With this it will be convenient to discuss the following:
New clause 8—Tax credit reforms—
“The measures in this Bill and (Income Thresholds and Determination of Rates) (Amendment) Regulations 2015 relating to the award of tax credits and the relevant entitlement within Universal Credit shall not take effect until the Secretary of State has implemented a scheme for full transitional protection for a minimum of three years for all families and individuals currently receiving tax credits before
Amendment 49, in clause 9, page 12, line 2, leave out from “relevant sums” to end of subsection and insert
“is to increase in line with the consumer price index.”
Amendment 50, page 12, line 6, leave out from “child benefit” to end of subsection and insert
“are to increase in line with the consumer price index.”
Amendment 51, page 12, line 8, leave out subsections (3) and (4).
Amendment 52, in clause 10, page 12, line 36, leave out from “relevant amounts” to end of subsection and insert
“is to increase in line with the consumer price index.”
Amendment 53, page 13, line 1, leave out clause 11.
Amendment 54, in clause 11, page 13, line 8, leave out “2017” and insert “2022”.
Amendment 55, page 13, line 31, leave out clause 12.
I rise for a second time to speak to new clause 1 in my name and those of my hon. Friends the shadow Chancellor, the shadow Chief Secretary to the Treasury and my shadow Work and Pensions team. The new clause is very straightforward. It would repealusb the Tax Credits (Income Thresholds and Determination of Rates) (Amendment) Regulations 2015.
It is a shame that the Secretary of State for Work and Pensions is not in the Chamber to debate this important measure. I do not know what else he is doing, but he has been noticeable by his absence from the debate on tax credits in recent days. I have been to 25 studios and other arenas to debate the issue. I have looked high and low for any Minister of any stripe with whom to discuss it, and they have been noticeable by their absence. I am therefore delighted that there are three Ministers of the Crown on the Front Bench to contest the issue. That is a first in recent weeks, and I am very pleased to have this opportunity.
It is a shame that the Secretary of State for Work and Pensions is not in the Chamber. If he was here, I would have started by reminding him of something he has said in the House—indeed, he has said it on several occasions over the years—which is that he is a great believer in second chances. He has said that he believes that Britain should be
“a nation of the second chance”.
Opposition Members entirely agree with the Secretary of State. Indeed, that is one of the very few things on which I do agree with him. We should believe in second chances. I therefore say to Ministers and to the House that we have a second chance today. We have a second chance following yesterday’s vote in the House of Lords, which has called on this House to think again. In doing so, I think that the other place spoke not just for itself but for the entire country. It has asked us to think again and to give a second chance to repeal tax credits regulations that will hit so many people across this country.
In touring the studios in recent days, I have quite often heard the suggestion that the vote in the other place yesterday presaged a constitutional crisis in this country. In truth, what it did was to stop a financial crisis for the 3 million families who will be hit by the tax credits regulations when the changes are implemented next year. The message to us from the other place is quite simply to pause: for Ministers to pause before they lick the envelopes of the 3 million letters that they intend to post out at Christmas to tell such families across the country to anticipate a 10% reduction in their incomes, which is an average reduction of £1,300 for each of those 3 million working families. If the Government proposed to cut the salaries of Members of the House by 10%, there would be uproar on the Government Benches—indeed, on all Benches. Working families in this country, and people who are doing difficult low and middle-income jobs—there are 3 million of them, or more—are being told that next year they will face a 10% cut to their incomes at a stroke of a pen. It is not adequate.
In 2010 the tax credit system supported people on wages in excess of £60,000. Will the hon. Gentleman say what level of income should mean that people can no longer get support through the tax credit system? How much would someone need to earn before they do not need that support?
I will start with a different figure, because 5,000 of the hon. Gentleman’s constituents who will be hit by this change should ask him what he thinks is fair or just about asking them—hard-working families in his patch—to take a 10% cut to their income. That to me is the substantive issue, and the smoke and mirrors produced by the hon. Gentleman and other hon. Members about the constitutional crisis or the offsetting mitigating prospects for other changes elsewhere in the Government’s finances do not answer the central question: is it right or fair to ask hard-working families to take such a cut to their incomes?
Tax credits have changed enormously. It is untrue to say that they were simply the creation of the previous Labour Government because successive Governments have helped family or income support to evolve over many years—arguably, such measures were first introduced in this country in the 1920s and they have gone through different iterations. Different Governments have used different ways to try to do what we all believe in, which is to make work pay and keep people in work. Thresholds are flexed and levels have changed, and the amount of money we spend on tax credits has changed over time. However, it is a net positive for us as a society and for our economy to keep people in work, and this cut will diminish work incentives for the people that the hon. Gentleman and I hope to support.
The hon. Gentleman is being generous in giving way. He must recognise that the system creates circumstances in which some employees turn down promotions and overtime because that would dramatically affect their tax credits. Surely it is better to have a system where people who want to work extra hours or take a promotion would be better off if they did so.
I have heard that argument a lot recently, and there is no evidence to support such a contention. It is nice to believe that were we to reduce the amount of money people have—withdraw the subsidy, as the hon. Gentleman would say—some employers would increase their payments to people and wages would go up, but I do not suggest that that is true or that any evidence supports it. Tax credits have been a necessary subsidy for low wages, and I welcome and applaud the decision by the Government to increase the national minimum wage. That is the right thing to do, which is why Labour called for it before the election—the Government could get on with it a little faster and stop spinning it as a national living wage when we know it is not, but it is a welcome step. There is no evidence to suggest that if we withdraw the subsidy at a stroke, employers will think, “I’d better put up wages for my workforce because they will struggle to survive on what they earn.”
Surely the answer to the first question from Mark Spencer is that tax credits must ensure a decent, reasonable standard of living. Such standards have been defined over many years by large numbers of people in research institutions—I will not trouble the House with those matters now, but they are well understood.
Let me be clear: tax credits are a success. They have kept people in work in this country, and we have seen a shift in the volume of single parents in work.
I will in a moment.
In 1997 about 43% of single parents were in work in this country, and today it is 65%. The reason for that is tax credits. Tax credits have made it possible for thousands of constituents in my patch—and in the constituencies of all Members—to stay in work despite the decline in wages.
My hon. Friend is rightly making a good speech about working families, but Ministers have made little mention of the impact that cuts to tax credits will have on working family carers. A carer in receipt of carers allowance who works 16 hours a week on the minimum wage and claims working tax credits will be badly hit by these cuts. Conservative Members talk about people working more hours, but those carers are already working for a minimum of 51 hours a week and they cannot work more. Does my hon. Friend believe that working carers must be protected from Government cuts, because Ministers do not even seem to recognise that issue?
Yes, and if the Government are to provide us with any sort of detailed, worthwhile impact assessment, they should undertake precisely that sort of calculation. They should look at what net benefit to our economy and society is made by working mothers, carers, and those whose efforts are not being calibrated by the Government, because those people will lose out as a result of the changes to tax credits.
Does my hon. Friend agree that of the 7,700 families in my constituency who will lose £1,300 a year if the Government go ahead with this cut—three quarters of whom are working—those living in the private rented sector will find the cuts hardest to bear? The Government refuse to regulate that sector, and in my constituency people’s rent has risen by an average of 11.6% in the past year. The Government should consider further the punitive effects of this cut on those families.
My hon. Friend is completely correct, but this cut does not affect only those who are renting and suffering from sky-high, exorbitant increases in private rent; it also affects owner-occupiers. The Government purport to speak for owner-occupiers, but those people will be proportionately harder hit by this measure than many others. Reduced eligibility for tax credits will mean that some people will receive more in housing benefit—there is an offsetting increase in housing benefit costs as a result of the decrease in eligibility for working tax credits, but owner-occupiers will not get that increase.
Earlier someone mentioned the impact of these cuts on our economy, and the self-employed will also be hard hit by these changes. Around 60% of small businesses, some 5.2 million across the country, are sole traders, and according to the Royal Society of Arts, 90% of the increase in jobs—the “jobs miracle” that the Government like to talk about—have been in self-employment in recent years.
Well that may or may not be true, but it is a very large proportion. Without doubt there has been a welcome increase in employment and self-employment, but my point is that 60% of self-employed sole traders are currently eligible for tax credits.
I will in a moment.
That is why the Bow Group, the Adam Smith Institute, Lord Lawson and many other respected Conservative economists think that this change is a false economy. Not only will it damage the incomes of working people; it will damage our economy. The Bow Group—which you will remember well, Mr Speaker—said that these cuts will be “devastating” for our economy.
An employer contacted me this week in despair because employees have been reaching out to him and asking for more hours to mitigate the loss in income from the changes to tax credits. At the same time, he has to consider reducing staff numbers to meet the requirements of the new increased minimum wage. Does my hon. Friend agree that the changes will result in reductions to household incomes, as well as job losses?
I fear that may be correct, and Government’s lack of forethought, analysis and scrutiny on these measures, and the way they have tried to bowl them through both Houses in double quick time, is a measure of their fear that such analysis will reveal the fundamentally misconceived economics behind these cuts, which are unfortunately designed to make an ideological political point.
The hon. Gentleman talks endlessly about the success of tax credits. Will he explain why spending on tax credits under the previous Labour Government rose from £6 billion to £30 billion, while at the same time in-work poverty rose by 20%? Why does he think that happened, if tax credits have been such a great success?
The hon. Gentleman should start by explaining to the 3,700 constituents in his constituency who will lose out as a result of the measures for which he will no doubt vote and speak today—[Interruption.] I will answer the specific question he asks. The truth is that under the previous Labour Government, when this iteration of tax credits was introduced, the steady state amount of money we spent on tax credits was £23 billion per annum. In 2009-10, after the crisis, that went up to £30 billion. The bankers’ recession saw a spike in the necessary spending on tax credits, and it has stayed at £30 billion under his Government—another measure of this Government’s rotten economic record.
Many of my constituents have contacted me to say that they are just above the tax credit limit and that their hard-earned taxes are subsidising low pay. What does the hon. Gentleman say to them?
I would first of all say to the 3,000-odd people in the hon. Lady’s constituency of Lewes who are going to be hit by the changes that they should be ringing her up and asking her why on earth she is voting for a 10% reduction in their income. I think they would be interested to hear her justification.
Does my hon. Friend agree that the changes are obviously a problem for some Government Members, and that they are in absolute denial about them? Does he agree that the Government’s inertia over intervention to save steel jobs and last night’s defeat in the Lords firmly put to bed the falsehood that the Tories are the party of the workers?
Completely. It is one of the more risible statements I have heard from the Government. It is, once more, a measure of the contempt with which they hold certain sections of the British public that they think they can pull the wool over the eyes of people. They describe themselves, laughably, as the party of labour and the party of the workers, while they are cutting the wages of working people: 3.3 million families will be hit to the tune of £1,300; 200,000 children will be put into poverty next year, and 600,000 children over the period; and 70% of the cuts will fall on working mothers. The tax credit cuts will destroy the “economic miracle” the Tories like to talk about. Some 90% of the cuts will be devastating for the people involved. The statistics speak for themselves. After I have given way to my hon. Friend, I will describe the human impact of the cuts.
Does my hon. Friend agree that there is an inherent contradiction in the Government’s policy? The parents of a young family who came to see me in my constituency last week told me that they work hard, pay their way and are trying to do the right thing to set an example for their children. Should the Government not be supporting them, rather than punishing them?
Indeed they should. I cannot understand how on earth even this Chancellor, who is pretty slipshod on occasion when it comes to analysing the impact of his measures, can have allowed this one to slip through the net. A pasty tax and a caravan tax maybe, but a £4.4 billion hit on the very workers he purports to support is truly extraordinary.
Let us look beyond the statistics for a moment. On Friday, I was out in my constituency in the village of Beddau, a former pit village at the heart of Pontypridd. Entirely by chance, I met a young woman called Kirsten who was bringing her daughter Maisie home from school. Kirsten is a nursery manager in a small private-run nursery just outside the village. She works 21 hours a week. They are all the hours available, as the nursery is open only in the morning and she works all five mornings. She then brings her daughter home from school and looks after her. She earns £611 a month. That is what she earns from her 21 hours of work at £8 an hour. That is well above the minimum wage and well above the new minimum wage we will see next year. She is set to lose £1,300 of her £7,000 earnings as a result of the cuts. That is an enormous drop for her to contemplate. She said to me that she simply did not know how she would manage. She did not understand how, without the £128 she receives in tax credits each month, she will be able to make ends meet.
I sat down with Kirsten and talked through what she needs to pay out for each month: the housing association three-bedroom house she lives in, council tax, insurance, and running her car to get back and forth to the nursery and to pick up her child. There is nothing left over. The £128 she spends from the tax credits she rightly receives pays for food, new clothes and her child’s books for school. It is just beyond the ken of ordinary people that the Government could be asking them to pay the price for the bankers’ recession, which has led to the crisis in our economy and a Tory Government cutting the incomes of working people.
Does my hon. Friend agree, when the issue of family tax credits is all boiled down and the arguments have been fine-tuned, that this is simply an ideological attack by the Government on the lowest paid in our communities? Does he agree with the Institute for Fiscal Studies, which says that low-paid people are being specifically targeted?
I completely agree. It is extraordinary for the Government to describe tax credits as “a bribe”. That is how successive Ministers, including the missing Secretary of State for Work and Pensions, have gone out of their way to describe tax credits for working people. They do not talk about protecting pensioners’ benefits as a bribe by the Conservative party to pensioners—and I would never say that; it is entirely just to protect pensioners’ benefits. By describing tax credits as a bribe, they are even seeking to demonise working people on low and middle incomes who are doing the right thing. That is entirely wrong.
I am listening carefully and I hear a great deal of criticism. What I have not heard from Labour Members are proposals on how welfare should be put on a more sustainable footing, on how they would like to see work pay, and on how they would reduce the deficit and the debt. Are they instead proposing cuts to public services?
Does my hon. Friend share my concern that under the coalition Government the projected savings that were meant to come from changes to housing benefit and employment and support allowance never materialised? Savings of £10 billion were not made by the previous Government. Perhaps Government Members should be challenging their Secretary of State and calling for his resignation.
Of course they should. If they had any guts they would do precisely that. There has been an abject failure on housing benefit. The bill has gone up and up and up. If the Bill is passed—I sincerely hope it does not pass after yesterday evening’s decision—housing benefit spending will go up some more. We know the Government have failed on that and they will continue to fail in the future.
Let us look, for a moment—
I am glad I gave way, because my hon. Friend makes the excellent point that politics is always a choice. Politics is about priorities. Politics is about who we stand up for, who we speak for and whose side we are on. It is very, very clear that, in the Bill and in this House, the Conservative party is on the side of millionaires and the wealthy, and are standing up against the ordinary working people of Britain, who will not forgive them for doing so.
The hon. Gentleman talks about choices, and spoke earlier about a £4.4 billion hit. Is he proposing, instead, a £4.4 billion subsidy for the large companies that Labour Members continue to criticise on a daily basis to cover the shortfall in wages that they should be paying?
No, I am talking about £4.4 billion-worth of support that is offered to working people in this country, including 3,800 in the hon. Gentleman’s constituency. He has a choice to make on their behalf today. Is he going to stand up for them? Is he going to speak for those almost 4,000 families in his constituency, or is he going to roll over and vote with the Government to cut their wages by 10%? That is the choice he faces, and it is a very real political choice for him. As he is a new Member, he should think very carefully about that.
Let us deal with what the Government are proposing by way of mitigation. We heard a lot from the Chancellor yesterday evening. He looked a little ratty as he told the cameras that he was going to think again—he was obviously not very keen on having to do it—but there was at least some hint that there would be transitional measures. We have had hints over recent days as to what they might be. Let me run through a few of them and put the Government on notice that we will scrutinise extremely carefully, as we have done today, the net impact of any such measures.
First, there is the minimum wage. It is welcome that the Government propose to increase it from £6.50 to £7.20 next year and thereafter to get it up to £9.20 by 2020—it is a good measure. Unfortunately, however, even if the Government were to take it to £9.20 on
The second element that has been talked about is childcare allowance. Even if the Government were to move straight away to the proposed 30 hours a week for England—again, a welcome measure, although it looks rather under-resourced to me, given that we were told it would cost us over £1 billion if we were to implement it and the Government are planning to invest around £300,000; we will see what happens with that—that same family, banking the £9 minimum wage, would still be around £500 worse off.
Let us build in the third element, which is of course the increase in the personal allowance. The Government have made other welcome measures in increasing the personal income tax allowance from £6,500 to £11,000 and they are talking about taking it up to £12,500 at the end of this Parliament. Again, that is a welcome measure, but it misses the target. Those people who earn between £3,500 and £12,500 will all be worse off if the Government start taking away their tax credit entitlement. They are two different tribes. It is completely fallacious to suggest that if we give extra money by increasing the personal allowance or the national minimum wage, we will offset the losses. Only 25% of the losses will be offset by the national minimum wage and only for 25% of the population. It is very straightforwardly a con. As we heard in the excellent evidence session before Thursday’s debate, the Resolution Foundation said very clearly that if we need to deal with the question of tax credits, the answer is, unfortunately, tax credits.
Does my hon. Friend agree that the 6,700 families that will lose out from the tax credit cuts to their incomes will not be compensated, and that it is arithmetically impossible that the Government’s proposed changes would do that?
There is no need to take just my word for that; it is precisely what Paul Johnson of the Institute for Fiscal Studies said—that it is arithmetically impossible for the Government’s offsets, which I have just listed, to compensate for the losses that these hard-working families in all our constituencies are going to face. The Government know that that is true, which is why they have been so absent from the television studios in recent days. They do not need to hear the truth from me: they know it.
On the issue of offsetting losses, the hon. Gentleman will be aware that in my constituency, for example, 4,000 families will be affected, losing £1,000 each, which amounts to £4 million being taken out of the local economy. Has he considered the impacts of that?
I have considered the impacts. I think that reducing aggregate demand by taking money out of the pockets of working families—the people with the highest propensity to spend money locally in the economy—is a foolish thing to do. It is a false economy. We know that to be true economically, so why on earth would the Government want to do it?
I want to add a little detail. Conservative Members seem to be raising the cases of people who do not benefit from working tax credit and are questioning it on that basis. Perhaps the example I quoted earlier will help. The carer on carer’s allowance will get £62 and is able to earn a maximum of £110, which is a disregard. That is what carers are on, and they will be hit very hard by the loss of working tax credit. These people are earning a maximum of only £172. The important point is that there are 689,000 such people—those wonderful carers committed to looking after family members. Only one Conservative Member seems to have recognised that issue, which is a massive one. It is not quite as massive as the 3 million families affected, but it is still important. Ministers need to reflect on and explain why they are doing this to 689,000 carers up and down the country.
Why on earth have the Government not conducted any sort of analysis to illustrate the benefits to our society and economy that those 700,000 carers are contributing? We all know in our hearts that they are making an enormous contribution, and we all know in our heads that they are precisely the people who are going to lose out. It is working mothers, carers and people who cannot expand their hours who are going to lose money, but they are doing the right thing; they are in work, striving hard. They might well be better off if they were not, and the crazy thing about the Bill is that in future they will be better off not working so hard. The work penalty and the disincentive to engage in extra hours and work harder, even once people have a higher than minimum wage, is screaming out at the heart of the Bill. It is a fundamental economic error, and it is being done for ideological purposes. The Tories are seeking to present those people—working people—as scroungers, and they are trying to present tax credits as benefits and a bribe.
I will not—I have already given way a lot—but I will quote to Conservative Members some of their own people, who have recognised how mistaken this policy is. Let us take Lord Lawson, for example—hardly a bleeding-heart liberal, and someone I remember standing next to Mrs Thatcher during those dog days for my part of the world when the pits closed in south Wales. Lord Lawson referred in the other place yesterday to
“the great harm, or a great deal of the harm”,
being done “at the lowest end”. He continued:
“That is what needs to be looked at again; that is what concerns me.”
He said that the Chancellor would, of course,
“listen to this debate, but it is not just listening that is required. Change is required.”—[Hansard, House of Lords, 26 October 2015; Vol. 765, c. 1005.]
Let me also cite Heidi Allen, who I thought spoke brilliantly, eloquently and forcefully last week. I shall quote just one part of her speech. She said:
“To pull ourselves out of debt, we should not be forcing those working families into it.”—[Hansard, 20 October 2015; Vol. 600, c. 876.]
We should not be forcing working families into debt to deal with the debt that the country has been left by the bankers’ recession and the failure of the Tory Government to fix it.
The hon. Gentleman has still not answered a very simple question. If this measure saves more than £4 billion, how will the Labour party find that money? Will it cut spending on other measures such as health and education, will it increase taxes, or will it increase borrowing? There are only three options. Which one will the hon. Gentleman choose?
I repeat that the hon. Gentleman should really answer the question asked by the 3,700 people in his constituency who will lose out if he votes with the Government today.
The National Audit Office has suggested that as a result of the incompetence of the coalition Government and the Secretary of State for Work and Pensions, £140 million was wasted on the early stages of universal credit. Is my hon. Friend aware that that could have helped 108,000 people who are now being punished for that failure and face the withdrawal of tax credits, or 21,500 people over the course of the current Parliament? Should the money not have been better spent?
That is a brilliant point, and extremely well made. There are myriad examples of waste and incompetence in the handling of our DWP budget under this Government, not least the enormous increase in housing benefit.
Does the Conservative party not fail to understand what tax credits are all about? The tax credit policy was successful in that it moved people into work, and, in particular, underpinned the major progress that was made when single parents were allowed to move into work. When we talk about saving money, should we not see that in the context of the tax credit policy’s success in moving people from worklessness into sustainable employment?
My hon. Friend speaks with enormous experience and expertise, and she is completely right. As I said earlier, tax credits are a policy success. In 1997, 43% of single parents in Britain went out to work; today, the figure is 65%. There has been a 50% increase in the number of single parents who are in work, and that is a measure of the success of tax credits.
I will give way in a moment to the hon. Gentleman, who represents a great city—a working-class city—but before I do so, I ask him to reflect on the views of one of his colleagues, Johnny Mercer, who said last week that
“it would be remiss of me not to recount the extraordinary levels of feeling in Plymouth last weekend. This bright, vibrant, exciting and…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.” —[Hansard, 20 October 2015; Vol. 600, c.882.]
The hon. Gentleman knows, and I know, that that stands for his constituency in Cardiff too, and I hope he will reflect on it when he addresses the House.
The hon. Gentleman has talked about policy success. Cardiff truly is a working people’s city. Will he comment—so far, he has not done so—on the Government’s leadership on the national living wage? What would he say to the staff of Morrisons, Costa Coffee, Sainsbury’s, Lidl, British Gas and IKEA, who are already benefiting from those companies’ attempts to follow the lead taken by this Conservative Government and match the living wage?
I know that the hon. Gentleman is relatively new to the House, but he really ought to be present for the beginning of debates. I said at the start of my speech, and indeed on two other occasions, that I welcomed the Government’s moves. I applaud them for what they are doing in increasing the national minimum wage, although I repeat that it is utterly bogus to describe it as a national living wage. It is not a national living wage, which is why the Living Wage Foundation will not describe it as such. I wish that the Government would give us a true national living wage, in London and elsewhere.
The hon. Gentleman has, in his wealthy, leafy part of Cardiff, more than 3,000 constituents who benefit from tax credits. I ask him to look into his heart and reflect on whether it is right, for whatever purpose—ideological or economic—to ask those hard-working families to pay this bill. It is not fair, it is not just, and I do not think that it should go ahead.
I am listening carefully to what the hon. Gentleman has to say. I would be extremely sympathetic to a credible case based on proper transitional arrangements and mitigation, but, as I am sure Lord Lawson would admit, it has to be paid for. I wonder whether the hon. Gentleman can shed any light on how we can close the gap in relation to the £4 billion that has been cited. All that I have heard from him so far is polemic; I have not heard any credible proposal that would enable us to square the finances.
The hon. Gentleman could, of course, start by deciding not to do what the Government did this week when they offered an inheritance tax cut for properties worth more than £1 million. That would provide about £1 billion. He could decide to reverse the 50p tax rate cut for millionaires; that would provide another £3 billion. He could choose to do what the Chancellor has already chosen to do in the past, and delay the point at which the Government get the budget into surplus. He has moved the goalposts once; why does he not do it again? He is very good at it. He has practised. He has already had one crack at it.
My hon. Friend has been asked numerous times what the Labour party would do about the £4.2 billion. Will he now explain, categorically and in the simplest terms, that we would not do what the Government are doing, which is taking £4.2 billion from the lowest paid in society? People are losing £1,300 a year, and 200,000 kids are being pushed into poverty. That is not what we are going to do.
I am delighted to say that I agree 100% with my hon. Friend. Let me be really clear: our view today is that the Government should repeal these measures. Our view is that it is wrong to seek to balance the books, in this or any country, on the back of the working poor—those with low and middle incomes who are doing the right thing. This is the wrong thing to do, and we will not do it.
Let me end by reflecting a little on what this whole unedifying spectacle means for the public, and to the public. I think we can agree that politics has been held in pretty low esteem in this country in recent years. People feel that we, as a political class, are not straight with them. They feel that we do not keep our word, or say what we mean.
I will not give way again.
The problem with this change is that it will simply compound that fundamental mistrust. Before the last election, the Prime Minister said, on live national television, that he was not going to cut child tax credits, but he is going to do so. That was a fundamental misleading of the British public. Other Ministers also made categorical statements. When asked whether the Conservative party would cut tax credits, one of them said:
“"No; we are going to freeze them for two years; we are not going to cut them.”
That was a fundamental untruth, and the country knows it.
Unfortunately, when that is added to the Government’s smoke and mirrors and what they say about how they intend to offset the impact of these cuts, it is clear that we as a group—and the Conservatives as a political party—are deepening what is already a profound mistrust in our politics. For the Conservatives to describe themselves as the workers’ party is laughable. Theirs is the party that is cutting the incomes of the workers of Britain, and they should be ashamed of that. They should stand up today and vote with us for new clause 1, and repeal the tax credit cuts.
Prosperity, not austerity: that is what we want. My consistent advice to Ministers dealing with economic matters and benefits is that they should always have at the forefront of their minds the need for everything they do to promote less austerity and more prosperity for the many, because we wish to have a more prosperous people. The outlines of how we do that are clear, and I fully support the Government’s vision and objectives.
The first thing to do is promote work. We need to make sure that people come out of unemployment and into work; that people who are working part-time but want to work full-time have the opportunity to go on to work full-time; and that people in full-time work that is not well paid have the chance to be promoted into a better-paid job, and to get better skills and training and work with their employer so that they can have a more productive and better-paid job. In that area, this Government and the predecessor coalition have been so much more successful than the Labour Government of 2005 to 2010. We know how austerity for the many is created: by following the Labour Government’s policies of 2005 to 2010, when they increased borrowing and spending, and combined that with over-lax regulation of bank capital and cash, which I warned them about prior to the crunch. When they put those three things in a heady mix, they brought the economy down, a large number of people lost their job altogether, a large number had to take a pay cut to keep their job and most people lost their bonuses or their opportunities to work overtime because the great recession that was unleashed on this country did so much damage. The first thing, therefore, that the British people want is to be secure in the knowledge that the economic policies being used are prudent and sensible, so that there is more chance of more people working and of people having better- paid jobs.
The right hon. Gentleman makes a good point about the importance of allowing people to keep more of their money when they work longer hours. How does he square that commitment with the fact that the changes coming in next April will increase the tapers on higher earnings so that people will be subject to 80p in the pound withdrawal rates when they do work extra hours?
The problem with welfare reform, as all who have wrestled with it well know, is that we either have a large number of people facing a moderate rate of withdrawal or we have a more limited number of people facing a high rate of withdrawal. All the time that we have means-tested benefits—our system is still riddled with them—means that we will have to make that difficult choice about whether there is a fast move off benefit when people’s income goes up or a slower move. That will mean we either have fewer or more people affected by the taper. Labour never solved the problem of the taper. The Labour Government had lots of difficult tapers and high marginal rates of tax and benefit withdrawal.
That brings me to the second fundamental pillar of the Government’s strategy, which I support, after the promotion of work and better-paid work: taxing people less, particularly those on lower incomes. Both the coalition and this Government have worked away at that, by trying to get more people out of paying income tax. As my right hon. Friend the Chancellor thinks about his pre-Budget judgment and his autumn statement judgment later this year—he is rightly in listening mode—I trust he will think about the tax element in his policy mix, because the more he can do to take people out of tax or to lower the tax rate upon them, the more he will succeed in promoting prosperity and the more he will offset the impact of benefit changes.
The right hon. Gentleman talks about prosperity, but he will know as well as I do that small businesses are one of the chief drivers of it. How does he square that with the cuts to small businesses and single earners’ income from their self-employment?
The Government are trying to encourage people to earn more in self-employment—that is the whole point of the policy. The idea is to create better incentives so that it is worth while people working more and longer hours if they have not had sufficient hours of work and not a sufficient income, and they keep more of the money they make by being in self-employment. That is true for them as well as for people in employment.
I have raised in this Chamber a number of times the issue of the almost 700,000 carers who are working but can work only 16 hours at the minimum wage. Many Conservative Members in this debate and in earlier debates have talked about people increasing their hours, but some sets of people cannot increase their hours—my Front-Bench colleague the hon. Friend Owen Smith has mentioned them and I mention them. What does the right hon. Gentleman say to almost 700,000 working carers who cannot give themselves more hours, are not allowed to earn more than £110 a week and will be hit badly by this cut to working tax credits?
Yes, some people cannot increase their hours or, for good reason, do not want to increase them because they are already working long hours. I have already described the actions they or their employers can take, and that the Government can encourage. We want these people to have better opportunity and more skill, and to work with their employers to raise productivity to justify pay rises. The Government, with the full support of the Opposition, are using the force of the law to increase minimum wages, as part of the policy of driving wages upwards. But the only way we can succeed in getting wages in this country up to levels we would all find acceptable is through a productivity revolution. It has to come by working smarter and better, not necessarily by working longer hours or by working harder, with the right investment and the right back-up from employers, so that people can earn more and justify higher earnings.
Does the right hon. Gentleman accept that we are talking about two tribes here? It is not necessarily people who are on working tax credits who are on the minimum wage—indeed, the overlap is only about 25%, so an increase in the minimum wage will miss 75% of those tax credit recipients.
I do not think it is very nice to say that people belong to “tribes”; we are in one country and we are trying to promote the greater prosperity of the many. I am surprised by that lapse of language, but the hon. Gentleman is right to say that some people who will face a reduction in tax credits are not going to benefit from the minimum wage because they are already earning more than that. That is clearly true.
If the hon. Gentleman would listen carefully, he would know that that is why I say I support a strategy for prosperity that first promotes more people into better pay. I am not just talking about those who are currently on a low wage; I want someone on a better wage also to have the opportunity for more pay. Some of my constituents do; they will be promoted, they will work for smart employers in smarter ways, and they will get pay rises, although not all will. The more the Government can do to help, encourage and support, so that many more people can get those opportunities of better pay, the more we will like it. I hope the Opposition parties will agree that that is the best way to greater prosperity. It is also the best way to better jobs. If someone goes to work every day thinking that next year they might have a better job, a pay rise or a bonus they can benefit from, they will go with more of a spring in their step than if they are going to a low-paid job with a bad employer who is not giving them any options and not giving them a break in life. [Interruption.] I see that some Opposition Members think that that is a funny idea, but I hope they would join me in recommending this approach to employers in their constituency as well as in mine, as that is how we create a more prosperous society. I am just trying to stress that we also need to get taxes down.
That deals with the second pillar of this excellent strategy. We need better work and more better-paid work, and less tax on that work so that people are more prosperous. We then come to the difficult bit, which is the point of the row today, all of last week and probably all of next week, by the looks of how Parliament is going at the moment. The issue is: at what rate do you withdraw the benefits support as people become more prosperous because they are in work, not out of work, because they are in better-paid work and because they are paying less tax? There are difficult judgments to be made, and I am very pleased that my right hon. Friend the Chancellor is in listening mode. I look forward to his autumn statement—unlike the Labour party, I will be looking at all three elements of the package. I will be looking at pay and tax, as well as benefit withdrawal.
Perhaps unlike Labour, I want to end up in a world where far fewer people are on benefits, because their pay and the tax cuts are sufficient to give them a better lifestyle. We will then have a more affordable welfare system that enables us to run an economic policy more likely to deliver better prospects, more jobs and more success for business. As some of my Conservative colleagues have sought to point out, the problem the Opposition face is that no answer is coming from them. We know that they were able to overspend, over-borrow and crash the economy. We are now waiting to hear from them about how they would get the money under control, were they to be trusted again with government. We know that they do not want to cut non-benefit expenditure, so surely they have to accept the case I am making: that we need to get more people out of benefits altogether, and that requires a combination of the good things—promoting work, promoting better pay and lower taxes—and the not-so-good things, such as actually having to make some difficult choices on benefits.
What answer do I give my constituents? They have a spring in their step because they are getting all these promotions and things the right hon. Gentleman talks about, yet 34,000 children in my constituency who are on tax credits will be thrown into poverty. Can he explain that?
We have just been talking about how we can avoid that. We have been talking about how we can get those people out of poverty and into prosperity and how we can promote, in the hon. Lady’s constituency and elsewhere, more jobs, better businesses and lower taxes, which must be the medium to long-term answer.
We are now talking about the pace of change and the detail of the tapers, the timing and so on, and there is clearly an important row going on about these difficult and sensitive matters. I am sure that my right hon. Friend the Chancellor will be looking at all these matters, because we do not want people to be badly damaged by a premature reduction in their benefit payment before the other things are working for them, which could result in their having too little money and then having recourse to the hardship fund and all the other things that will be in place. It is therefore in our mutual interest that the transition is done smoothly, but it cannot be done by ignoring the problems and pretending that the welfare bill is fine and that there are no disincentives in the system.
I am sure that Naz Shah, like me, does not wish to see hard-working people taxed more to subsidise employers who have the capacity to pay better wages. I am sure that she does not want to see perverse incentives in the system, with tax credits sending a message to some people that they should not work more or, if they are self-employed, do more because that would adversely affect their tax credit rewards. We need to get that balance right. It clearly has not been right, because the tax credits bill has gone up too much and, until recently, there was far too much unemployment in the economy. It is certainly clear that tax credits built up very rapidly during a period of big redundancies and a big squeeze on pay. We now see those patterns reversing, with people coming back into the workforce and pay rising, in nominal and real terms, so now is the time to look at the pace of change in benefits.
I am grateful to the right hon. Gentleman, who is being gracious in giving way. He talks about us all wanting to avoid a disincentive to work extra hours, but does he not accept that that disincentive will be increased by reducing the lower earnings threshold and increasing the taper, thereby increasing the amount of money that is taken away for every extra hour worked and every extra pound earned?
I have already been quite honest in saying that Governments face a difficult choice in this regard: do they want fewer people facing a sharper taper, or more people facing a gentler taper? There are no easy answers. I look forward to hearing the Government’s judgment when they have completed their listening and thinking. Again, the Opposition are refusing to see all three parts of the package. It is not possible to answer the hon. Gentleman’s question as simply as he would like, because working out whether people are better off or worse off, and by how much, depends on what else happens with taxation, rates of pay, inflation and all the other things that are going on.
My advice to the Government is that their strategy is absolutely right: get more from pay, more from tax cuts and then cut the benefits, because people will not need them as much. They must listen carefully to criticisms, for example if their changes are going too far and too fast, or if they catch some people we do not want to catch. I am sure that my right hon. Friend the Chancellor will want to return to those points in his autumn statement and tell us his thinking. However, the direction of travel must not be simply to make big increases in benefits again; it must be to find other answers so that more people can enjoy prosperity from work, earnings and lower taxes.
I wonder whether the right hon. Gentleman would like to comment on two issues. First, is there any legitimacy or authority in the Government’s approach to cutting tax credits, given that the Prime Minister repeatedly denied that he would do so in the run-up to the general election? Secondly, there is unequivocal evidence from the Institute for Fiscal Studies and others that the maths on the issue simply do not add up, and that asking people to work harder for less is, quite simply, an unacceptable proposition.
I agree with the hon. Lady’s latter point, because I do not want people to have to work harder for less. I have just described the world I want to live in, and how I want that world, which some of my constituents enjoy, to be available to many more. I want people to work smarter and with more skill so that they can earn more because their companies can afford to pay them more. With regard to the Prime Minister’s promise in the run-up to the general election, I heard him rule out cutting child benefit, and I understand that there are no proposals to cut child benefit.
When I was asked about welfare in the run-up to the general election, I made it clear that I wanted the total welfare bill to come down and that I expected to see welfare reform, including some reductions in welfare payments and eligibility. Personally, I do not think that I have anything to answer on that score. I was entirely honest with my electorate, and they kindly trusted me with the job again, and with a bigger majority. There are many people in this country with a grown-up view about welfare, who do not want it to penalise those who really need it but who think it is high time we reformed it so that we depend much more on work and tax reduction on lower and middle levels of pay than we have done in the past.
Therefore, I urge my right hon. Friend the Chancellor the preserve the spirit of his reforms but to look very carefully at the detail, because we do not want to see bad cases of the type that Opposition Members have been conjuring out of thin air without proper facts. Above all, we do not want to go back to Labour’s boom-and-bust economy, where generous welfare, far from creating more jobs and prosperity, helped bring the whole thing down.
I rise to speak to the amendments in this group tabled by the Scottish National party. We also support new clause 1, which the shadow Minister moved earlier. Let me pay tribute at this stage to the efforts of my hon. Friends the Members for Ayr, Carrick and Cumnock (Corri Wilson) and for Livingston (Hannah Bardell) who worked so assiduously on the Bill Committee on behalf of the SNP, and to my hon. Friend Mhairi Black for her work on these matters in the Work and Pensions Committee.
My wife has always suggested to me that it provides context and depth to a speech if it includes a quote early on. On this occasion, and in relation to tax credit cuts, I have a quote that was timeously delivered in the past few days:
“It’s not acceptable. The aim is sound, but we can’t have people suffering on the way… The idea that there’s a cliff edge in April before the uptake in wages comes in is a real practical human problem and the Government needs to look again at it again”.
Who is that quote attributed to? That was said by Ruth Davidson MSP, leader of the Conservative party in Scotland, as she called on this Government to have some movement on the issue by the autumn statement.
After last night’s vote in the other place, it is time for the Government to rethink these outrageous proposals. They have managed to unite a considerable swathe of political and civic society against the plans. In fact, after last night the Chancellor really stands alone in continuing to push for the cuts. If the Chancellor, the Prime Minister and this Government will not listen to Members on the Opposition Benches, if they will not listen to charitable and third sector organisations, and if they will not listen to anyone else, surely they should listen to the leader of their own party in Scotland.
The SNP is completely opposed to the UK Government’s continued attack on low-income families, and we support Labour’s amendment to repeal the regulations, which will affect 350,000 children in 200,000 families in Scotland. Let me say this loud and clear: the SNP will oppose these ideological, regressive and utterly punitive tax credit cuts with every opportunity open to us today and every day, because we realise the damage they will cause to working family incomes, to levels of poverty across these isles, including child poverty, and to social cohesion in every community in the United Kingdom.
The amendments that my colleagues and I support in this group would bring about the repeal of these tax credit regulations and overturn the proposed cuts. However, should the Government decide to press on with the cuts in the face of hostility across this Chamber, and from Conservatives up the road, they must consider forms of mitigation. They must act to protect vulnerable families with a delay and a fully implemented transitional period, as is covered in our new clause 8, which we will be pushing to a vote. In the light of last night’s vote in the other place, I expect that is already being considered by the Government.
New clause 8 would mean that the measures in the Bill and in the 2015 tax credits regulations relating to the award of tax credits and the relevant entitlement within universal credit would not take effect until the Secretary of State had implemented a scheme for full transitional protection for a minimum of three years for all families and individuals currently receiving tax credits before
The transitional arrangements are important, as none are put in place by the Tax Credits (Income Thresholds and Determination of Rates) (Amendment) Regulations 2015. This means that the tax credit cuts will be implemented immediately in April 2016. In fact, tax credit recipients will apparently be getting an unwelcome letter detailing the cuts to their award just weeks before Christmas. This will give working families no time to plan effectively for an average cut of £1,300. For families living wage packet to wage packet, utterly dependent on tax credits to keep them above the breadline, the cut will be devastating and impossible to plan for in such a short time.
Amendments 49, 50 and 52 would ensure that relevant benefits, child benefit and tax credits increased in line with the consumer prices index. Amendment 51 is consequential, while amendments 53 and 54 would ensure that the current child tax credit arrangements remained in place. Amendment 55 would remove changes to the entitlement to the child element of universal credit. These amendments were pushed by my colleagues in Committee. The Government did not accept any of them, but they pledged to come back with more information, which has not yet materialised.
Why on earth have the Government decided to rush the Bill from Committee, which only finished on Thursday, to this final stage today? If they are serious about introducing more detail and explaining the expected mitigation measures, why not flesh that out? The rush suggests that the cuts are purely about making savings and therefore ideologically driven. The changes are fundamentally regressive. They disproportionately target those in low-income households and punish them for the Government’s ideological obsession with austerity—an obsession that is failing socially and economically.
The SNP stood on a manifesto that was fundamentally anti-austerity but which also plotted a more responsible path to reducing the deficit. We have argued for a 0.5% increase in departmental spending per year for this Parliament, which would have released £140 billion to invest in capital projects to boost growth and narrow income inequalities. Our plan would also have resulted in a budget deficit of just 2% by the end of the Parliament, and it was backed by an International Monetary Fund report in June that highlighted how reducing income inequality not only reduced poverty but boosted growth. By extension, the policy of cutting tax credits and thereby increasing income inequality will drive more of our citizens into poverty and harm growth and therefore harm the Government’s apparent aim of reducing the deficit. So, as well as being socially destructive, this policy is—to extend the IMF’s thinking—economically incompetent.
Does my hon. Friend agree that the SNP has come up with a responsible approach to delivering sustainable growth that will drive up wages and employment, by contrast with what the Government have done over the past five years and what we see going forward? The Bank of England, with its £375 billion of quantitative easing, has had to bail them out with monetary policy because, quite simply, they have not delivered on fiscal policy.
I welcome my hon. Friend’s contribution. As we are talking about affordability and sustainability, let me say that the Government think it feasible to press ahead with apparently £167 billion of Trident nuclear weapons, which is shocking and deplorable, while seeing fit to find £4.4 billion of cuts in tax credits. They are taking an ideological wrecking ball to our social security system in the name of a budget surplus by scandalously waging a war on low-income households.
By anyone’s estimation, £167 billion is a vast sum of money, but it would also amount to £3 billion per year, which would go some way to squaring the circle on the tax credits cuts.
Just to add to this omnishambles, there was no mention of wholescale cuts to tax credits in the Conservative manifesto. There were just two references to tax credits, but neither mentioned anything like these proposals. This is the central plank of the Chancellor’s first Budget since the election, and he has based all his sums on the back of it. One would have thought, therefore, that it merited at least a passing reference—a hint perhaps—yet the only hint during the election campaign came in a “Question Time” debate when the Prime Minister hinted at his opposition to cuts to tax credits. Now, either the Chancellor has convinced him to make a pretty major U-turn, or he was telling porkies that night to Mr Dimbleby and the electorate. A subsequent “Question Time” programme, a week past on Thursday, sadly showed a Conservative voter devastated at what the Government were proposing. She felt let down and misled—and I bet she is not the only one.
This all demonstrates that the Government do not have a mandate to push these changes through. They were not in the manifesto, and, when explicitly asked about the matter, the Prime Minister—to give him the benefit of the doubt—was at the very least deliberately obfuscating. A similar obfuscation came in the Chancellor’s summer Budget, when he suggested that these cuts to tax credits would be compensated for by his rise in the minimum wage. The reality is that the full rise in the minimum wage will not come into effect until 2020, four years after the tax credit cuts start, and even when the full rise comes in, it still will not mitigate the tax credit cuts.
Why, then, did the Government decide to undermine and sabotage the real living wage campaign by labelling their minimum wage rise as such? Next year the minimum wage rise will be 65p short of the real living wage, and by 2020 the living wage is forecast to be closer to £10 per hour and therefore still higher than the projected minimum wage rise announced by the Chancellor. Besides, the real living wage is calculated taking tax credits into consideration, so the Chancellor is going to be even further behind the curve when the revised living wage is announced. It is a myth that raising the personal tax allowance will mitigate the effects of the cut because many tax credit recipients do not earn enough to reach either the old or the new tax threshold. This is a £1.4 billion tax cut that disproportionately benefits the rich. And no, free childcare will not compensate either, as less than 10% of tax credit recipients receive under-5s childcare support.
These cuts will leave many families much worse off. Yesterday, Paul Johnson, the Director of the Institute for Fiscal Studies, giving evidence to the Work and Pensions Select Committee, said there was no way to mitigate the cut to tax credits other than by amending the cut itself—a point of view shared by the Resolution Foundation. The House of Commons Library has calculated the cumulative impact of the summer Budget on a single-earner couple with two children, where that single earner works 35 hours per week and earns the minimum wage. That independent analysis shows that in 2016-17—the year the changes will take effect—such a family will be more than £1,500 worse off, and that by 2020-21 they will be more than £2,000 worse off per annum. How on earth can that be described as anything like making work pay?
The various attacks on low-income working households fly in the face of the UK Government’s own rhetoric and rationale about making work pay and employment being the best route out of poverty. It has been estimated that almost 60% of the children living in poverty in Scotland come from working families. The latest statistics show that 65% of children in the UK living below the relative poverty line are living in families in which at least one parent works.
As shameful as it is, I am not surprised that the Bill attempts to repeal most of the Child Poverty Act 2010 and weakens the UK Government’s commitment and obligations on child poverty. Let us be absolutely clear that the measures in the Bill are without doubt going to plunge many more children into poverty. It is shameful that it has taken a vote in the other place to perhaps shame this Government into providing an independent report on the impact of these cuts, especially on children living in or close to poverty.
In regard to taking action on these matters in Scotland, the Smith commission recommended that tax credits remain reserved to this place. In Scotland, we will clearly use the powers we are due to receive to the best of our ability and we will always use our powers to do our best to protect the poorest and most vulnerable in our society. We have a good track record of mitigating the worst of the UK welfare cuts where we can, such as by providing £100 million to ensure that no one pays the bedroom tax, and by investing £40 million in local government to ensure that council tax benefit was not cut in Scotland when it was in England. But when 85% of welfare and 70% of taxation remain reserved, it will be hard to fully mitigate the UK Government’s plans. Scotland must therefore have full control over all universal credit if we are to pull children and families out of poverty, and that must be devolved with the appropriate resources.
Our amendments in this group also address the two-child limit for child tax credits. According to the Institute for Fiscal Studies, this measure will impact 872,000 families, who receive on average £3,670-worth of support for third and subsequent children. I struggle to see how this policy could be seen as anything other than social engineering, as it hints that having more than two children is a luxury reserved for the rich. Also, I would appreciate it if anyone on the Government Benches could explain how an exemption for rape victims will work. Will there need to be a conviction? Will DNA evidence be required? Will a tax credit claimant need to provide a police statement with their claim form? This proposal is totally and utterly absurd. It highlights the absurdity of the two-child rule and the tax credit cuts in general.
I shall end with another quote. These will now be familiar words for the Government after Heidi Allen delivered them so eloquently last week. She said:
“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.”—[Hansard, 20 October 2015; Vol. 600, c. 876.]
I agree. It is time that the Government gave in and scrapped these tax credit cuts. Conservative Members who agree with the hon. Member for South Cambridgeshire, or with their party leader in Scotland, cannot just vote these cuts through and hope that mitigation will follow. Voting them down is the only answer, and we need that to happen today.
I should really declare an interest before I sit down. In my constituency of Airdrie and Shotts, 11,300 children in 6,100 families are currently in receipt of tax credits. The child poverty rate currently sits at more than one in five in my constituency. The statistics for my constituency will not be the worst, but they are utterly shameful none the less. I am not here to accept cuts that will make matters worse, and neither should any other MP, but that is what will happen if these tax credit cuts are accepted by this House. An average of £1,300 will come out of the household budgets of the lowest income families in this country.
Perhaps you and I could cut our cloth to suit, Madam Deputy Speaker, but the very definition of qualifying for tax credits means that the recipients do not have enough to get by and do not have the resources to accept this level of cut without severe ramifications. That will be on the conscience of every right hon. and hon. Member who votes to accept the cuts. They will have to accept that choosing between heating and eating is a price worth paying. They will have to accept that food poverty is a price worth paying. And ultimately, they will have the lives of disadvantaged families the length and breadth of this country on their conscience. Please support the amendments tabled in my name and those of my hon. Friends.
Several hon. Members rose—
Order. At last, Members have risen to show that they want to speak. It is very confusing for the Chair if you do not stand up at the beginning of the debate, because I cannot tell how many people wish to speak. At the moment, I can see approximately eight people—
You see! Why can’t people just stand up? It is not difficult. Schoolchildren do it. Just stand up when you want to speak! I can now see a significant number of people wishing to speak. I cannot impose a time limit at this stage in the proceedings, but we have less than half an hour left in this debate, so I appeal for brevity: perhaps three or four minutes.
I shall speak briefly against new clause 1. We as a nation need to be clear about the scale of the challenge that we face. The budget deficit has been halved, but it is still enormous and we are spending far more than we earn. Against that backdrop, the increase in welfare spending is an important element that must be addressed. The amount of spending on tax credits has risen from £6 billion when Gordon Brown first introduced them to £30 billion now. That money is being borrowed in order to pay for welfare. I do not think that borrowing money to pay for welfare expenditure is a sensible idea.
Let us look at the totality of welfare spending as though it were a cake. Is it not the case that the failure of the
Government over the past five years to address the high cost of housing or to bring down the housing benefit bill is the key to solving your problem?
We need to be clear about the problems with tax credits. Let me offer the House three facts. The first is that, under the last Labour Government, 1.4 million people remained on out-of-work benefits for almost the entire period. Secondly, the number of workless households doubled, and thirdly, the level of in-work poverty rose by 20%. So there has been a massive increase in expenditure on welfare and on tax credits, but it is not delivering the reduction in poverty that we all desire.
This is precisely the point that I would like to get on to. Despite the increased expenditure on tax credits, we continue to see these dreadful statistics on poverty, and that is because this is a flawed model that is based on taxing people on the minimum wage who can barely afford to pay tax, recycling that revenue through the welfare system and using it to top up low pay. That is not a sensible way in which to proceed.
We understand, from survey after survey, that millions of people in this country are going to be worse off as a result of these measures. What is the hon. Gentleman going to say to his constituents who come to him after next April having lost on average £1,300 of their income?
I would say to those people that this Government have a clear and coherent plan for helping people on the lowest incomes that consists of three elements. The first is to increase the amount of money people can earn without paying any tax; by the end of this Parliament that will be increased to £12,500. That is lifting people working 35 hours a week on the minimum wage out of tax entirely. Secondly, we are introducing a national living wage which by the end of this Parliament will increase wages to £9 an hour. Thirdly, we are introducing a number of other measures such as free childcare which will help those in most need of it. That is a far better model—to move from a low-wage economy with high tax and high welfare to a higher wage, lower welfare and lower tax model.
I say to Opposition Members that because we have record high levels of private sector wage growth—4.4% according to the latest figures—because unemployment continues to fall, because growth remains strong, and because we are introducing a national living wage, we have a moment where we can reform tax credits. If we do not seize this opportunity, future generations will not thank us for continuing to saddle the economy and taxpayers with £30 billion-worth of subsidies for low wages. The moment is now ripe. These proposals form part of a coherent vision, whereby we cut taxes for those on the lowest pay, increase their pay through a national living wage and help them access childcare by providing free childcare.
Opposition Members are opposing this change wholesale. If they wish to remove £4.4 billion-worth of public spending savings, which is what new clause 1 proposes, they have to be able to tell their constituents how they will afford that. Do they propose to put up taxes on hard-working people? Do they propose to cut spending on health, education or defence, or do they intend to carry on borrowing? The signals from both Labour and the SNP are that they want to carry on borrowing. Every pound we borrow in this generation is a pound future generations have to repay. That is why I urge all Members to grasp this opportunity to reform welfare and reform tax credits as part of a comprehensive package which helps those on the lowest wages. If we fail to do so, those Members on the Opposition Benches should justify to their children and grandchildren why we have saddled them with such high debts.
We will be supporting the new clause—not because we are opposed to all welfare reform. Our voting record in this House and the fact that against the odds we have tried to drive through sensible welfare reform changes in Northern Ireland indicates that we do not take the blanket view that welfare reform is bad, full stop. Some of it is necessary, but some of it is wrong-headed, and this change is wrong-headed for a number of reasons.
First, I do not believe that the proposals will achieve what the Government want. We hear time and again—we have heard it today—that the Government want to make work pay and that those who go out every day to employment must have a reward for that and there must be an incentive. All the indications and assessments are that these proposals, because of their timing and their scale, will not make work pay. In fact, the OBR has said they will be a disincentive to work, because the rewards are being taken away from people but the mitigation will not be added quickly enough. Therefore, the objectives that the Government are setting out to achieve will not be achieved.
The second point is that in most cases we are not dealing with people who have a large buffer either of savings or additional income which can help them overcome the timing difficulty. We are talking about people on low wages and probably every penny that they earn goes on their living expenses. We have heard again today that as the tax credits come off, there will be tax cuts, additional childcare support and reductions in rent, and that all those things will mitigate the changes—and that on top of that there will be an increase in the national living wage. However, the tax credit cuts are coming in immediately, whereas the other things will be brought in over a period of time.
Does the hon. Gentleman agree that one way of bringing down the entirety of the welfare bill is to build more homes, so that we do not spend £60 billion in a Parliament on housing benefit?
I agree, although that is not a short-term answer either. That is a long-term answer and it is certainly not going to deal with the issue facing us today.
The tax reductions will not affect all the people who are on low wages because they will not all hit the threshold. The childcare changes will affect only a fifth of the people whose tax credits will be cut. The national living wage increases will not apply, for example, to people under 25. So there is a whole swathe of the population who will not benefit from the other changes. Many of them will have families as well, of course. The Chancellor has said that the principal way in which the issue will be addressed is an increase in the national living wage, yet a whole swathe of the population will not be affected by that. For that reason, many people will be worse off. Even when all the changes are added together—the tax credits being removed, the tax thresholds being increased, the childcare element, the housing element, which does not apply to people in the private rented sector of course, and the national living wage—it is estimated that people will still find themselves on average a third worse off. This will affect many of our constituents.
Conservative Members should be very thankful that those in the House of Lords swapped their red Benches for red flags last night. That has probably done the Conservative party a favour. Many of the people who will be affected by these changes are the natural supporters of the Conservative party; they are the strivers of society, the people who want to do better, who want to improve themselves, and who probably look to some of the Government’s other policies. They will be hit hardest. I suspect that the Government have got off the hook, therefore.
The Government’s measures should be overturned by the House tonight and the Government should have a complete rethink. If they are serious about having a rethink, they should be supporting the amendments, to enable a radical rethink rather than a tinkering with the policy which will be detrimental.
This question is rightly asked: what is the alternative? There are many alternatives. The changes represent less than 1% of total Government spending. Surely to goodness across Departments two thirds of 1% in savings can be found to finance dropping the changes. Over the life of this Parliament we can then work towards a sensible rebalancing, where employers pay proper wages and the state has to pay less in subsidies.
We all share a belief in the welfare state, and in a civilised country like ours it is right that we offer help to the most needy, but the amendments are myopic and ill thought out because they forget about sustainability and fairness. Our welfare system is immensely unfair in its discrepancies. The clauses that would be amended—clauses 9 and 10—together freeze the main rates of most working age benefits, child benefit and certain elements of working tax credit and child tax credit for four years, starting from 2016-17, with important exemptions to protect the vulnerable, such as pensioners and those who are disabled, reflecting compassion and proportion.
Why are we doing that? Because since 2008 wages have risen by 12%, but for most working age out-of-work benefits the rise has been 21%. How can it possibly be fair or justifiable that the amount that people receive on benefits is increasing at a faster rate, and is more, than people receive in work? The freezes contained in clauses 9 and 10 go to the heart of the in reversing that damaging trend.
I want to make three key points about clauses 9 and 10. They support the original concept of welfare, as designed and intended by its father, Beveridge. In 1942, when the Beveridge report was published, he enshrined the key principles of what welfare should stand for—to help those who found themselves in occasional exceptional need. It was to help people cope with unexpected and temporary afflictions of sickness and unemployment.
What I am aware of is that the reforms are part of a package that includes an increase of free childcare to 30 hours, which is worth about £5,000 and will help working families combine work and childcare. That is how we are going to help children. Work, not benefits, is the route out.
Beveridge’s guiding principles were clear—the individual has to take greater responsibility, alongside the state establishing a national minimum standard to ensure that the most vulnerable are looked after and that there the system is sustainable. The main problem with the existing welfare system is that it has allowed businesses to act in a way that is both unpalatable and bad for the economy. It has facilitated the underpayment of workers, which has allowed chronic under-training and under-investment in staff. The problem is simple. If a business or an employer knows that low wages will be topped up by the state, what is the point of investing in its workforce? What is the point of investing in training or promotion?
Does the hon. Lady think it is fair that businesses will get a taper on the increase in wages? She complains that tax credits subsidise businesses, yet the poorest in society will not get a taper—their income will be cut right away in April. How is that fair?
The Government are pragmatic and sensible, and they will be responsive. They will make announcements in the autumn statement that will deal adequately with that issue. [Interruption.] I have limited time and I want to make progress. It is important that we make work pay by stopping businesses underpaying their staff.
My next point is that we need to ensure that everybody keeps in mind the fact that the reforms are part of a package. The new measures on free childcare, the rise in the personal allowance, the tax lock on income tax, VAT and national insurance, and the welcome introduction of the national living wage will all ensure that household incomes rise over the course of this Parliament. People will be able to keep more of the money that they earn, rather than pay it in tax, which would just go to more Government expenditure.
Finally, the manner in which the Opposition have behaved is shameful. Prior to the election, there were suggestions that they would back our welfare reforms, acknowledging that welfare had become unsustainable and costly. They equivocated and suggested support. Even in July Ms Harman was clear in her support for the reforms. What we have seen now is opportunism and the politicisation of an issue on which consensus is required. That is shameful and underlines the Opposition’s lack of integrity and decency, when we need cross-party support on this difficult issue. I support the clauses as drafted and expect the Opposition to do so too.
I welcome my hon. Friend Neil Gray to his position as I move across to the business brief. From his speech earlier, I am sure the social justice team has a very talented member.
I shall speak to amendments in this group tabled by my colleagues, particularly amendments 53, 54 and 55, which clearly state the SNP’s opposition to the Government’s two-child policy. The SNP wholeheartedly condemns the Tory Government’s intention to restrict tax credits to two children, which by definition excludes many of the poorest children in society from our social security system, going against the very principles for which it was set up. The Government’s proposals also stray into an area of policy making that I never thought I would see suggested by any Government who had a shred of compassion for their people. Hidden away in the Red Book were the words:
“The Department for Work and Pensions and HMRC will develop protections for women who have a third child as the result of rape, or other exceptional circumstances.”
No detail was provided. How much disrespect can this country take?
Does my hon. Friend agree that it is appalling not only that that appeared in the Budget statement, but that during the consideration of the Bill there has been no explanation of how that will work in practice?
I could not agree more. The two- child policy will hit more than 872,000 families who receive support for third and subsequent children. The Government’s own national child poverty strategy recognises that the risk of poverty is much more significant in larger families than in smaller ones. Currently a third of children living in poverty live in families with three or more children. Perhaps that is why the Tory Government seek to airbrush child poverty from the statute books.
It is easy for this Tory Government to espouse theories and claim that reducing financial support to just two children will make poorer families rethink their “financial choices”. That is based on the falsehood that all children are planned and that it is possible to financially plan for children. I am sure we are aware that that is not the case. What if a second pregnancy turns out to be twins or even triplets? What about the many families who are supported or led by kinship carers? Perhaps the Tories need a biology lesson, or a simple lesson in humanity.
Such eventualities cannot be planned for, so are we telling families across these nations to stop having children, just in case? I have raised many times in Committee, and many of my colleagues have raised on the Floor of the House, the sensitive issue of children resulting from rape and the insensitive Government plan to make women justify their children in front of DWP caseworkers. Many domestic abuse charities have expressed grave concerns, and Rape Crisis Scotland has warned that the plan is “inherently unworkable”. It has asked how DWP workers will prove whether someone has or has not been raped, and said that many women would find explaining that situation extremely uncomfortable. Many women do not report to the police that they have been raped, or go years without reporting it or speaking about it, so they cannot be expected to explain it to a DWP worker.
What training will a DWP worker have to deal with rape victims? It is clear that this is an unrealistic, ill thought out and unhelpful proposal. In evidence before the Select Committee on Work and Pensions, stakeholders described it as “unpalatable”, and Keir Starmer wrote in The Guardian recently:
“A rape test for welfare is a chilling way to save money”.
I could not agree more. It just goes to show that at the height of the Tories’ insensitivity, they will quite literally leave no vulnerable group untouched in their scramble to, as they put it, balance the books. The policy will ultimately result in a complete abuse of rape victims’ privacy, leading to potentially serious emotional damage for children should they become aware that they are a child resulting from a rape. The SNP amendments would see the policy abolished, and we urge the Government to remove the two-child policy from tax credit and universal credit to ensure that no victim or child goes through the torment associated with having to justify a third child due to such an horrific crime being inflicted—
If we as parliamentarians are in this place to legislate for those we represent, let us legislate well and with compassion and good conscience. The proposals do not make good legislation. They are wrong for our society and wrong for this generation, so I ask Members to think again and vote with us.
I spoke the other day about how tax credit reform is part of moving to the higher wage, higher productivity, higher opportunity economy that the Government are building. I have been talking to the Chancellor behind the scenes about welfare reform for many months, and he is listening. Welfare reform is, however, an essential part of the broad package of reform that is helping to return our nation and its people to a sound financial future. The Opposition offer no alternative.
In my professional life before becoming a Member of this House, I was involved in the pensions and savings industry. I know how important saving is in building people’s future and their economic resilience. I believe that reforming national insurance contributions and entitlements is a good way to further incentivise work, deal with the hurdles to advancing at work caused by high marginal tax and benefit withdrawal, and provide scope in the budget for transitional arrangements. That could address the impact of tax credit reform on those with the lowest regular income.
Insurance businesses work by taking premiums from people and investing them over long periods, usually in dividend-paying and other shares that grow substantially in value over time to generate returns that are then available to those who need to claim on the scheme. Unfortunately, our national insurance contributions are not invested in the same way but are spent year in, year out on the claims of those using the NHS or the state pension, or are lent out to other Departments for their spending. We should add major savings reform to what we are doing, by reforming national insurance to create a genuine low-cost defined-contribution investment scheme that people can use to supplement their entitlements under the state pension system and that can be made available, under certain circumstances, ahead of retirement age. Credits could be offered to the lowest paid even if they did not meet the threshold for payment of traditional national insurance, to kick off their contributions and get them used to saving. They could also be used to supplement some payments by employers or to provide transitional funds, which could be substantial.
The investment scheme could also be available to others who wanted to make a contribution. I believe that it should be accompanied by tapering the threshold for the payment of traditional national insurance contributions, and the rate, to make the marginal incentives to work more efficient while letting people keep more of their earnings. That could be paid for by tapers on the higher limit and rate of national insurance obligations and entitlements for those on the highest incomes, particularly the entitlement eligibility of very high income retirees. I note that the principle is already established that state pension entitlement cannot pass in its entirety from spouse to spouse, and that entitlement to state pension is not an asset. I believe that that measure could make available several billion pounds.
Tax credit reform is not an option, but is essential in moving to a higher wage economy that will better provide for the future of all of us. Reform of national insurance is a neat solution that is not inconsistent with our manifesto. Nor is reform of the working tax credit system, as part of our overall package of reform.
I support new clause 1, although it is still not entirely clear to me what the Labour party’s position is on this question. In this place Labour has tabled new clause 1, which is in effect a fatal motion, whereas in the other place Labour would only support transitional protection. I assume that the Labour party is now fully opposed to the tax credit cut.
I will not give way, as I have to finish at 2.57 pm.
Tax credit cuts will hit 4,000 families in my constituency and 7,000 children. Collectively, some £4 million will be lost. The cuts will hit hard-working families who are struggling to make ends meet and, perhaps most importantly from the Government’s point of view, the changes will reduce the incentive to work, which I thought the Government favoured. Contrary to what Paul Scully said, I do not think that tax credits are a pat on the head. They are essential in supporting families.
The right hon. Gentleman said that he was going to talk about this, but does he not agree that when I spoke about a pat on the head I was talking about the original tax credits, which were received by nine out of 10 families, including those with salaries up to £60,000 and not just low income families?
Indeed, and changes were made to tax credits to take that into account. However, tax credits are now needed to support people who are in low-paid work and will not suddenly see their salaries rise dramatically to compensate them for the loss of those tax credits. The cuts are regressive and should be opposed by the House. I hope that that will happen in the vote that is about to take place on new clause 1.
These amendments intend to prevent the Government from making future changes to control welfare spending and we cannot support them. The Government’s approach is clear: our mission is to get wages up, taxes down and welfare under control. New clause 1 seeks to revoke the 2015 tax credits regulations and new clause 8 seeks to delay the introduction of the regulations unless and until the Government put in place a scheme of transitional protection for existing tax credit claimants for a minimum of three years. The House will recall that the Government tabled the regulations for a vote on the Floor of the House on
The House further discussed the regulations in the Opposition day debate on
I can only guess that the hon. Lady is making a strange reference to the Conservative manifesto. We were very clear in our manifesto that we are still only halfway through the job of getting the deficit down to zero. It stands at £3,300 for every household in the United Kingdom and we said very clearly during the election campaign that, as part of that, we needed to make £12 billion of welfare savings. What was not in our manifesto was the national living wage.
The Chancellor has said that he has listened to concerns from colleagues in this House and will come forward with proposals in the autumn statement to achieve the goal of reforming tax credits, saving the money needed to secure our economy while helping with the transition through the changes. I do not believe that the new clauses are therefore appropriate for inclusion in the Bill.
I now turn to amendments 49 to 52, which intend to prevent the freeze for four years of working age benefits, child benefit and tax credits. The freeze of the main rates of the majority of working age benefits, child benefit and tax credits will, in total, contribute some £3.5 billion of savings by 2019-20, and will help us to achieve our objective of deficit elimination. It will put welfare on a fairer and more sustainable footing so that we can continue our investment in our national health service and our schools, even as we get the national finances back into balance.
As my hon. Friend Suella Fernandes pointed out, there is an imbalance in a system that has seen a rise in average earnings of 12% since 2008, and in working age benefits, such as jobseekers’ allowance, of 21%. The individual element of child tax credit has risen by 33%. The freeze will help reverse that trend, helping earnings to grow faster than benefits, which will strengthen the incentives to work, and deliver the savings necessary to bring down the overall welfare bill. None the less, the Government will continue to offer protections to the most vulnerable. We know the best way to support people is to help them move closer to the labour market, but of course we realise that that is not possible for everyone. That is why we have made many important exemptions to the four-year freeze. We have exempted pensioner-related benefits, personal independence payment, disability allowance and attendance allowance relating to the additional cost of disability as well as statutory payments, carers’ allowance, the support group component of the employment and support allowance and disability elements in tax credits.
People who are in the work-related activity group are, by definition, people who are to be helped to move closer to the labour market. What I have said in the list of exemptions that I have read out is that the amounts that are specific to the additional costs of disability are protected, which is something that we discussed in Committee.
If the hon. Gentleman will forgive me, I will not give way, because it is 3.02 and I need to stop by 3.05 pm.
Amendments 53 and 55 seek to remove clauses 11 and 12 from the Bill, and amendment 54 seeks to retain the payment of the family element of child tax credit for all persons who are responsible for a child or a qualifying young person born before
The Government want to ensure that the system is fair both to those who pay for it and to those who benefit from it. Currently, the benefit system adjusts automatically to family size, but many families who are only in receipt of income from work would not see their budgets flex in the same way when they have more children. The Government want to encourage those families who are in receipt of benefits to make the same financial choice about the number of children they have as those families who are supporting themselves solely through income from work.
If the hon. Gentleman will forgive me, I will not give way.
That is why the Government have proposed changes to child tax credit and to the child element of universal credit, as set out in clauses 11 and 12 respectively. The Government will look at the important issues around exemptions through secondary legislation, which is a better way of dealing with these matters. Indeed, we discussed when that could be done in Committee with proper reflection and working together with stakeholders and experts.
I also wish to make it clear that the changes will not affect families already receiving the child and family elements before
In conclusion, the amendments oppose our clear mandate to find £12 billion of welfare savings and to restore fairness to the system by ensuring that work always pays. In making these changes, we have balanced the vital task of bringing spending under control while ensuring that the support is there for those who need it most. I therefore urge hon. Members to withdraw their new clause.
Question accordingly negatived.
More than two hours having elapsed since the commencement of proceedings on consideration, the proceedings were interrupted (Programme Order, this day).
The Deputy Speaker put forthwith the Questions necessary for the Disposal of business at that time (