them by means of a device that treated them not as public expenditure but as a tax change. Indeed, I seem to recall being assured on the Floor of the House by the then Chancellor of the Exchequer, when I expressed my disbelief, that they constituted negative expenditure.
That is why the payments became the responsibility of the Treasury and were described as tax credits. The Treasury is—or was—very good at collecting money from people who do not want to pay it, but with great respect to my old Department, which I greatly admire, it was not particularly suited to handing out benefits to people on low incomes with any degree of reliability or accuracy. I still get constituency cases relating to tax credits, because the system is based on forecasting someone’s income based on the previous year, but lots of people do not notify precisely all the changes in their arrangements. Ever since the system started, one feature of it has been that perfectly ordinary working people get demands to repay thousands of pounds that have been paid to them in error. I think that the level of error has come down, but at one point it was staggering, with a very high proportion of claimants being given bills by the Treasury that they could not afford to pay.
These measures were usually introduced on the eve of an election, so that even more members of a grateful public could receive yet more money on top of their pay. More importantly, it rapidly became clear that a lot of this money was subsidising employers, who found that they could hold down incomes. This was happening at a time when the economy was coming out of a recession, and they could therefore hire all the staff they needed, with the taxpayer subsidising their pay.
Given the objectives that we are all agreed on, and that it is quite obvious that we need welfare reform—although Labour Members are unable to think of any at the moment—I cannot think of a more obvious target for such reform than the tax credit system. I approve of the Government’s choice in that regard. Of course, electoral bribes are always difficult to reverse, but I shall explain in a moment why this is a good time to make substantial progress towards getting rid of this dreadful mistake, which the last Labour Government should never have introduced.
The right hon. and learned Gentleman makes an important point about the nature of the benefit and the difficulties some people experience in paying it back a year later. Does he accept, however, that the system of family credit was introduced by Margaret Thatcher, and that Eleanor Rathbone fought for family allowances back in 1929? There has broadly been a cross-party consensus that the welfare state has to deal with those on low incomes, particularly those who are working?
Of course the Government have a duty to look after those of all kinds who are below subsistence income—that is what we have the welfare state for. I used to support family allowances with some vigour, because in those days we had persuaded the then Government to pay it to the mother, and a high proportion of women—there probably are still some in this position—did not know what their husbands earned and it was right to pay a benefit for the children directly to them; it was a kind of social reform. I did agree with the current Government that the time had come to end it for higher-rate taxpayers—again, it was a general subsidy. Various attempts were made to do a negative income tax, but we never succeeded in finding one—I tried over the years, talking with Chancellors and also when I was Chancellor. What has been introduced—tax credit—was a Clinton invention, altered by the Labour Government, and it has never worked properly, for the reasons I have given.
Several hon. Members rose—
I do not want to take as long as the Front Benchers, so I will make a little progress.
Why do this now? There is never going to be a better time again to make more substantial progress in loosening our dependence on this subsidy to pay. I will not repeat what the Minister said admirably from the Dispatch Box about all the other things that are being done in more sensible areas, where we support the income and help with the expenditure of working families. That of course has to be key. That is the alleviation that everybody is demanding of what is bound to be difficult when we move forward. I am not naive. Politically, I point out to my Conservative colleagues that this is early in a Parliament, six months in, and my guess is that we if we do not take this decision now, everybody will run for the hills if we decide we are going to do it in two years’ time. If we are looking, as a governing party should do, to what we are going to be able to show to the public by way of a successful economy when we next face them in five years’ time, we will see that now is the time to take the necessary decisions to get on with this.
More substantially, as has been mentioned by, among others, my hon. and learned Friend Sir Oliver Heald, the former Solicitor-General, the employment situation is extraordinarily strong. This is the time to do it, because we are never going to get all the full compensating reactions in the labour market if we do not get them at a time when employment is at a record-breaking high, unemployment is very low and real incomes are rising at an amazing 3% a year.
In all the figures that keep being cited about what will happen to those who lose tax credit, there is one great incalculable, although people have tried to estimate it: what will employers do as they realise that their staff are losing their tax credit? We have already seen various firms lining up to say that they are going to pay my right hon. Friend the Chancellor’s living wage, some straightaway. That is because the labour market has changed, they do not want demoralised staff and they want to race ahead of the Government and say that they are giving a big pay rise. I accept that not everybody will be able to do that, but I think that employers, finding that the subsidy of tax credit is being drained away again, are in a better position now than they have been for years to say, “Perhaps we are going to have to give—perhaps we ought to give—a reasonable pay rise to the staff working for us because we can no longer rely on the Government setting in behind us.” Again, if we do not do it when the employment market is so strong, we will never do it at all—now is the time.
I thank the right hon. and learned Gentleman for giving way, because I agree with an awful lot of his analysis of the problems caused by the whole system of tax credits. The difficulty is that we do not start with a blank sheet of paper. The fact is that the cuts are in the here and now, whereas the possible increase in wages will come only in the future. Can he really see any employer giving somebody a wage rise because they have just had a third child who will not be eligible now for tax credits?
Quite a lot of low-paying employers will realise the effect on the morale of their staff, some of whom will tell them that they are losing their tax credits. I am not naïve and know that this will not mean that nobody loses. Not everyone will be able to do that. The downsides of the change—my hon. Friends on the Front Bench explained the upsides that will affect a lot of these working families—may not be totally eliminated, but there will be fewer problems now if we go ahead with this. I have already said that getting rid of electoral bribes, which most parties have given over the years, always proves to be terribly difficult. I have seen some dreadful things introduced and then nobody has the nerve to vote against them. Perhaps I should not worry. I receive a free bus pass, a free television on which I do not pay a licence, and a winter fuel allowance to save me from winter poverty. I know that I was meant to say to the previous Labour Government, “God bless you, Mr Brown. You are a worthy man, and I shall vote for you from now on.” My political views are more complicated than that. Tax credits were about bumping up income from the Labour Government on the eve of an election.
Several hon. Members rose—
No, now is the time to get on.
I will conclude by turning to the rather big question of the £4 billion that will be lost by this motion. We are having a cheery knockabout argument and £4 billion is going out the window, and neither the Labour party nor the Scottish National Party can agree on any credible explanation of what they will do about that. They will borrow the money; that is what they did and that is what they will do.
I think that Frank Field is trying to catch your eye, Madam Deputy Speaker. He tried to produce some alleviation; at least he is halfway there. I think his changes save only £2 billion, so another £2 billion must be found from somewhere else. Perhaps he will address that when he speaks.
More importantly, there is talk of Labour and Liberal peers in the House of Lords voting down the measure. That is really quite a startling constitutional innovation. They use technical arguments, saying that it is a statutory instrument, and that it was not in the manifesto. Well, Budget measures are not in manifestos, so that is not a relevant argument. If the Upper House decides that it will not accept the supremacy of this House when the Government set tax and spending matters, I advise all Members in this House of all political parties to take that extremely seriously. It is irresponsible and it should not be done. We do not want a repeat of what happened in 1911. Personally, I will become a fervent advocate of reform of the House of Lords, as I always have been, all over again if they start doing that.
Pay should be set by employers once we get back to a healthy and normal world. We cannot have a system where we all have a party political argument about how much subsidy the Government will give to employers for selective members of the population. We do need welfare reform, and tax credits are one of the best candidates for such a reform. The Treasury should never have been paying out on welfare. We cannot get rid of it, but it is time to make some great progress. If this matter gets lost, the path of steady recovery that we have been on, as we lead the way in the western world towards a much more balanced, sustainable and modern economy, will be seriously damaged. I support my hon. Friend, the Exchequer Secretary to the Treasury, and I hope that we will reject the motion.
Several hon. Members rose—
Order. Before I call the Chair of the Select Committee, I point out that we have less than three hours left and more than 50 Members wishing to catch my eye. Dropping the speech limit down to two or three minutes seems ridiculous at this stage. There will also be a maiden speech following the contribution of the Chair of the Select Committee, and I do not want to impose a limit until after that. Can we please keep interventions to an absolute minimum and speeches as short as possible, so that I can put the time limit on as late as possible? With that, I call Frank Field.
The record shows that even when it was not popular on the Labour Benches, I spoke about the need to reduce the deficit, so I do not come here as a Johnny-come-lately who has suddenly discovered when we are not in government that that is a crucial aspect of economic stability. Similarly, when I pleaded in this place, on both sides of the Chamber, not to build up the tax credit strategy, I never got one Conservative Member to help me to divide the House so that we could show our disapproval of a method which, in the long run, has the consequences that the right hon. and learned Gentleman explained to us—that if we subsidise wages by that means, there is an effect on employers in the long run. Most employers, like individuals, are rational creatures. Why should they increase the wages of the lowest paid when taxpayers will do the job for them? That is the setting.
I make three pleas to the House. Although it would be tremendous news if a large number of Conservative Members, or even if one or two, joined us in the Lobby this evening, we should not raise our hopes too high. When we were in government it was almost a capital offence to vote with the Opposition on such motions.
No, I shall accept the plea of the Chair for brevity as 50 Members wish to speak.
There has been a cross-Bench appeal today to the Backbench Business Committee, which you used to chair with distinction, Madam Deputy Speaker, for a debate on this. We could soon have that debate and views could be expressed when Members were not voting on a motion from a particular party. We would then see what this House genuinely believes about these changes. For many Government Members this is a crunch point, although I would make the charge that the Government are wearing lightly the pledge that they made so much of before the election, to such good effect on our Benches during the election and immediately afterwards, that this was the party of the strivers.
The Chancellor painted the picture of people on very low wages getting up in the morning and passing the drawn curtains of families on welfare. That was a deadly campaign which had its effect. If I were a low-paid worker, I would have paid some attention to a party that was making a specific pledge to protect strivers. That is why I think there is such unease on the Government Back Benches today. Those on the Treasury Bench may now wear that pledge lightly, but a number of Conservative Members fought an election campaign believing that they were going to be the party that protects strivers.
Maybe today is not the right moment for those Conservative Members to feel able to express that view in the Lobby, but I hope that before long we will have such an opportunity, and the Government will see how seriously some of their own Back Benchers took the pledge that they would be on the side of people on very low wages who, often against their own interest, get up and make a contribution—all too often a very valuable contribution—to our society.
In a statement after the election, the same man who made the plea to the country to accept the Conservatives as the party that protects strivers introduced welfare reforms which are the largest-ever cut in provision for any group, let alone for those in work. In a moment I will pick up the point that the right hon. and learned Member for Rushcliffe made about the timing of that. Maybe tonight will not be the point at which Members cross over, but I hope—this is my first plea—that we will soon have a motion that we own as Back Benchers, in which we can in a civilised way express our views about supporting strivers .
I want to return to the point made by the Prime Minister, which the Minister so ably defended today—an almost impossible brief. I compliment him on that, and I compliment him also on the work that he is doing in the other place with the Cross Benchers, trying to persuade people not to vote as they wish to vote. The crucial piece of information that the Government will not provide is this: of the 3.2 million tax credit claimants who will be, on average, £1,300 a year worse off as a result of these changes, how many will still be worse off at the end of this Parliament, when the Government will have to face the electorate, despite all the welcome changes they are introducing on childcare and so on? Before we have that debate, when people will vote with a seriousness of intent that they might not have today—this is my second plea—will the Government please produce those data so that we will have accuracy, rather than having to rely on the snapshot we have from the figures that they have produced?
The Government are saying that everything will change. We know that many of those who might be better off by the end of this Parliament—one hopes that they will be—might not be in the years towards 2020, but how many will, in fact, still be losing out in 2020, 2019 and 2018, despite the Government’s welcome changes to the national minimum wage? I think that in the long term that has revolutionary implications for how we view welfare, because I agree with the right hon. and learned Member for Rushcliffe that we have lulled ourselves, without fully appreciating it, into using welfare as a way of compensating for the failures of capitalism, and we should not have done so. The pressure should be on employers to raise productivity and pay decent wages.
My third plea will be as brief as my first and second. The Government are holding the line at the moment. When Gordon Brown introduced that ludicrous, vicious little policy of abolishing the 10p tax rate, he did so simply to catch out the then Leader of the Opposition. He threw it in at the very end of his Budget statement so that he could then crow about it, but it would have massively affected some of the poorest people in this country, particularly women workers. The Government were going to hold the line right up until they faced a defeat of the Budget—not a debate like today’s, but the Budget. At that point, all of a sudden the coffers were opened and taxpayers’ money was spat out— almost vomited out—to almost every group bar the 10p group.
I can guarantee that the Government will come forward with “tweaking” measures, as we have already heard them called. I urge Tory Members not to let them get away with tweaking the national insurance or tax thresholds, because many of our constituents who will be worse off as a result of these tax credit changes will not be compensated in any way, let alone fully, if any tweaking is spread over the 30 million of us who work, compared with the 3.2 million who will be made worse off immediately as a result of this move.
I welcome today’s debate and, unlike the right hon. and learned Gentleman, am rather pleased that we on the Opposition side are all together on a subject. If we are to be taken seriously, we have to say where we would like the £4.5 billion to come from if it is not to come from the very group of the electorate that we admire most: the strivers who get up every morning to work for a fraction of what we get as Members of Parliament but who still turn up, and who have been so badly treated by this Government and by this measure.
Why today? Why have I chosen today, and this debate, to break what I hoped might be the habit of a lifetime in resisting the urge to make a maiden speech? My friends and colleagues will know that I have been trying flipping hard to avoid doing it.
It is not because I did not want to thank my predecessor for the long and dedicated service he gave to South Cambridgeshire and to the Government, though I must admit that sometimes his shoes do feel incredibly roomy for these small feet. Andrew Lansley absolutely deserves our praise, and he will be rightly rewarded next week when he takes his seat in the House of Lords. It is not because I did not want to shout from the rooftops about my constituency. I am certain that I bore everyone rigid about the economic miracle that is South Cambridgeshire; I am so, so proud to represent its people.
It is because today I can sit on my hands no longer. My decision to become an MP is a very, very recent one. It was the Tottenham riots of 2011 that shook me from my comfort zone. Night after night, my television showed me a country that was falling apart—my country—with social breakdown and an economy on the verge of collapse. I felt so strongly that I had to step forward and lend a hand. Today, I feel that way again. So I picked a team—the blue team. I believed they were the party who could bring us back from the brink, and we have started to do that. This Government have taken tough but prudent decisions and employment has reached levels never seen before. Britain is back, and I am immensely proud of this Government for their role in that. So I hope that I will see again those gems of prudence and wise judgment that drew me to the Conservative party, before it is too late.
Too late for what? Too late to stop us getting things wrong, and the timing wrong, on changes to tax credits. Believe me when I say that I entirely agree with the principle that tax credits should not be used to subsidise wages. It is not sustainable and it sends the wrong message about the kind of country and the kind of people that we want to be. Because I know that tax credits do need to change, I cannot support the black and white motion that is in front of us today. I am sorry, but I believe that the Opposition are wrong to say that we must not touch tax credits. However, a detailed debate about them does need to be had, and I am far from being the only Member on the Government Benches who recognises that. It is right that people are encouraged to strive for self-reliance and to find work that pays for their independence from the state, but I worry that our single-minded determination to reach a budget surplus is betraying who we are. I know that true Conservatives have compassion running through their veins.
I have refrained from making a speech so far because sadly most days I feel that Members on both sides of the House are firmly married to their positions regardless of the debate, and so, frankly, why prolong the agony? Why sit in the Chamber for hours when I know I could be concentrating on helping my constituents with immediate needs now? But today is different. Today, every Conservative Member who knows who we really are has a duty to remind those who have forgotten. We are the party of the working person—the person who leaves for work while it is still dark, who strives to provide for themselves and their family with pride: a pride that says, “I will go to work. Even though I still can’t quite make ends meet, I will still go to work, because to work is to have pride, and to have pride is to be British.”
I am not interested in the colour of the Government who created a bloated welfare state—that is in the past. I do not care whose fault it is, but I do know one thing: it is not the fault of the recipients of tax credits. It is the responsibility of Government, whoever they may be—those who set and change policy and those who set the rules by which these families live. If we want to change those rules, we have to support the people through that change. This is not a spreadsheet exercise. This is not a Budget document on a piece of paper. We are talking about real people—working people.
Yes, the income tax threshold has risen and will continue to rise, and that is fantastic. The minimum wage is increasing—brilliant! I am so proud of my Government that they have made this happen. But the timing of changes to tax credits is not concurrent. When we talk about moving towards the ideal goal of a lower-welfare, lower-tax, higher-wage economy, that is right, but I also hear us talking about the financial impact on people “over the Parliament”—that is the phrase I hear. But people on the breadline cannot wait for the Parliament to pass along. Many live hand to mouth every day.
I suspect that you and I could weather such a transition period, Madam Deputy Speaker—we could pull in our belts—but many of the families affected by the proposed changes do not have that luxury. Choosing whether to eat or heat is not a luxury. That is the reality.
Conservatives pride themselves on cutting their cloth according to their means, but what if there is no cloth left to cut? How many of us really know what it feels like? How many of us have walked in those shoes?
To expect people to immediately find more hours or better-paid work suggests, I am afraid, a level of naivety about the skills of some of our people. Also, are we out of touch with the economies and environments of some of our towns and cities? We can support people to get there, and I believe that can be done relatively quickly, but not overnight. That is the crux of the debate and the part that many of us on the Conservative Benches cannot reconcile.
I became an MP to stand up for the vulnerable, to lead the way for those too tired to find it for themselves. That is the role of Government, too. My first loyalty is to those people and it is to them that I now speak. To suggest that some Conservative Members may challenge the Government’s approach only because they fear for their seats is offensive. This is not about retaining votes.
Change is not always a sign of weakness; it can show strength. Did the British public, who were so concerned about immigration before the election, condemn us when we reacted to the photograph of that little Syrian boy? No, they told us to open our arms. When the International Monetary Fund decried our economic plan for not being fast enough and not showing enough growth, we remained steadfast in our belief that slow growth was sustainable. So too must be these changes.
Our debt has been falling consistently while those who need protection have been protected. Is now really the time to change that successful strategy? I would not be embarrassed even once—never mind five times—if we decided to review our approach.
Yes, being in government does mean making tough decisions, but tough decisions must also be strategic. One of the greatest challenges facing my South Cambridgeshire constituency is the affordability of housing. A constituency does not function—a country and its economy does not function—if the people who run the engine cannot afford to operate it. We need every teaching assistant, care worker, cleaner and shop worker to secure this economic recovery. To pull ourselves out of debt, we should not be forcing those working families into it.
The Prime Minister has asked us to ensure that everything we do passes the family test. Cutting tax credits before wages rise does not achieve that. Showing children that their parents will be better off not working at all does not achieve that. Sending a message to the poorest and most vulnerable in our society that we do not care does not achieve that, either.
I believe that the pace of these reforms is too hard and too fast. As the proposals stand, too many people will be adversely affected. Something must give. For those of us proud enough to call ourselves compassionate Conservatives, it must not be the backs of the working families we purport to serve.
Several hon. Members rose—
May I first congratulate Heidi Allen on her remarkable, thoughtful and excellent speech? I am astonished that she will not be in the same Division Lobby as Labour Members tonight, but I congratulate her nevertheless.
A lot of my constituents are low-paid workers. Many are paid the minimum wage. They work very long hours. Some have two or even three jobs in order to have enough money to feed their families and pay the bills. Even then, some of those families cannot afford to put food on the table seven days a week and have to endure the humiliation of going to food banks with their families. These low-paid workers are not shirkers or skivers, and they are not lazy or feckless. As a matter of interest, they are not the people who caused the financial and banking crisis in 2008, which led to so much damage to the economy and cost the taxpayer billions of pounds to pay off the gambling debts. To go back to what the Conservatives said at the last election, if the curtains of the houses of those workers are drawn at 7 or 8 o’clock in the morning, it is not because they are skiving or being lazy; it is because they only got home from work after midnight.
These are the people in my constituency who rely on working tax credits to top up their poverty pay and who will suffer if these tax credit changes go through. The only crime—I do not consider it as a crime—they have committed is that they are poor. I never thought that poverty was a crime. Most of them would like to get better jobs. Unfortunately, they cannot. These are the people that the House will penalise for working hard to try to sustain their families.
It is not just the working poor who will suffer; as has been said, so will self-employed people. I want to share with the House a constituent’s letter to me, because it encapsulates the problems facing self-employed people. Let us call the lady Isabella. She says:
“I’m writing to ask you to complain as strongly as you can about the upcoming tax credit cuts and to ask what I should do. I run my own business with my husband which is growing year on year but we still only earn a small amount, our family has an income of £13,000. Last year my business turned over nearly £50,000. I receive the full amount of tax credit and it is a life saver and allows us to grow our business and become useful members of society. We have won awards for our work...and we work long hours…to try and make the business become a success.”
She says she does not have a pension, but hopes the business will grow because that will be her pension. If the changes take place, her family will lose £1,700 a year, which, as a self-employed person, she says will make life virtually impossible on the income that she and her husband are making. She asks what she should do and whether the Government want her to close down her business. She says:
“Am I not exactly the sort of person this government purports to be celebrating and supporting?”
Do the Government want her to close down her business and join the ranks of the unemployed?
I am delighted to speak in this debate as it gives me the opportunity to speak up for the hard-working families I meet on the doorsteps of Erewash. My constituents tell me that they want a fair welfare system, one that is there for the most vulnerable in our society and provides a safety net when things do not work out. They tell me that when they pay their taxes, they want the money to be spent on the NHS, education and social care, not on subsidising employers who think they can get away with paying just the bare minimum wage. They also tell me they want to be paid a fair wage for the work they do and do not want to be dependent on state handouts. The people of Erewash are a proud people and I am proud of them.
That reflects the way in which I was brought up. My parents did not expect handouts from the state, but looked for ways to boost the household income. My dad worked hard during the day and took on a second job in the evening. Even when my mum was entitled to attendance allowance in her later years, she did not want to claim it because she thought that someone else would need it more.
The tax credit system is so complex that it is not fit for purpose. I am sure that my casework is no different from that of other hon. Members. Time and again, residents who receive tax credits get a pay rise and inform HMRC, but then find that they rack up huge debts with HMRC. Those people tell me that they would much rather earn more money than have to claim tax credits. That is exactly the environment that the Government’s changes are bringing about. We are introducing a national living wage between now and 2020, and are continuing to increase the income tax threshold.
We are short of time, so I will move on.
When we include the extra childcare that is being provided by Government, virtually zero inflation and mortgage rates at an all-time low, it can easily be seen that we are putting families at the heart of our welfare changes. I also believe that we are putting women at the heart of our changes. The extra free childcare will allow more women to get back into work, and those who are already in work will be able to do more hours. That will definitely boost family incomes. Wrongly in my opinion, women tend to be in lower-paid jobs, partly owing to the sacrifices that they make to bring up their families. The introduction of the national living wage and the increases in the income tax threshold will disproportionately benefit working women.
I am not saying that everything is perfect. We need to continue to narrow the skills gap between men and women. That is why I am backing a project spearheaded by the Erewash Partnership in my constituency, which aims to help women to set up their own business and realise their dreams. Some may question why we need women-only support. It is well recognised that some women lack self-confidence when it comes to going it alone in business and having the self-belief that they can do it. The support is tailored to meet those specific needs and it is working.
I want to finish by reminding people of the principle that was set out by John Bird, who founded The Big Issue: it is far more effective to offer a hand up than a handout. The culture of tax credits has become too much of a handout, rather than a hand up. I am confident that the proposed changes will create the hand up that Erewash residents want and deserve.
I am pleased to follow Maggie Throup because I see a very different situation. I genuinely believe that the different situations that we see and the consequences of the tax credit cuts that the Government are introducing speak volumes about the choices that the British people face.
I want to take up the challenge set by Mr Clarke. He rightly said that those of us on this side of the House are not an Opposition. I agree with him: we are an alternative. I want to set out what being an alternative means and why we would take different decisions on tax credits.
First and foremost, as my hon. Friend Mr Umunna pointed out—I am sad he is not here—the order in which change happens is imperative to the impact that it has. There is general agreement in the House that we all want to see a higher wage, lower welfare economy and higher productivity. Surely the test of every change the Government make should be whether it will achieve those things. The simple answer is that this change will not.
The evidence from the Institute for Fiscal Studies shows that none of the Government’s changes to mitigate the impact of the cuts will raise family living standards. As the right hon. and learned Member for Rushcliffe pointed out, employers are raising wages. I am little more cynical than him and suspect that they are doing so because changes in the law are coming, rather than out of benign munificence and a recognition of the benefits to productivity of paying a higher wage.
Nevertheless, the order in which the Government are undertaking the changes will make all the difference to the people in this country. They could decide to change the order and introduce the so-called living wage first, then look at the tax credit cuts. That would make a difference because of one matter that was sorely absent from the Exchequer Secretary’s contribution. I am surprised that he did not mention it, given that he used to be an expert on it. He is presiding over an economy in which personal debt is rising at an alarming rate. The Minister looks querying. He says that the burden of the Government’s changes is being distributed equally, but the burden of personal debt is not equally distributed in this country, as we see at first hand in our communities. We see families for whom borrowing on a credit card or from friends and family, or taking out a payday loan, is the only way that they can make ends meet.
My hon. Friend is making a fantastic speech and I, too, am confused about why the Minister is looking so perplexed. The Office for Budget Responsibility stated that because of measures introduced in the Chancellor’s Budget, unsecured borrowing will rise by £45 billion by the next election. My hon. Friend’s point is pertinent to the debate.
The Minister kept talking about the amount of public debt that he wanted to attribute to each household, but average unsecured personal debt is now £10,000 per household. Given the vulnerability to which families are exposed when they have that level of unsecured debt, will the changes make it more or less likely that such personal debt will rise? No one in the House would argue that the changes as currently constituted will not lead to a rise in personal debt to families, and we know the consequences of that. I pay tribute to Heidi Allen who honestly and openly set out the consequences of debt. She explained the worries she has when she sees families who are struggling with debt, and Labour Members share those concerns.
I applaud the hon. Lady’s passion but she is missing the context. The changes are part of a package that include a national minimum wage, 30 hours of free childcare, and a lock on tax rises. Taking that into account, wages and personal income will rise—does she not see that?
I beg the hon. Lady to read research from the independent Institute for Fiscal Studies that shows that none of those changes will compensate for the difference in income. I ask her to look into her heart and consider whether families in her constituency will end up borrowing because they find that there is even more month at the end of their money as a result of these changes and the way they are being introduced.
I understand the point raised by the right hon. and learned Member for Rushcliffe but there are alternative choices. We all want the deficit to go down—some of us do not want to see Governments borrowing from banks anymore—and we recognise the problems in our economy. Some of us are deeply concerned about the consequences for families of having that level of personal debt hanging over their heads. When interest rates rise—and they will—a 2% increase will lead to an extra £1,000 a year in interest payments alone that families will have to find. Families in other constituencies might have £1,000 hanging around, but not those in my constituency. With one third of people in this country having no savings at all, the changes as they stand will eat not into people’s savings or borrowings, but into their debt. That is the consequence we are facing and we need alternative ways to deal with that.
Let me offer some alternative ideas for how we could cut the cake and reduce this country’s debt. The Government could make changes to inheritance tax, although I recognise that Conservative Members do not like that idea. Alternatively, let us look at capital gains tax. The Chancellor made great play of putting capital gains tax on the sale of commercial property, but he left open a loophole for residential property. Were the Government to close that gap, none of these changes would need to take place.
Debt is a problem in itself. This Government are paying out £10 billion in public finance initiative debt repayments. Were they to get serious about renegotiating PFI debt—they would receive support for that from those on the Opposition Benches—we could save that money. The speech by the hon. Member for South Cambridgeshire was powerful because there are always choices to be made. Labour Members would make different choices and put first those people for whom £10,000 of unsecured personal debt means not only suffering the indignity of going to a food bank or going hungry every day, but the fact that they cannot make long-term choices for their family’s future, or even entertain the idea of getting on the housing ladder. They will not be able to pay the social care costs that the hon. Member for Erewash spoke about, or let their children go into further or higher education, because they simply cannot afford it. We see the potential that will be wasted as a result.
We want to make choices that will help those families, help the economy to be more productive, and help this country truly to bounce back, but that is not the choice being made by the Government tonight. I urge Government Members who recognise the debt held in their communities and understand that this measure will make it worse not better, to think again and to work with us on when and how these changes come in and how we can make sure everyone benefits from a higher wage, higher productivity economy. I promise them that the families in trouble who are coming to them now, need and deserve nothing less.
I wanted to speak in this debate because I believe it is important to add my voice, for what it is worth, from the Government Benches and from a first-time Conservative seat, on the tax credit reforms.
I represent part of the great city of Plymouth, which has for some time been a stronghold of the Opposition in recent elections. Indeed, my seat was once the domain of the Leader of the Opposition, such was the political landscape in our history. However, Plymouth is changing. We may have at times benefited from the nuances of being almost entirely state-dependent for our income, but the modernisation of the dockyard has had a profound effect on the demographics and outlook for our city. We now have second and third-order effects of long-term state dependency visible in generations of our residents.
In recent years, we have seen real benefits as the fundamentals of our local economy have changed. That resilient yet ever-evolving Janner character has seen us become a haven for marine science in the south-west, with companies such as MSubs, which was visited by the Chancellor in his last stop in the city. We have some genuine world leaders in hi-tech manufacturing and our charity sector is something that those of us who call Plymouth home are extraordinarily proud of. We have three fine higher education institutions. We are home to the world’s most adaptive and resilient fighting force in 3 Commando Brigade. We are a city that cares, regardless of background, and I look forward to turbo-charging this agenda in the years ahead.
As times have changed, so has the vote. On the Government Benches, we do not think it is right that people should be better off on a life on benefits than those with young families who work hard and contribute to the system. The welfare state is a truly remarkable thing: a system that makes me proud to be British, and a system that provides a safety net to those who need it and security for those who fall. The harsh reality, however, is that the system failed in places like Plymouth. In places like Plymouth, the system offered a life on benefits with income up to £26,000 for a family of four, such as my own. We cannot blame people for one minute for seeking this way of life, but we can look at the system that encouraged it. That is what my party is rightly doing.
I must urge caution with respect to these specific changes to tax credits. We all take individual journeys to this House, but mine was very clearly to represent my constituents above all else and to do what is right by my city. If I am to truly follow through on this, it would be remiss of me not to recount the extraordinary levels of feeling in Plymouth last weekend. This bright, vibrant, exciting and predominantly blue collar city, where in the last general election we saw lots of new and first-time Conservative voters, has serious objections to the tax credit reforms. It is my duty to represent them here in the people’s Parliament where they, and no one else, have sent me to work.
There is a general understanding out there for welfare reform. The policies are, in my experience, very welcome by many in a city that many people would see as entirely failed by the Labour party. Those of us at the coalface every weekend trying to help, encourage, gently persuade and even inspire a generation of young people, feel emboldened by the drive towards self-sustainability and independence of the Government’s reforms. However, my duty—again, I seek not to bang on to those far more experienced and capable in this House—and indeed our duty is to shout for our most vulnerable: the 10% I talked about the other night in the armed forces mental health debate in this House; those who, through no fault of their own, find themselves on the fringes of society, and who, for a bit of bad luck and a couple of wrong decisions, could be any one of us.
I stand here as a compassionate Conservative, and unashamedly so. There is a good reason why I was not a member of this party before I decided to stand as an MP last year, but I have no doubt at all that the party is changing. I am proud of our current Prime Minister for the direction he is taking us in. I am one of those who thought that one of the Prime Minister’s bravest moves was to bring in same-sex marriage. I would have struggled to be here today without his personal stewardship, and, when we are winning in places like Plymouth, it is clear for all to see.
It is clear to me that Plymouth's view is that, while welfare, and by extension tax credits, must be reformed, these measures must be supported by mechanisms that protect our hardest hit, with precision targeting and strong messaging. I today urge the Chancellor to provide something—anything—that might mitigate the harshest effects of this policy on our most vulnerable. There are people far more intelligent than me who will provide data and statistical analyses in favour of or against the argument. Indeed, they have done just that. I seek not to go against their carefully considered arguments, but British politics is at a crossroads.
I seek not to denigrate Opposition Members, some of whom I know personally and have deep admiration and respect for, but we have an entirely chaotic Opposition who have so completely lost their roots in the traditional British left as to provide no stable for almost anyone in their right mind who has Britain’s best interests at heart. We must seize the opportunity to welcome to our stable people from all previous political backgrounds. Let us look again, work harder and find a way of bringing this overdeveloped and harmful tax credits system back under control, but let us do it in a way that looks after what should be our core vote.
I say to the hon. Members for Plymouth, Moor View (Johnny Mercer) and for South Cambridgeshire (Heidi Allen) that it is never easy to make a speech with which most of those on the same Benches disagree. I have been in that position myself, so I commend them on their fortitude.
I want to talk about the effect these proposals would have on my constituency. Paradoxically, 60% of my constituency is in Lewisham, one of the poorest boroughs in London, and 40% is in Bromley, one of the richest. Lewisham is not the richest, but it is not the poorest either—that honour, if an honour it be, resides elsewhere—but it does have the highest proportion of any of the 32 London boroughs of people above the benefits level but below average earnings. They are the working poor, and they will be the hardest hit, should these proposals go forward. Lewisham also has the highest proportion of people working outside their borough, so travel costs are a factor for those attempting to work their way out of dependency.
I do not accept the false dichotomy, which some people presented, between strivers and shirkers, but the people who will suffer the most under these proposals would fall into any category definition of “strivers”. Almost 25% of families in my constituency receive tax credits; 8,600 families will be affected, while 5,500 in-work families will lose up to £1,300 from next April, according to the Library. The total loss to some of the most vulnerable people in the constituency will be something over £7 million. Strangely enough, my constituency is better off than the other Lewisham constituencies. Those of my hon. Friends the Members for Lewisham East (Heidi Alexander) and for Lewisham, Deptford (Vicky Foxcroft) have far higher numbers than mine, so the effect across the borough as a whole can be imagined.
The Government argue that the increase in the minimum wage, which they try to describe as a living wage though it is nothing of the sort, to £9 an hour by 2020 will offset the cuts. It will do nothing of the kind. The most pernicious element of these proposals is the decision to take money away from people from next April while not paying the so-called compensation until four years later. As others have said, it is not just the nature of the proposals, but their vicious timing, that will do such damage to so many people.
The Government say, “Let us enable people to keep more of their own money, rather than taking it off them and then giving it back”. As a general proposition, I think that is fairly sound, and it is arguably a more efficient way of running the economy, but it ignores the nature and efficacy of a progressive tax system: the Government raise taxes from those who can afford it to pay for infrastructure and other schemes, but also to ensure a minimum standard of living across the country through a benefits system that is an integral part of the welfare state—although I accept that a balance will always need to be struck between taxation and expenditure.
Some Government Members, such as the former Chancellor, Mr Clarke, who is no longer in his seat, and others, almost made it sound like the tax credits system was such a liability that it should be abolished altogether. That was their import, but they are wrong. The tax credits system is not there to subsidise poor employers—we are united across the House on that point; it is a crucial taper between the world of benefits reliance and the world of work. Without it, the option would not be for people to be in better-paid employment, but to be in unemployment. That would be the reality.
There is a case for reform of the system, and my right hon. Friend Frank Field along with many others has done a great deal of work in this area. While new claimants can be treated separately, there must be transitional protections for some of the hardest-working and most vulnerable families in the country.
I am grateful to you, Madam Deputy Speaker, for calling me to speak in this important debate.
Britain is home to 1% of the world’s population and accounts for 4% of the world’s gross domestic product and 7% of the world’s welfare spending. Tax credit expenditure more than trebled in real terms in the decade between 2000 and 2010. In fact, Britain has the highest expenditure on family cash benefits in the world. In 2011, we were spending twice as much as the OECD average. Without sound public finances, there can be no economic security for working families, and the country cannot pay for the hospitals and schools that people rely on.
Those who suffer most when the Government run unsustainable deficits are not the richest, but the very poorest. As the Prime Minister made clear in a speech at Ormiston Bolingbroke in Weaver Vale, there is nothing progressive about burdening our children or paying more in debt interest than we spend on schools. There is nothing progressive about debt.
Surely the hon. Gentleman is aware that a central portion of the national debt is owned by the Treasury and that we pay a substantial part of the interest payments to ourselves.
I am grateful to the hon. Gentleman for his intervention, but I have to say that I have a vested interest as I have three young children. Is he saying that we should increase our debt? Should the debt of £1.3 trillion be £2 trillion, £3 trillion or £4 trillion? How much more debt does he think this country should leave to our children to pay back?
The SNP is more than willing and happy to reduce the national debt year by year and annual borrowing year by year, but I say again that something over a third of the national debt is actually owned by the Treasury, so he cannot go on saying that interest payments go to somebody else; they go to ourselves to fund hospitals, for example.
The hon. Gentleman is saying that the Scottish National party is happy to increase the national debt. That is the message: the national debt is going to go up. That is what socialism does and what socialists say. They are not concerned about the national debt, which is currently £1.4 trillion and getting higher. We can hear the message coming through loud and clear from the SNP.
Tax credits cost £l billion in their first full year, but have since risen to an estimated £30 billion over the last year, yet over the same period in-work poverty rose by 20%. The status quo on tax credits is clearly not working. Indeed, the former Labour Chancellor of the Exchequer, Alistair Darling, said that tax credits were
“subsiding low wages in a way that was never intended.”
It is vital to address the root causes of low pay rather than simply continuing endlessly to subsidise low pay through the benefit system. Reforming tax credits is crucial to achieving a sustainable welfare system that is fair both to the most vulnerable in society and to hard-working taxpayers who have to pay for it.
These reforms do not stand in isolation, but are part of a joined-up, wider offer to working people by this Government. With the announcement of the introduction of a new living wage by my right hon. Friend the Chancellor during his summer Budget, and the strides taken to raise the personal allowance, people will be not only earn more but keep more of what they earn. It always pays to work.
On top of that, we doubled the number of free childcare hours of which parents can take advantage to 30 hours, introduced tax-free childcare and froze fuel duty, saving a family £10 every time they fill up their tank.
The hon. Gentleman is talking about how people working on low pay should be grateful for the so-called living wage. Let me make the point again that this is not a living wage: it is not £7.85; it is not enough for people to live on. Let me provide an example. On the basis of changes to the tax credit threshold and the taper, a medical secretary with two children earning £22,236 a year can be expected to be £2,109 a year, or £40 a week, worse off in 2016 than in 2015. Will the hon. Gentleman comment on that?
What I will say is that employers must step up to the plate. They must pay higher rises—rising salaries. The living wage will rise to £9 during the term of the present Parliament, and because the Government have increased the personal allowance, people will earn £12,500 before paying any tax whatsoever.
The combination of those changes will make eight out of 10 working families better off. A typical family in which someone is working full time on the minimum wage will be £2,400 a year better off by the end of this Parliament. By 2020, the annual income of a single parent with one child working 35 hours a week and receiving the current national minimum wage will have increased by more than £1,500.
Poverty can be left behind only through work. The reforms of tax credits focus support on the families on the lowest incomes, while favouring support for working families through the tax system and earnings growth rather than through benefits. They will move Britain from a high welfare, high tax, low wage economy to a lower welfare, lower tax and higher wage economy.
I will begin with a rather strange declaration, which is that I agree with the Conservatives. I, too, believe that “work should pay”. The sad reality is, however, that in Scotland, more than 60% of children in poverty come from families who are in work. We have already heard that the proposed cuts will hit those in work the hardest, with in-work families losing, on average, £1,300 in 2016-17. We have heard, multiple times, how that financial gap will be filled with the introduction of the new so-called national living wage; but it is not a living wage. It falls 65p short of the real living wage, which, outside London, sits at £7.85 per hour. It should therefore be referred to as what it is: a new minimum wage.
If we look across the board at the families, both in and out of work, who will be affected by the cuts, we see that, on average, households will lose roughly £750 as a result of social security cuts, while households that will benefit from the new minimum wage will gain only £200 from it. That means that the new minimum wage will compensate for only 26% of the total losses created by cuts in tax credits.
I know how much the Government like to talk about financial “black holes”, especially when it comes to the SNP, but the reality is that if they proceed with their proposals they will create a financial black hole of £550 for roughly 8.4 million people in this United Kingdom. It is clear from the figures that their policy serves no purpose other than to push more and more people into poverty, and, in particular, to push more children into poverty. In Scotland, more than half a million children are currently in families who rely on tax credits, and 350,000 of those children are from more than 200,000 low-income families who will be hit by these changes.
I have listened carefully to what the hon. Lady has said so far. Will she answer a question that her colleague Ian Blackford did not answer earlier? Does she support the decision by the SNP Government in Holyrood to use their new income tax-raising powers, in the next year or so, to increase Scottish income tax and increase tax credits?
There are two points to be made in response to that intervention. First, it is worth remembering that 85% of power over welfare remains at Westminster. Tax credit is a reserved issue. Secondly, I think that the use of the income powers highlights a deficiency in the initial argument. If there is a need for the Scottish Government to top up benefits, surely there must have been a fault in the benefits to begin with.
Does my hon. Friend agree that politics is always about choice? Notwithstanding the rhetoric from the Conservatives about balancing the books, they could choose not to spend £100 billion on Trident. They could choose not to raise the threshold of inheritance tax. They could choose to close the Mayfair tax loophole completely, rather than balancing the books on the backs of the working poor.
I completely agree with my hon. Friend.
The House of Commons Library also tells us that the proposed changes will deliver savings of £4.4 billion in 2016-17, but that means that the Government will be taking £4.4 billion out of the pockets of the poorest people in this country. If people qualify for tax credits in the first place, it is clear that their wages are considered inadequate to live on. Given that we can cite credible evidence that the new minimum wage will not compensate for the loss of income created by the cuts, we can conclude only that they exist purely for ideological purposes and to continue the madness of austerity. As was pointed out earlier, we know that when the average person has money in their pockets they spend it. By taking £4.4 billion out of their pockets, we are taking money out of local economies, further tightening the economy and increasing the pressure placed on ordinary people.
The third and final point that leads me to believe that the Government should abandon these tax credit cuts is the two child policy. Are we really saying that people should count themselves lucky if they qualify for tax credits only for their first two children? In Scotland, 54% of families have only one child and poorer families are no different, so this aspect of the policy serves only to perpetuate the myth and the stereotype that the poorest in society have lots of children that they cannot afford. Not only that, but are we really making the disgraceful proposal to our citizens that, as our Government are so compassionate, we might consider helping them if they have a third child so long as they have been raped? Is that where we are now setting the bar for providing decent opportunities for our children—only if they are the product of rape? Forget the fact that that is a moral outrage from the get go; it is also completely unsustainable. How does someone qualify? Does there have to be a conviction for rape? Or could there just be a claim? This is completely unrealistic. What further damage will it do to women who have suffered a heinous sexual attack if we make them have to relive that attack by giving evidence to ministerial bodies?
Fundamentally, this is an ill-thought-out, illogical and harmful proposal. Even the Adam Smith Institute has just this afternoon called on the Government to remove these proposals. I am therefore proud to say that I will support the motion tonight and that the Government should abandon their current course of action immediately.
Several hon. Members rose—
Order. The list of speakers seems to be growing rather than shrinking and almost 40 Members still want to speak, so before I call the next speaker I shall drop the time limit down to three minutes in the hope we can get as many in as possible.
The Government are pursuing the right strategic approach by moving from supporting working families through the benefit system to encouraging earnings growth and providing support through the tax system, but they need to think carefully about how they implement the policy to ensure that working families on low wages are not hit hard and unfairly. I urge them to address these worries before the changes to working tax credits come into effect next April.
The Government are doing the right thing by putting in place policies that in the long term will enable us to move to a high-skills, high-wage and low-welfare economy that is not concentrated in one place—London and the south-east—but offers opportunities for all across the country. The decline which these policies will address has taken place in many parts of the country, including my constituency of Waveney, over the past 30 or 40 years. They will not work overnight. They will need time and they might need to be refocused, redesigned and rebooted.
In the short term, there is a need for other policy initiatives to ensure that the removal of working tax credits does not indiscriminately and punitively hit those on low wages. My concern is that over the next four years the welcome initiatives that have been made so far will not on their own be enough to prevent working families on low incomes from facing significant reductions in income that could cause real hardship. They are the hard-working families doing the right thing that we can all say we support.
Since 2010, the coalition Government’s and this Government’s stewardship of the economy has helped to create a record number of jobs and has stimulated a genuine and seemingly sustainable growth in wages. That has improved the economic outlook and will enable people to increase the hours they work and move on to better paid jobs. However, such opportunities are not available evenly across the country; they are in some places, but not in others. The Government must do more to support working families as they pursue this right but difficult policy. Phasing in a reduction in employee national insurance contributions should be considered, as should changes to universal credit. Universal credit has the advantage of its simplicity, but it could be made more flexible.
The Government are doing the right thing, but this policy must be introduced with more support for those who are also doing the right thing and looking to work more. That is something that I, as a one nation Conservative, ask the Government to do.
The Conservative party promised no cuts to tax credits and said people should always be better off in work, and we agree with that, yet the Government are reneging on those commitments. Some 7,300 working families with children were in receipt of tax credits in my constituency at April 2015 and all will experience an income cut in April 2016. Those with more than two children will be particularly badly hit.
One couple who came to see me in my surgery on Friday will face a cut in their annual income of more than £1,500 a year, and that includes the change in the personal allowance. The couple obtained the figure from the “entitled to” calculator on the direct.gov website. He is a primary school teacher earning £26,500—well above the minimum wage—and as a public servant has little expectation of a pay rise above 1%. His partner has had pregnancy-related health complications so she is not working. They are expecting their first child. They said to me that they
“feel extremely disappointed that an honest young couple who have a child on the way and have never claimed a thing do not get any help.”
It is not right that a second-year primary teacher is struggling to make ends meet and that low and middle-income earners like this man face the brunt of Government cuts yet again.
I do not dispute that employers should pay decent wages so that working families are less dependent on the taxpayer to make up the difference, and that we should strive to be a high-skill, high-wage economy, but until the wages of the lowest-paid rise, the Government should not withdraw the benefits that allow working families to feed their children and ensure that people can heat their homes and are able to afford to travel to work.
The Resolution Foundation calculates that cuts to tax credits and universal credit next April will create an “overnight shock” to family incomes, plunging around 200,000 families into poverty, mostly working households. The so-called national living wage is not a living wage and will simply not compensate these families for their loss of income. Middle and low-income families will continue to need support, not spin.
The Government justify these cuts by saying that they need to make savings in public funds, but where is the assessment of the cost to the public purse of these drastic cuts to the income of so many low-income families? What about the greater risk of people being forced into unemployment and the additional cost to the taxpayer from that? What about the additional cost to the country of children arriving at school hungry and unable to learn? What about the greater chance of long-term illness from cold homes, and the costs of increased personal debt that my hon. Friend Stella Creasy described so clearly? Where is the assessment of the impact on local economies of these changes—the loss of £4.6 billion in the next financial year? Money spent by low-income people is spent in their community, not on playing the stock market.
The Conservative party is the party of jobs, opportunities and higher wages, not of borrowing for ever until we go bust. There is nothing whatever compassionate about running out of money. My right hon. and learned Friend Mr Clarke made some very good points, not least that, given the conditions, this is a good time for employers to deal with the subsidy that has built up.
In Australia during the crisis the Government authorised the payment of $900—about £500—as a tax credit, as an absolute emergency measure to keep the economy from going into recession, and there was an almighty argument and stink over whether that was even possible.
Gordon Brown instigated a system that spends thousands of pounds per person every year. He bumped the figure up ahead of elections time and again, and the welfare system got out of control. This was indeed a bribe, and it was made with borrowed money. That is not fair on the general taxpayer. We are the party that wants to reform this system. This is about reducing our deficit and not burdening our children. All our children will be paying for this for ever more unless we reform the system now. It is also worth remembering that the tax credit system is one of the reasons that migration from the EU has been sucked in so hard since 2005, and if we want to deal with that, we must address this issue.
This is the party of incentives. We want to make the future better and enable businesses to create jobs that will pay better wages in order to give people the opportunities they need if their families are to get on. That is why we have a major infrastructure programme in the south-west. We have heard Opposition Members ask what we are going to invest in. Well, we are investing a lot. We are going to make a major difference to people in my constituency and in the south-west. These moves will enable a much broader-based rise in wages, which I look forward to. I believe that we should incentivise people even further in the next phase, and it has been suggested a few times that we should look at the national insurance system. We could raise the national insurance threshold much further, right up to the point at which income tax is collected. That reform would make work pay even more.
Thank you, Mr Speaker, for giving me the opportunity to contribute to today’s debate. During the recent general election campaign, I spoke to many families across the Merthyr Tydfil and Rhymney constituency who were already struggling to make ends meet and, in some cases, struggling to put food on the table or to heat their homes. Since the election, we have heard from the Conservatives that they are on the side of working families and want to make work pay. In recent weeks, however, I have visited food banks in my constituency and seen at first hand how the demand for support from our food banks is increasing, not decreasing. It is also deeply worrying that in many cases, food bank support is reportedly being provided to people who are in work rather than out of work.
If the Government continue with their severe cuts to tax credits and do not alter course, it will cause absolute misery for many families in my constituency and many others areas across the country. These measures have been described as the largest cut to family incomes ever implemented by a Government. Is that an achievement that the Conservative party wishes to aspire to?
We are talking about working families. These are the people whom the Government say they want to help, yet the tax credit cuts would completely pull the rug out from under them, causing misery and hardship on an unprecedented scale. The cuts will mean that work pays less, which will undoubtedly lead to further debt and to families being unable to afford their basic living and housing costs. The cuts will also lead to further direct and indirect financial pressures on local authorities, which are already struggling to cope with massive cuts to budgets and services.
The changes will hit working families, with 3.2 million low-paid workers losing out next year. Information released by Barnardo’s highlights that a lone parent working full time on the minimum wage—the new so-called national living wage—for 37 hours a week will lose around £1,200 a year as a result of these changes, even after accounting for the increase in the minimum wage. That cannot be fair, and these measures will not support working families as the Government say they want to do. The combination of the Government’s public sector pay policy and the changes to the tax credit threshold and the taper will mean that hundreds of thousands of public sector workers will have less income in 2016, 2017, 2018, 2019 and 2020 than they do in 2015. Again, can that be fair?
I say to Conservative Members that these measures will hurt working people, particularly the most vulnerable across our country. That will include not only 4,900 families in my constituency but families in all constituencies, including those represented by Conservative MPs. I urge Conservative Members to support the motion, to show that they are truly on the side of working families, and not to condemn more children into poverty.
I am very much obliged to you, Mr Speaker, for being able to speak in this debate. We have heard lots of passionate speeches and many well-argued speeches, but I wish to start by referring to the one made by my right hon. and learned Friend Mr Clarke. He said that when we look at the election, we see that there was a clear choice between the Conservative party and other parties on economic credibility. It is on that rock of economic credibility that this Government are doing something that is difficult but essentially the right thing. Opposition Members have to outline where they are going to find the £4.4 billion of savings, and they have not done so in any way.
Order. Let us hear the good doctor.
I am not frightened with respect to this debate, but perhaps in other ways I should be.
The Opposition parties have a number of questions to answer. Where are they going to find the savings? More broadly, most of us agree that this system of tax credits subsidises employers, so is that subsidy to them to be paid year in, year out until kingdom come? Do we want to keep doing this for the foreseeable future, perhaps in perpetuity, or should we try to reform it and impose some conditions on employers to increase wages and share general increases in prosperity? The Government are doing the right thing. Clearly, this is a difficult decision. We cannot kid ourselves that some of these choices are easy, because they are not, but that is why we have been given the mandate—to do difficult things. If it were easy, we would have done it already and we would not have a problem. This is the right thing to do.
As other Conservative Members have observed, the conditions could not be more propitious to institute a reform of this kind. We have rising incomes and rising wages, and unemployment has fallen. I recall that in the last Parliament the doomsayers were saying that we would hit 5 million unemployed, but that never happened. We have good labour conditions and this is exactly the right time to bring about a reform of this nature. The last thing I would say is that although we engage in pantomime, Punch and Judy politics, this idea that the Government have done nothing for working people is ridiculous. We have to stress the fact that the national living wage has been introduced and the personal allowance has been trebled, and we also have to consider the doubling of free childcare for working parents with three and four-year-olds. This is a good comprehensive measure that helps people.
First, let me say that I do not think many people disagree with the analysis that has been made about tax credits. The question is: will the Government’s approach and the timing of their reduction solve the problem and avoid the difficulties that have been identified?
Let me deal with the three arguments put forward by Kwasi Kwarteng, the first of which was that Government credibility is at stake. In a democracy, it is not just the credibility of the Government that is important, but the fairness of the policies they are undertaking. They might argue that they are dealing with the deficit and taking tough action, and that those are good things, but those affected must also feel that they are being treated fairly. I do not believe there is fairness in this policy, because it does affect those people at the lower wage end of the economy. As has been said, we are talking about the strivers in society—the people who want to make a contribution and yet find themselves undermined.
My hon. Friend has mentioned the issue of those who are going to be hit hardest. Some 300,000 more children will be put into poverty, as has been confirmed by the children’s charities. Does he share their concerns?
My hon. Friend makes an important point. In Northern Ireland, 33,000 of those who will be affected have two or more children, and the impact is likely to be about £2,500 per year on them. The issue of fairness is therefore important.
The second point that the hon. Member for Spelthorne made was that this was the right time. Mr Clarke argued that the economy is buoyant, but that is not true in all sectors, or in all regions. There are many places where the labour market will not push up wages and where there is not the competition for employers to say, “We will have to hold on to workers by pushing up their wages to the national living wage or beyond.” It is not the right time in many parts or in many sectors of the economy. As the Office for Budget Responsibility has said—as has the Adam Smith Institute, which is hardly a hotbed of left-wing subversives who want to wreck the Government’s policy—the policy will price thousands of workers out of the labour market.
Finally, the safety nets that exist are not there for everybody. For example, the national living wage will not apply to a large group of people in society—to those who are under the age of 25. The new approach to housing benefit will not help those who are in the private rented sector, so they will face housing costs. The childcare costs will not apply right across the board. We will find similar things if we go through many of the other safety nets that the Government say they have put in place. For all the reasons that I have mentioned, this is an unfair change in policy.
Some Members have asked, “What is the alternative?” May I just say that I served as Finance Minister in Northern Ireland, and we had to find 5% cuts in the middle of a financial year, and then 3% cuts every year for four years? There is enough room in a budget of £400 billion to find the changes that are required to fund the phasing in of these kinds of changes. We do not have time to discuss that today, but suggestions have already been made. If this is a policy that the Government want to pursue, the real challenge is to find ways of introducing it humanely, fairly and effectively.
Much has been said today, but I wish to concentrate on two points. First, we must accept that tax credits are a failed policy. I do not think that anyone has any credibility in this debate unless they accept that the policy is a massive failure of the previous Labour Government. Even if we are generous to Gordon Brown—and there is no reason why we should be—and we adjust for prices, this is a policy that should have cost £6 billion and has ended up costing £28 billion. No economy can afford such a bill. It is wasteful. It is a byzantine merry-go-round of recycled money that has “misdirected”—to use the jargon—at least £10 billion in fraud and error. As has been said, it has enabled many employers, including some of our largest companies, to pay their staff less in the full knowledge that the state would top up weekly incomes. In doing so, the policy has depressed wages. I know that all too well from my constituency where the toxic combination of out-of-control immigration and out-of-control welfare has meant that there has been little, if any, pressure on some of my largest employers to increase wages in the past 10 or 20 years, and it is an increase that the working people of Newark want to see and to which this Government are committed.
Several hon. Members rose—
I will not give way, because time is pressing.
The second question we must ask is: are we willing to put this back in the box labelled “too difficult”, or is this generation of Members of Parliament willing to take the matter on? Do we want to kick this can down the road for future MPs and constituents to deal with, or do we have the guts to take it on? Of course it is not easy. No welfare reform is painless, and any boondoggles given away before general elections are, by their nature, the most difficult things to retract, as my right hon. and learned Friend Mr Clarke has said. This matter is important, because it cuts to the core of what we are here for. Are we, as Members of Parliament, elected here to leave our children and grandchildren a state that is in worse repair, less competitive and more dependent on China—I have just been to hear the President of China speak a few moments ago? I want a country that can stand on its own in the world, pay its way and ensure that work pays, where millions of working people, including 4,000 or 5,000 of my constituents—
I will not, as time is against me.
I want a country where 4,000 or 5,000 of my own constituents are not reliant on welfare, but have the dignity of a job that pays.
I shall speak on behalf of more than half the population who have not yet been mentioned specifically. The cuts that we are discussing today will have a gendered impact, significantly affecting women much more than men. Capital and wealth continue to be concentrated in the hands of men, who tend to earn more. By contrast, women are most adversely affected by cuts to social security as they have to rely on it more. For instance, women are far more likely to be single parents, and 42% of single parents in the UK live in relative poverty after housing costs. Of those, 90% are women. Women also work as mothers and carers for elderly relatives, and when in work they are more likely to work part-time in the most underpaid, undervalued but important sectors—catering, cleaning and social care.
The Fawcett Society has shown that 62% of workers paid below the living wage are women. The considerable gender pay gap of 19% stubbornly continues. Tax credits are therefore a lifeline for women in low paid work and the women’s budget group has demonstrated that these cuts will undermine advances in gender equality. Although the majority of people gaining from tax credit cuts will be men, who will benefit by £1.5 billion a year by 2020, most of those losing out from tax credits will be women, who will lose £5.8 billion a year by 2020.
The advances made in helping those on low pay are about to be rolled back by a party that claims to represent the interests of working people, but in practice does no such thing. The cuts are not inevitable. They are made off the back of tax cuts for multinational businesses and others, which overwhelmingly benefit the most affluent. May I suggest, from the party of Siobhain McDonagh, that if the Government are looking for a compensating saving for ameliorating the situation of the poorest families, they should look at the mortgage tax relief given to buy to let landlords. In the Budget the Chancellor cut it back to the basic tax rate. If the Government want £2 billion more, they should cut it a bit more, help the housing market in London and make sure that poor families and poor women do not lose out.
“We should measure welfare’s success by how many people leave welfare, not by how many are added”—so said Ronald Reagan. In 2010 nine out of 10 families in the UK were on welfare. We do not need more welfare; we need more jobs, and better jobs which will pay a national living wage of £9 by 2020, ahead of the estimated living wage at that time.
We have record employment in the UK. Britons have more opportunity and more jobs. During the last Parliament, we created more jobs than were created in the rest of the European Union combined. What we have not discussed in this debate is the effect of the whole package of these reforms—universal credit, tax thresholds, child care and the national living wage. They create an incentive, enabling people to do more work. All those estimates from the IFS and the Adam Smith Institute have not taken into account people’s potential to go out and work more.
I find the hon. Gentleman’s comments bizarre. This matter is close to home for me. My son and his wife are on tax credits. He does over 40 hours a week, and she is retraining and doing 12-hour bank shifts. I have a granddaughter who is going to suffer a cut of more than £100. Can the hon. Gentleman explain to me how they can retrain any more than they are, where they are going to get extra hours when they are both doing nearly 50 hours, and the impact that that has on my granddaughter? The hon. Gentleman is out of touch.
Wages have been subsidised for employers for too long. It is a crazy, convoluted system in which people pay tax and then it is returned to them in welfare. How can that be right? Employers should value their workforce and pay them more. Of course we need to look carefully at the consequences of these changes, but without the reforms in the previous Parliament the tax credits bill would have been £40 billion. We cannot afford that. We have to balance the books, and employers have to take up the slack.
We are still losing £73 billion a year in this country, so we must balance the books, and we can do that by building a new culture. What do I say to an employer in my constituency who employs hundreds of workers? He says that on a Friday night, when the shout for overtime goes up, it is the overseas workers who step forward. We need to build the right culture. The culture in my house was built by my parents, who worked all the hours God sent, not to line their pockets, but to benefit the next generation and set the right example for them.
Freud, distilling the learning from his life’s work, said that happiness depends on two things: love and work. Over the previous Parliament, 700,000 workless families went back to work. We need better jobs, we need to balance the books, and we need to build a new aspirational culture in which work pays.
Michelle Dorrell, who appeared on the BBC’s “Question Time” last week, is one of the one in four people who now regret voting Tory. With tears in her eyes, she explained that she felt she had been misled by the Government. They are taking from the poor and making them suffer, and it is a false economy. On
“we are going to freeze them for two years; we are not going to cut them”.
The spirit of deception goes on. The minimum wage has been renamed the living wage. Ministers claim that the cuts in tax credits will be offset by the increase in the minimum wage. Like all good cons, there is a grain of truth in that, because the cuts could be offset, but not until 2020. The cliché about hard-working families who did not cause the crash having to pay for it is unfortunately true. In Brent, 64% of families receive tax credits, which means 13,600 households will be affected by these changes. We know that there is a problem when The Sun—not a left-leaning newspaper in anyone’s imagination—starts a campaign about the cuts.
Conservative MPs have an opportunity tonight to listen to their conscience, vote with us and send a message to their Front Benchers that this is not right and this is not fair. If you fail to do that, shame on you.
Several hon. Members rose—
Order. I gently remind the House that there is no shame on my part in these matters. Members should not keep using the word “you” as though it is somehow my policy. Neither is it my policy, nor is it not my policy; it is the Government’s policy.
Thank you, Mr Speaker, for giving me the opportunity to speak in this debate. I will keep my remarks brief, because I know that a number of colleagues wish to speak.
Specific reforms announced in the Budget should be discussed in the context of the new deal announced by the Chancellor. The problem is that some Members of the House want to pick and choose the elements of that new deal, welcoming the extra spending but never endorsing any of the difficult decisions that the Government have had to take. The current situation is this: Britain is home to 1% of the world’s population, generates 4% of the world’s income, but pays out 7% of the world’s welfare spending. We are currently spending more on family benefits than Germany, France or Sweden.
This Government were elected six months ago with a mandate—an instruction—to balance our books and to reform welfare, as stated in our manifesto. I have listened to Opposition Members, but we have to seek to avoid the mistakes of the past. Spending on tax credits more than trebled under Labour in 10 years, while in-work poverty rose by 20%. In 2010, 90% of families were eligible for tax credits—a disproportionate amount. After these budgetary changes, that will be reduced to five in 10, a much more sustainable number. Ultimately, these changes will return tax credit spending to pre-crisis levels—the level under the Labour Government in 2007-08—and deliver £4.4 billion of savings in 2016. That money can be invested in our national health service.
I will not give way because time is short.
Where do we go from here? We can either run a high welfare, high tax, low pay economy or continue with the job of reforming our economy to have high pay, low tax and lower welfare. Controlling welfare spending is part of this Government’s wider offer to working people. We are raising the personal allowance so that by the end of this Parliament people will not have to pay anything on the first £12,500 they earn. We are introducing 30 hours of free childcare for working parents—tax-free childcare worth another £2,000 a year. We are freezing fuel duty and introducing the new national living wage. These reforms cannot be viewed in isolation. They form part of this Government’s new wider deal with the British people, supporting people into work and ensuring that we deal with our debts now rather than burdening our children, grandchildren and great-grandchildren with more debt than they can ever hope to repay. That is why I will support the Government this evening.
I look at this debate as someone who, perhaps unlike some Conservative Members who have spoken, did an ordinary job on an ordinary wage before I came to this House. Many of the people I worked alongside in the NHS relied on tax credits to make work pay and now find themselves caught in a pincer between the Government’s pay cuts and the work penalty. More than 13,000 children in my constituency are in families supported by tax credits—over two thirds of all families with children in Dewsbury and Mirfield. Literally thousands of the people I represent are now fearful for their future.
My hon. Friend is not alone. In my constituency, 4,000 working parents will be affected by the working tax credit cuts, as will 6,700 children. This is, in effect, a work penalty. I ask her to support me in telling Conservative Members, “You are not the party of working people, and shame on you.”
I thank my hon. Friend for his intervention. I absolutely agree that this is clearly a work penalty— to think that the Conservatives wanted to rebrand themselves as the party of working people, but instead we have this penalty.
A cleaner in my constituency with one child earning just over £13,000 a year will now lose nearly £2,000 of it. That, quite simply, is the reality of these cuts. As for the so-called national living wage, there is one simple problem: it is not actually enough to live on. That is why we had tax credits in the first place, and why the Living Wage Foundation takes account of them when it calculates the real living wage.
If the Conservatives were serious about an economy based on fair pay for decent work, they would be doing the opposite of what they propose in the Trade Union Bill and making sure that working people genuinely get their share of the wealth they create. The real winners will be the Tories’ paymasters in big businesses, because the most profitable companies in Britain will get the cut in corporation tax—not to mention the millionaires. We know what they really think of ordinary working people in Britain because the Minister for Employment said it herself in a book called “Britannia Unchained”:
“the British are among the worst idlers in the world” who
“prefer a lie-in to hard work.”
If they thought that these cuts were so necessary and so reasonable, why did they not mention them before the election? Instead, we saw exactly the opposite, with the Prime Minister categorically denying on national television that any such changes would be made. We used to say, “You can’t trust the Tories with the NHS”; now we know that you cannot trust them, full stop.
At the heart of this debate lie two different views of how we should combat poverty. The first is that the state should do so exclusively through the welfare system, and the second is that the real way out of poverty is through hard work for proper, honest, decent wages.
I agree with Alistair Darling, the former Chancellor of the Exchequer, who has said that the unintended consequence of tax credits has been to subsidise employers who do not pay their staff enough to live on. I hope that Members on both sides of the House can agree that employers and companies that do not pay their staff a decent wage and enough to live on are behaving in a deplorable and completely unfair way. I welcome the introduction of the living wage, which moves us towards a point where people can live on their wages.
As a corollary and consequence of the introduction of the national living wage, I think that productivity will increase as well, because employers who pay low wages have no incentive to invest in IT and machinery.
The proposal begins to move the balance away from a reliance on tax credits towards a reliance on fair wages. I understand the points that Members on both sides of the House have made about the effect of tax credit reductions on particular individuals, but while many of the analyses we have heard, including those by Unison and the IFS, take into account the national living wage and the tax threshold increase, they do not take into account extra childcare or the removal of the fuel duty escalator, which means it now costs £10 less every time we fill up the tank. Nor do they take into account the 1% reduction in social and council rents or the fact that wages are going up by 3% while inflation is zero.
The living wage will directly affect 3 million people and a further 3 million people on slightly higher wages will benefit from a ripple effect. In fact, 200 companies, including Morrisons and Lidl, have already adopted the national living wage.
Labour Members, particularly the shadow Chief Secretary, have completely failed to answer repeated questions about where the £4 billion would come from if not from this measure. Seema Malhotra did not suggest a single idea. The SNP has not taken up the challenge, but it could increase income tax.
I tabled amendments in this House to devolve universal credit, which is exactly where tax credits sit, and they were rejected by the hon. Gentleman and his colleagues.
In a year or two the Scottish Government will assume powers to vary income tax and it will be entirely at their discretion to raise it to fund tax credits, so we will find out very shortly whether they really plan to use those powers.
I am conscious that time is short, so I shall conclude. The measures shift the engine of prosperity creation away from the state and towards work and pay. I welcome the proposals and will support them this evening.
I and my SNP colleagues oppose the UK Government’s continued attack on low-income and vulnerable working families. It will have a devastating impact on the majority of the 11,300 children from more than 6,000 families in Airdrie and Shotts who are in receipt of tax credits.
The very first lines of the July report by the Institute for Fiscal Studies state:
“A package of changes to the tax, tax credit and benefit system has been announced for implementation in the current parliament…These will reduce household incomes significantly, particularly for those towards the bottom of the income distribution.”
Is my hon. Friend aware that the Tory manifesto mentioned tax credits only twice and that it did not mention the scale of the proposed cuts? Conservative Members are lining up to say that they have a mandate to cut tax credits, but they have no such mandate, especially considering that fewer than one in four of the electorate voted for this Government.
I agree with my hon. Friend that the Government do not have a mandate to implement these tax credit cuts. That is not what the people who voted Conservative voted for.
The changes are fundamentally regressive. They disproportionately target those in low-income households and punish them for this Government’s ideological obsession with austerity, which is failing socially and economically.
No, I will not.
An International Monetary Fund report in June highlighted the fact that reducing income inequality not only leads to reduced poverty, but boosts growth. By extension, the policy of cutting tax credits, which will increase income inequality and drive more of our citizens into poverty, will, in fact, harm growth and therefore harm the Government’s apparent aim of reducing the deficit.
I absolutely agree that we need to make work pay. I believe in a fair day’s pay for a fair day’s work. I also believe that work should be a means to escape poverty, but 60% of children now living in poverty in Scotland live in working households. It was puzzling to me to see how cutting tax credits could possibly achieve the goals of making work pay and eradicating poverty.
The Government have absolutely no mandate for these tax credit cuts, as I have said, but I welcome the minimum wage rise that was announced in the Budget. Why, however, are the Government attempting to sabotage and undermine the real living wage campaign by giving their minimum wage the same label, especially when the Chancellor is giving once with one hand and taking twice back with the other?
The House of Commons Library has calculated the cumulative impact of the summer Budget on a single-earner couple with two children where the singer earner works 35 hours per week and earns the minimum wage. The Library’s independent analysis shows that a family in that situation will be £1,500 per annum worse off in 2016-17—the year all these changes will start to take effect—and more than £2,000 per annum worse off by 2020-21. How on earth can that be described as making work pay? The Government cannot reduce the deficit by waging a war on the backs of those who are least able to pay and, as the IMF has demonstrated, it makes little economic sense to do so.
I find it morally and socially reprehensible that these tax credit changes are being forced through by the Government without a mandate to do so. I hope that Ministers will look at this matter very carefully, and that compassionate Conservative Back Benchers will keep that in mind when the Division bell goes this evening, as they consider the full consequences of these shameful tax credit cuts.
I did indeed watch “Question Time” the other night. I sincerely hope that the reports in the press that the lady concerned had misunderstood her exact situation and will not be affected by these cuts is the case. I put it to the hon. Gentleman that Government Members have a better understanding of why people voted Conservative: they did so to sort out the mess of the past few years.
The Chancellor is right to continue the process of reform. As my right hon. and learned Friend Mr Clarke said—this was echoed by my hon. Friend Kwasi Kwarteng—now is the optimal time to put forward sensible, necessary reforms: there is a strong economic backdrop, UK employment is at a record high and the economy is growing faster than anywhere else in Europe. These reforms are a package of measures that cannot be viewed in isolation.
My hon. Friend is quite right to mention that the changes are part of a package, which includes higher tax-free allowances, lower social housing rents and wage rises that are significantly higher than inflation. Does he agree that we still have not seen a full assessment of the impact of all those changes or of the tax credit changes in research by either Parliament or the IFS?
I am grateful to my hon. Friend for drawing the House’s attention to the many factors that are mitigating the tax credit reforms, including the national living wage, the fuel escalator—my hon. Friend Chris Philp referred to that—and the doubling of free childcare provision. As a colleague of mine on the Work and Pensions Committee, my hon. Friend Richard Graham will be well aware that it is going to look at some of the detail of how the reforms may affect people. I look forward to engaging with him on that, as well as with Frank Field and others.
I recognise that there are concerns. However, I urge all hon. Members to remember that we are dealing not with a static environment, but with the most dynamic economy we have known for many years. The positive reforms that the Chancellor is making will have a pronounced ripple effect. Morrisons, Costa Coffee, Sainsbury’s and Ikea are among 200 firms that have already increased pay to meet the national living wage or move above it.
I apologise, but I have given way twice and other people want to speak.
Those pay increases are only part of the story. The ripple effect will continue as those who are on the national living wage see others coming on to it and the pay differentials kick in.
I have already given way to the SNP and will not do so again.
There is currently a 4% increase in wages against a flat inflationary background. The reforms, taken overall, will deliver for working people. We will continue to deliver a vibrant economy. The Government will ensure that this generation covers the debts that have been incurred, rather than endlessly passing the buck into the future.
This morning on BBC Tees, I debated the issue of tax credits with a Conservative councillor who stood unsuccessfully at the general election. He used an expression that summed up the total lack of understanding among Government Members of how people can be in work but in need of some state support. He referred to people as being “exposed” to the process, as if it was some kind of risk. I understand that that expression might be used by a City person in relation to investments or by a chief executive about a project that his company plans to undertake. In both cases, I am sure that they would develop a plan to mitigate the risk of failure. The millions of people who will be affected by the tax credit cuts are not exposed to a risk that they have the power to mitigate. Rather, they are having cuts to their income imposed on them and there is little, if anything, that most of them can do about it.
One group that will be hit is family carers who receive carer’s allowance and work 16 hours on the minimum wage to supplement their benefit of £62. There are 689,000 carers in that position. Carers UK says that all carers who claim carer’s allowance and working tax credit will lose out under the tax credit proposals. I know that my hon. Friend cares about these things, but it seems that Government Members do not.
I am grateful to my hon. Friend for that intervention. She does tremendous work in respect of carers and I understand exactly what she is saying.
My hon. Friend will be interested in the case of my constituent, Linda Harper, whose medical needs mean that she requires help and support in some areas of her life. Despite needing the unpaid care of her husband, who also has a job, Linda’s determination recently saw her battle against her condition to open her own craft store in the local town centre. Although the business does not yet turn a profit, she is succeeding in building a customer base and is contributing to the community by running classes, teaching others the skills of her craft and hosting social groups that add value to the lives of those who participate.
Linda represents the attitudes that the Conservative Government claim they want to promote. She is hard working, persevering and enterprising. Let us not forget that the Conservative manifesto at the general election promised to improve the lives of
“the millions who work hard, raise their families, care for those who need help, who do the right thing”.
Yet, when the Government’s changes come into effect, Linda estimates that she stands to lose £2,000 a year. Paying her mortgage and putting food on the table will become significantly harder and the viability of her businesses will be severely challenged.
The Government say that their demand for employers to pay people more and their tax cuts will help to restore the money that people lose from their tax credits. That is absolute nonsense. I put the following questions to the Minister. What will happen to public sector workers and self-employed people on low incomes? How can the employees of local authorities, health trusts and other public sector employers make up their income by increasing pay when the Government have said that they cannot give increases beyond 1%? How will a person who relies on tax credits and who earns less than £10,000 a year benefit from an increase in the tax threshold? How will a self-employed person with earnings of £6,000 a year give themselves a pay rise to fill the gap in their income caused by the loss of tax credits? How will a small business fulfil the Government’s promise of higher wages when it is already struggling to survive? The answers are simple: public sector workers will continue to see drastic cuts to their incomes and standard of living; self-employed individuals will be left to their own devices; and small businesses will pay people off because they cannot afford to keep them.
I am alarmed to hear that, despite the reservations of many Conservative Members, the Prime Minister and the Chancellor have no intention of halting these cuts. Perhaps the 70 or so Conservative Members whose majorities are smaller than the number of people in their constituencies who claim tax credits will have more to say about that in future. Several million people hope so.
I am grateful to be able to speak on this difficult and contentious issue, and it is important to consider all the arguments, including economic ones, for why these changes are necessary. Only last week we debated the charter for budget responsibility, and there was unanimous support among Conservative Members for running a surplus in normal times, so that if we again strike a period of economic slowdown, we will have money for our vital services. Many Labour Members acknowledged and agreed with that. We must tackle the country’s deficit and debt, and to achieve that we must reduce public spending.
I will not. Tackling welfare spending is key to achieving that reduction, and we cannot tackle the country’s deficit and debt by leaving welfare spending as it is. The UK is currently home to 1% of the world’s population, yet it accounts for 7% of the world’s spending on welfare. That is clearly not sustainable. If we do not save £12 billion a year by reducing the welfare bill—including £4.3 billion from changes to tax credits—where will we find those savings? From the NHS budget? By cutting social care spending or reducing the education budget? Labour Members could not give one answer when asked how they would reduce the deficit. There is no easy answer—if there were, we would be doing it.
Currently, taxpayers—many of whom earn just above the tax credit limit—are subsidising employers who pay low wages, and that must end. It cannot be right that someone who gets up early, goes to work, works long hours and comes home late, does not earn enough to do without welfare in the form of tax credits. Instead of fighting to preserve tax credits, perhaps Labour Members should fight harder to increase wages.
I dispute many of the figures that have been distributed by opponents of these changes. If we look at the facts and take into account all the changes in the recent Budget—including the increase in free childcare, the freezing of fuel duty, VAT and national insurance, the increase in tax thresholds, and the reduction in social housing rents—a typical family will be about £2,400 better off by 2020. As we have heard, pay is already up by 3% this year, and more than 200 firms have committed to paying the living wage. Having come from a poor background and struggled through hard economic times, I firmly believe that the way out of poverty is through work—
Time is short so I will focus on two areas: the effects of the changes to tax credits on my constituency, and the disproportionate effect of those changes on black and minority ethnic communities.
In my constituency these cuts will be devastating. Areas that are already impoverished and where many depend on tax credits will suffer far more than richer areas. Some 15,500 families in Bradford East receive tax credits, and 13,700 of those have children—four times as many as in the Chancellor’s seat. He does not understand the effect that these cuts will have, and he never will.
More than 5,000 families in Bradford East have three or more children. Bradford East already has above average unemployment and high levels of deprivation by any measure, and thousands of children live in families that are to be made significantly worse off. Families will have to make heart-breaking decisions about whether to pay the gas or electricity bill, or whether to buy food. Thousands of children living in families dependent on food banks; thousands of children being forced to live in ever-worsening poverty and despair—that is the reality of these proposals.
In terms of racial discrimination, the effects of the proposals are truly shocking. Government data show that tax credits constitute, on average, 2% of weekly household income for white households. That rises to 6% for black households and a further 10% for households of Pakistani or Bangladeshi heritage. These families are often already in poverty because of poor wages. According to Omar Khan, director of the Runnymede Trust, an independent think-tank focusing on race equality, these cuts
“Will inevitably increase racial inequalities and probably increase rates of child poverty”.
Will the Minister tell me what this will mean for my constituency, with its large Pakistani and Bangladeshi population? What will this mean for the local economy, where poverty and despair will be further fuelled? What will this mean for local businesses, for the local corner shop whose customers are being squeezed harder and harder? I have to ask myself: is it the Government’s intention to create ghettoes in our cities? The cumulative effects of the cuts will not only have a shocking impact on Bradford’s families from all backgrounds; it will have a devastating effect on our local economy. I cannot see what is fair about any of that, I cannot see what is northern powerhouse about any of that, and I certainly cannot see how we are all in it together.
Many of those who have spoken, and indeed the Chancellor himself, are quite right to say that we have to view all the measures put forward as a package—not just the effects of the tax credit changes, but the many other measures that have been spoken about. I would like to make three points: on timing, predictability and the concept of scarcity.
On timing, the measures will come in at different times. It is vital that there should their timing should be synchronised. It is not there at the moment and I therefore ask that the timing of the introduction of the various changes to tax credits be looked at. I fully agree that we need reductions in the tax credit bills, but it is the timing that will bring great problems to many families.
On predictability, families want to know what their income is going to be. They want a reasonable measure of forewarning, so they can talk and negotiate with their employers, and plan their future. If their income is going to be reduced, they need time to do that.
The hon. Gentleman is making a good point about timing. I raised a point earlier about carers. Carers who work 16 hours a week on the minimum wage will lose their tax credits. They cannot change that, they cannot plan for that and they cannot find any way out of that. What does the hon. Gentleman think about that in relation to the 689,000 carers?
The hon. Lady must have read my notes, because I was going to come to that and say precisely that this is the other major issue. Those on fixed incomes do not have the ability to go out and work the two or three extra hours a week to cover the cost of the changes to tax credits. Full-time carers are not the only example, but they are the most obvious. I entirely agree with her.
Scarcity might seem a rather arcane concept to introduce, but studies have shown that for those who find sudden scarcity imposed on them economically the costs are very great. The inflation rate for people on lower rates of pay is considerably higher than for those on higher rates of pay. If they suddenly receive a lower income—perhaps a cut of 10% or more—their costs will actually rise, because they will be unable to make the decisions to buy in bulk or in advance that they were otherwise able to make.
Finally, I am not one of those who does not want to eliminate the deficit. I absolutely do. If we have a change in timing—as I urge the Government to consider, including in relation to carers—we will need to find extra sources of revenue and we will have to take that on the chin. In particular, I have written to the Treasury to ask it to consider various income tax and corporation tax reliefs.
It is clear from what we have heard that the Government Benches are divided. We have heard from some Conservative Members that tax credits have failed—clearly they see this as unfinished business, so people on tax credits ought to fear there is more to come—but we have heard from others who are concerned about their constituents, and I would urge them not to ignore this opportunity to register their opposition to what their Front-Bench team are asking them to do.
This is about the choices we make and the priorities we have. We could reverse the inheritance or corporation tax cuts to reduce the impact on people on tax credits, or we could cut the nearly £2 billion that people earning more than £1 million will share in tax cuts. They will be £61,000 a year better off. People earning more than £2 million a year will be £250,000 a year better off. Come the next general election, they will have gained £1.25 million in tax cuts, but over the same period, a cleaner earning £13,500 will have lost £6,800, a patient transport driver on £17,800 will have lost more than £8,000, and a medical secretary on £22,200 will have lost £9,400. These people are strivers, they are hard workers, yet the Tory party is cutting their incomes. That is the choice people have made.
Several hon. Members rose—
Order. We can only have one Member on their feet at once. We cannot have the whole Chamber trying to get in at once.
I agree with everything my hon. Friend is saying. Does he agree that this cut is being imposed because the Conservative party, for ideological reasons, does not like poor or working people, and only wants to help and enrich the rich people?
If I were to accuse people of lying, Mr Deputy Speaker, you would rightly rule me out of order, but the people out there will have to make up their own minds. When the Justice Secretary went on to Martha Kearney’s programme, he was specifically asked what the Government would do on tax credits, and he said, “No, we’re going to freeze them for two years.” I do not know what the definition of a lie is, but I know that people outside the House will make up their own minds—although we cannot use that language in here.
We know the Conservatives have lost the argument. This started at the autumn statement when the Chancellor said, “Britain deserves a pay increase, and Britain is going to get a pay increase”, but Government Members did not know when they cheered him that he was going to cut tax credits and make people worse off. Even the increase in the national minimum wage—it is not a national living wage, it is a Tory living wage—will be wiped out for those on it by the cut to tax credits.
I say to those who are upset about these proposals: it is not good enough just to have a chat in private with the Chancellor or the Prime Minister. This is where they represent their constituents—here in the House of Commons—and if they do not agree with what their Front-Bench team are telling them to do, they should join us in the Lobby tonight to vote against what the Government are doing to people on tax credits.
This is a Government on the side of hard-working people, elected with a mandate and a majority to transform our country from a high-welfare, high-tax, low-wage economy to a low-welfare, low-tax, high-wage economy. The reforms brought in and passed through this House must be viewed in the wider context of the summer Budget and the broader package of help for working people. Conservative Members believe the best route for working people is to let them keep more of the money they earn. All Members should welcome our new national living wage—a pay rise for 2.5 million people—while income tax, national insurance and VAT have been frozen.
The national living wage is being phased in over five years. Surely the tax credit cuts should be phased in over the same period, rather than taking huge ill effect next April.
This is a national minimum wage that gives 2.5 million hard-working people a salary rise, which is the right approach. We have also increased the tax-free personal allowance and doubled free childcare for working people, while the fuel duty has been cut and council tax has been frozen as well. These reforms are all linked: they go hand in hand; they should not be seen or analysed in isolation. As many hon. Members have said, these are all part of a coherent, long-term economic plan, and it is simply not acceptable to deliver higher wages through the national living wage while at the same time leaving tax credits unreformed when they are such an important part of our reform package.
The hard truth is that our tax credit system is unaffordable and unsustainable. It required deep reform to make it fair to the working people who pay for it. As I said to the shadow Chief Secretary, the original tax credit cost the Government £1.1 billion; today, it costs £30 billion. We spend more on family benefits than France, Germany and Sweden. Our reforms focus tax credits on the people they were meant to help—the very poorest and those in the lowest possible income brackets. In 2010, tax credits intended to support the lowest income brackets were instead available to nine out of 10 families; under our reformed and properly focused system, it is still available to five out of 10 families—a fairer and much more sustainable approach. These changes to tax credits are not necessarily easy, but they are fair and right. They return real-terms spending on the tax credit system to the level we had in 2007-08.
We must also consider these reforms in the wider economic context in which they sit. The deficit was halved over the last Parliament, but there is still more work to do. We need further savings in spending to make sure that Britain can live within its means. These tax credits go towards 50% of the total savings we are aiming for in this Parliament. They are substantial and important, and deserve our support. As many hon. Members have said, we must not leave our children and grandchildren with ever more debt. The only welfare system that is credible is a welfare system that is sustainable and affordable as part of our long-term plan to save our economy.
This Government can be proud of the fact that we have gone further than any other Government in introducing a living wage of £9 an hour. Some 2.5 million people will have a direct pay rise in their pay packets. At the same time, business has been incentivised to pay workers more. We have heard from the Exchequer Secretary how more than 200 businesses are already making these reforms.
Opposition Members opposed our welfare cap, and they opposed our fiscal charter—eventually. The only welfare system that is sustainable and credible is one that is affordable. We were elected on a mandate to transform our economy, and our reforms put that mantra into practice. I urge all Members to reject the Opposition motion.
We have already heard from our hon. Friends and colleagues about the impact of these misguided cuts to tax credits. It is right that we repeat the figures—4 million families, 7.5 million children. That is the math of who will be affected by this policy, and we must never lose sight of that.
I shall mention it later in my speech, but I believe that there will be more than 200,000 by 2016, with the potential to rise to more than 600,000 with the culmination of the benefit and tax changes.
Both Barnardo’s and the Child Poverty Action Group believe that 3.2 million low-paid workers will lose, on average, £1,350 next year. Those being hit are the ones who are in work. This Government are forever telling us that work is the route out of poverty and that they will support those who do the right thing. Ministers tell us in the media, ad infinitum, that they will stand up for “hard-working families”. Well, they are not standing up for those families. According to the House of Commons Library’s analysis of the cuts, more than 580,000 of Britain’s poorest working families, earning between £3,850 and £6,420 a year, face losing 48p for every £1 that they earn as a result of the removal of tax credits.
I urge the Government to think again. It is not too late to do a turnaround. In fact, it would be the morally right thing to do.
Several hon. Members rose—
Order. I am going to introduce a two-minute limit, so that everyone will have a chance to speak.
All of us who are here today share a belief in the welfare state. In a country like ours, it is right that we offer help to the most needy, and that there should be a safety net for those in difficult circumstances, but under the Labour Government the welfare system became immensely unfair in its discrepancies.
Today’s debate goes to the heart of who we are as a country and what we stand for as a people. It is about more than Treasury statistics: it is about real people. That is why I am proud to support these tax reforms as part of a package set out by the Chancellor. They are fundamentally the right thing to do if we are honour the true notions of what welfare is, and what it is to work.
I want to look back at history—
Would the hon. Lady like to comment on what was said this afternoon by the Adam Smith Institute, whose views are often quoted by the Conservative Government? It said that
“working tax credits are the best form of welfare we have, and cutting them would be a huge mistake”.
I disagree with that comment, assuming that it has been rightly attributed. I believe that tax credits have distorted the very notion of what welfare was supposed to be. Let us look back to welfare’s genesis in the Beveridge report, which was published 73 years ago, in 1942. Opposition Members tend to claim a monopoly on William Beveridge, but he was not the socialist Robin Hood whom they so often cite. He was an economist, versed in the principles of contribution and industry, and his principles were very clear. They were about taking responsibility, alongside the state’s establishment of a “national minimum”. They were about ensuring that the most vulnerable were looked after, while also ensuring that the nation remained fiscally viable. We have drifted away from that concept of welfare—that it should provide occasional and temporary support for those in unemployment, sickness and retirement. We now have a system whereby the state is subsidising low pay, and that cannot be right. This Government are introducing reforms, and restoring the principle that welfare should be the safety net that it was intended to be.
I want to make three main points. First, the tax credit system has allowed business to act in a way that is both unpalatable and bad for the economy, facilitating the underpayment of workers and sanctioning chronic under-training and under-investment in those workers. If a business knows that low wages will be topped up by the state, what is the point in investing in them, providing extra training and more scales and promotion? The business people I meet in my constituency are crying out for more skilled work forces. Secondly, the deployment of the tax credit system was chronically dysfunctional, and very confusing for many people. Lastly, the Conservative party is nothing without social justice. This measure will restore social justice to the heart of our economic principles, and I commend it wholeheartedly to the House.
I want to make three points in the time that I have. First, I want to explain why Labour used tax credits to start with.
It is extraordinary for Labour Members to hear the party that opposed the minimum wage say that we are not supporting the living wage. If, when we implemented the minimum wage, the Conservatives had been fighting on the other side and said that we were not doing enough and it was not high enough, the dynamic of the argument about poverty in work would have been completely and fundamentally different. Every single measure that the Labour party tried to implement to tackle in-work poverty was opposed by Conservative Members. We implemented the minimum wage, and in the first 10 years of the Labour Government the bottom 20% got richer faster than the top 20%. We lifted 1 million children out of poverty, but the Resolution Foundation has said today another 200,000 will be plunged back in as a direct result of the Chancellor’s Budget.
Secondly, Government Members have been pointing at Opposition Members today and saying that we do not support the aspiration to replace tax credits with wages. That is fundamentally wrong, as my hon. Friend Mr Umunna, my right hon. Friend Frank Field and many others have proved. It is the right thing to do, but the Government are implementing it in the wrong way.
Thirdly, this change will have a fundamental negative impact on vulnerable people and on communities. Each of us has people in our constituencies who turn to us in their hour of need with problems with tax credits. We know how vulnerable they are and the Government’s policy will do nothing more than make poor people vulnerable people. It is wrong.
I have the greatest concern for anyone who loses out and finds that these measures have an impact on their household budget. I came into this place not to reduce incomes but to see them increase. However, in making good our manifesto commitment, savings in Government spending were always going to have to be made, with a proportion of our population unfortunately being affected by the need to make them.
Ultimately, I feel that it is right to introduce this measure to reduce tax credits for the following reasons. First, it moves the country away from a position in which Government and taxpayers subsidise the wage bills of employers, acting as a disincentive to pay rises. Secondly, as a cost-saving measure it moves the country to a position where the books are balanced and we can reduce the interest bill on Government debt.
I will not give way just now.
In 1998, the amount spent by the Labour Government on tax credits was £6 billion. That figure rocketed to £30 billion by 2010. Three of our largest supermarket chains have employees who claim tax credits to the tune of almost £800 million. I contend that it is not for Government or taxpayers as a whole to contribute a portion of pay, but for employers to pay staff all their wages and to pay them properly. Of course, the Government can and should act to incentivise pay—by reducing tax for the employer and employee and not by paying a contribution to the wage packet.
As for balancing the books, last week the House debated the motion for fiscal responsibility and as a result the Government have pledged to deliver a surplus by 2020 and through normal times. This measure is essential to meet that task. I recognise that we need to help those the measure will impact on and I am glad that the Government are doing so in a number of ways, which I shall not repeat. I recognise that these measures do not mitigate the cost of the tax credit changes in full. If they did, the reduction in Government spending would not be delivered, the surplus would remain out of reach and the Government interest bill would continue to be wasted.
I rise to beg Members on the Government Benches to think very hard about how they vote tonight. When I say that I am begging, I mean it. I am begging for 24,000 children in Birmingham, Yardley who will be hit by this change. By way of comparison, I did a quick search on Rightmove this lunchtime and found that from the hundreds and hundreds of homes available for sale in my constituency only four would benefit from the inheritance tax cut—just four. That means four people winning and 24,000 children losing, and the four people winning have to be dead before they win, so they are not very thankful. This is supposed to be a one-nation Government. One nation? For the people in Birmingham, Yardley it looks like the people on the Government Benches are only looking after the same old people.
I feel the need to declare that my name is Jess and I relied on benefits. When I was 23, after the birth of my first baby 10 years ago, my husband and I received child tax credits. Our household income was £19,000. Without tax credits, I would never have been able to afford the childcare for my young son. The top-up meant that I could do small bits of paid and voluntary work and the tax credits helped me to go to work and begin to build a career.
I have heard all the well-rehearsed arguments from Government Members about how they are increasing wages and I welcome those increases, I really do, but in my case that would have made no difference because I was 23 and they are not offering a pay rise to anyone under 25. If the Government wish to brand the increases in minimum wage as a living wage, they must also accept that those who do not receive it cannot afford to live. That is the simple problem with that branding. So, will the Government ensure that any parent aged 25 and under is not affected by these changes, or are they willing to tell me that those families in their constituencies do not deserve to be able to live?
One of the things my right hon. and learned Friend Mr Clarke did not mention was the income tax threshold when tax credits were introduced. Low earners who were earning just above £4,615 would have paid 20% tax on that income. I have heard the pleas from Opposition Members about allowing wages to increase before these tax credit changes take effect, but the changes in the personal tax allowance between 2003 and now mean that there is, in effect, an extra £1,197 in a family’s pocket if they earn up to the income tax threshold. That is the difference between paying tax on £4,615 as opposed to the current level of £10,000. That benefit cuts across all low earners. The important statistic that has not been quoted from the Library research is that between 58% and 64% of adults earning near the minimum wage do not receive tax credits or benefits, yet those earners, who very often are women, do receive the benefit of not paying that 20% on their income because of the rise in the income tax threshold.
My right hon. and learned Friend also described the introduction of the system and the complicated overpayments. I was a single parent when those changes were introduced. I did not claim because I spent my working days sorting out the debts of people who were claiming and who had built up huge arrears with Her Majesty’s Revenue and Customs.
I want to spend the short time I have focusing on the disproportionate effect these tax credit cuts will have on the black and minority ethnic communities. Some 88% of these communities are based in the poorest boroughs in the country. They tend to have larger families and these families are often sustained by people who have part-time jobs. Fresh from my Royal Statistical Society training this morning, let me give some statistics that are staggering. A recent survey found that 5% of white men had part-time jobs, as opposed to 12% of black African men and 35% of men of Bangladeshi origin. When this lifeline is taken away from these communities, racial inequality in our society will widen. When the Government talk about looking after families, they are not talking about looking after families from the BME communities.
We must also look at these cuts in context. We cannot view them in isolation. Hampstead and Kilburn has a housing bubble and rents are soaring higher than ever. If we couple that with taking away tax credits from people who are working, we have to ask how people will survive. Six out of 10 of my constituents are paying £288 a week for a studio flat. Are we allowing the ethnic cleansing of London? Don’t take these credits away. Join us in voting against these cuts; whether it is the Mayor of London, “ConservativeHome”, or The Sun, we must oppose these draconian measures.
I rise to speak on behalf of the 12,800 working families and the 26,000 children across Ilford who will be affected by these cuts, and I issue the following challenge to Conservative Members. This evening’s vote is crucial for a simple reason: their Whips are busy in the other place telling peers they are railing against the democratic will of this House of Commons, but when we listen to the fantastic and courageous speech of Heidi Allen and see the nods of many of her colleagues, we know that the majority of Members in this House do not support these changes. Peers are absolutely within their rights to put a stop to them in the House of Lords, and we expect nothing less. What a terrible indictment it is on this Chamber that it is the unelected House that is standing up for the interests of ordinary working families up and down this country! What happened to the party of the workers? What happened to the Tories’ failed modernisation project? It is already dead in the water. This is a Prime Minister who speaks from the centre but is a prisoner of the right.
When we have a grand coalition ranging from The Sun newspaper to my good friend the cycling socialist Owen Jones telling us that this is a work penalty that will hit the people who work hard, who get up early and who strive to earn every penny they can, we know there is a problem. This is not a benefit; it is a well-targeted tax rebate. It works better than what the Government are doing with the tax threshold, because that benefits the wealthiest. Tax credits target support effectively to the people who are doing exactly what we ask them to do: they are willing to work hard for low pay and they play by the rules. The least we can do is support them.
This is a terrible measure. It is a shameful measure, and Conservative Members know it. I ask them to show the courage that Heidi Allen showed, not only on the Floor of the House but in the voting Lobby this evening, because it is crucial that Members of the unelected House know that they have a majority of elected Members on their side and on the side of low-paid working people in Britain.
I am delighted to follow my hon. Friend Wes Streeting. Once again, we have a Budget from this Chancellor that was very shiny on the day he presented it but that is unravelling under closer inspection. The Treasury Select Committee took evidence on a number of the issues that people have raised today, and I want to tell colleagues on both sides of the House what we found. First, on work incentives, which Conservative Members have made much of in the debate, the taper has moved from 41p to 48p, but the effective marginal tax rate for a lone parent will increase to 93%. That means that for every extra pound she earns, she will take home only 7p. Compare that with the banker who will take home 60p in every pound.
The second problem relates to the interaction between the tax credits and the minimum wage. Many hon. Members have spoken about the sequencing. The national minimum wage gains will not, in the main, go to the tax credit losers. Half the cash gains from the national minimum wage will go to people in the top half of the income distribution. Sir Stephen Nickell from the independent Office for Budget Responsibility told the Select Committee:
“It has been known for ages that the proportion of people in receipt of minimum wage who live in poor households is very small. It used to be 14%...In other words, minimum wage as a method of relieving poverty is completely hopeless because most people on the minimum wage do not live in poor households.”
I urge Conservative Members to look at the evidence and to think again.