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New Clause 15 - Repeal of Tax Credits Regulations 2015

Welfare Reform and Work Bill – in a Public Bill Committee at 9:45 am on 20th October 2015.

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‘(1) The Tax Credits (Income Thresholds and Determination of Rates) (Amendment) Regulations 2015 are repealed.’—(Emily Thornberry.)

Brought up, and read the First time.

Photo of Emily Thornberry Emily Thornberry Shadow Minister (Work and Pensions)

I beg to move, That the clause be read a Second time.

The new clause gives hon. Members the opportunity to put the Government out of their misery and abolish the changes they believe they wish to make on tax credits. The Government claim that they have a mandate to impose massive cuts to tax credits, which will blow a hole in working families’ budgets in a few months’ time, but they have no such mandate. The Conservative party went into an election this year with a vague aspiration to reduce welfare spending by an abstract figure of £12 billion which, because of an almost complete lack of specifics, almost no one took seriously. Of course, the Prime Minister made clear that he was not going to touch tax credits, so he has broken his promise to the people. Those people will not forget.

The cuts to tax credits that the Government recently introduced undermine one of the bedrock principles of welfare reform, which we thought was shared by all the parties, which is that hard work should be rewarded. Indeed, when Gordon Brown introduced the new rules and payments, he did it so discreetly that many people probably did not even know that it was a politician that had made the decision. He discreetly redistributed income, he discreetly made it right that work should pay and that, instead of the taxman taking taxes away, the taxman would give people money in their pay packet in order to make sure that they could work, hold their heads up high and support their families. I remember speaking on the doorsteps about tax credits to many people who asked the classic question, “What did Labour ever do for me?” I would explain about tax credits and they simply thought that it was something to which they were entitled. Now they will realise that it was a political decision. When they get their letter at Christmas from the Chancellor telling them that they will be losing £1,000 or £2,000, what a happy Christmas it will be for these poor families. The letter will be care of this Government, who were not elected with a mandate to do that.

The view that hard work should be rewarded was shared by all parties. Between them, the 11 Conservative members of the Committee represent 40,000 working families with children who will be hit by the cuts. Some 4,000 working families with children will be affected in Louth and Horncastle; 3,900 working families with children will be affected in Bury St Edmunds; 4,300 working families with children will be affected in North Devon; 2,500 working families with children will be affected in East Hampshire; 4,700 working families with children will be affected in Cannock Chase; 2,600 working families with children will be affected in Hexham; 2,700 working families with children will be affected in Witham; 3,500 working families with children will be affected in Sutton and Cheam; 3,100 working families with children will be affected in Elmet and Rothwell; 5,700 working families with children will be affected in North West Cambridgeshire; and 3,000 working families with children will be affected in Faversham and Mid Kent. That is a large number of families and a large number of constituents. I ask those Members to consider that very seriously when deciding what to do this morning.

The impact will be immediate. There will be no transitional measures—the funding simply stops. As I said, families will find out over Christmas that they will suddenly lose more than £2,000 a year. We are talking  about families for whom that amount of money can make the difference between keeping their head above water and not. Conservative as well as Opposition members of the Committee will find desperate families coming to see them, probably not even appreciating that they have been on what the Tories call “welfare”. They have been dependent on the state in order to ensure that their work pays. Indeed, some may even have been tempted to vote Conservative on the basis that it was a good idea for the welfare bill to be cut, not realising that they would be affected, and thinking that it would affect some other family that they know nothing about, a long way away or down at the bottom of a council estate, that they would never come across. They believe they are doing the right thing, doing what the Government expect, what their morality expects them to do and yet, nevertheless, they will be penalised. It will be down to them to help pay off the deficit and the debt caused by bankers and the international financial crisis at a time when the Government believe that their priority ought to be cutting taxes paid by the richest in order to allow them to pass on their riches to the next generation. The Government have changed the tax rates in order to give tax breaks to the richest, and they have decided that the people who should be penalised are those who can hardly fight for themselves, and who are doing their best for themselves and their families.

The debate has gone back and forth as different estimates have suggested the effects on different people in different circumstances. The House of Commons Library found that the average impact across all affected families can be roughly estimated to be a reduction in the tax credit award of £1,300 between 2016 and 2017, and the Institute for Fiscal Studies found that some families will face an annual loss more than £700 greater than that. Of course the Government’s estimates are much rosier. The Chancellor has insisted that the so-called national living wage will help to compensate for the losses to working families, but of course that increase in the minimum wage will not happen until after the cuts to tax credits hit, and in any event the Chancellor could not provide any hard evidence to rebut the conclusion of the IFS that, even in the best-case scenario, increases in those families’ wages would not make up enough; in fact, they would make up only a quarter of families’ losses as a result of tax credits. In aggregate, the IFS has said the wage increase is not big enough.

Another important point is that it is not targeted at the same group. For example, the rise in the minimum wage may well help single people in particular, but it will not necessarily help families, and it certainly will not help the self-employed. That is a simple truth, which has sometimes seemed at risk of being lost in the thickets of debates in which statistics are traded back and forth almost continuously. The Conservative peer Lord Ashton of Hyde acknowledged as much when he said last month that

“the trouble with this subject is that we could sit swapping statistics all day long”.—[Official Report, House of Lords, 14 September 2015; Vol. 764, c. 1641.]

That seems true enough. As helpful as statistics can often be in helping us to quantify the impact we can expect a cut to have, talk of average families is difficult  in a context like this, where the amount that families will lose will vary so widely, depending on their circumstances.

Perhaps I could tell the Committee about a friend of mine who got in touch with me this morning. There are many great joys in having children, but one that people perhaps do not think about immediately is the new circle of friends one makes. One of my best friends has a child who was born two days after my eldest son. She is a remarkable woman, one of the leading artists in this country, but she found herself on her own. Painting away and doing her best, she took up a bit of teaching and tried to keep her head above water. She said to me this morning, “Good luck, Emily. You must fight this, because tax credits were a lifeline for me and my family.” Although her child is now grown up and she does not need tax credits any more, she remembers what a difference they made to her. I remember what a difference they made to her and what a difference they make to families now, who will be affected by these changes after Christmas.

Let us step back for a moment and ask ourselves whether pulling the rug out from under working families is really a fair way to cut spending on welfare. After all, along with making work pay, fairness has been the principle repeated ad nauseam by Government Members, almost to the point where the concept seemed to have been stripped of any meaning at all. If we consider the reality of the enormous gap between what the Government have told us they want to achieve with their welfare reforms and the effects that these cuts will actually have if we allow them to go through, we see a policy that fails whichever way you look at it. It is a failure in the Government’s own terms, it is a failure in economic terms, and, above all, it is a failure in moral terms.

Photo of Debbie Abrahams Debbie Abrahams Shadow Minister (Work and Pensions) 10:00 am, 20th October 2015

My hon. Friend is making a very powerful speech. Has she read the article in the British Medical Journal last week, which looked at the impact on child poverty? It stated that an extra 200,000 children will be plunged into poverty, but it also looked at the effect on child health. The UK already has the highest rate of child mortality for under-fives, which can be directly attributed to the additional child poverty that is faced in this country. The implications of this are really significant.

Photo of Emily Thornberry Emily Thornberry Shadow Minister (Work and Pensions)

My hon. Friend makes a powerful point. There are many arguments against the tax credit cuts, and although it is tempting to rehearse all of them this morning, another debate is going on elsewhere. Essentially, I cut down a long speech to a short one to make the main points.

I was talking about the policy being a failure in moral terms, as my hon. Friend illustrates well. The focus today might be down in the Chamber, but members of this Committee have the real power. They have in our hands the power to do the right thing and to put the interests of working families in their constituencies ahead of the interests of their party. They have in their hands the power to put the interests of children in some of the poorest working families first, remembering that, even as things stand, two thirds of children in poverty have a parent in work. How much worse will it be after they have suffered the cuts to tax credits?

I am sure that Conservative Members who have an interest in this field are, deep down, genuinely and gravely concerned. When we put the new clause to the  vote and when their Whip holds up the piece of paper saying no, will they look aside, think about the thousands of their constituents who will be so greatly affected by the Bill and vote with their conscience, vote the right way, and stop this now?

Photo of Hannah Bardell Hannah Bardell Shadow SNP Westminster Group Leader (Business, Innovation and Skills)

The hon. Lady has made a powerful speech. I will not drag out my comments on a painful and frankly despicable assault on our society. Much has been said about tax credits and I would like to give a bit of a Scottish flavour to the debate.

Since the election campaign and throughout this Parliament, the SNP has opposed the Bill in its entirety and the cuts to child tax credits in particular. It is important to highlight the findings of the IFS, that it was “arithmetically impossible” for families to do better with the limited increase in the living wage. We are talking about an attack on low-income families and vulnerable working families. In Scotland more than 500,000 children live in families that rely on tax credits to make ends meet; 350,000 of those children will feel the impact of the cuts as much needed tax credits are stripped away from more than 200,000 low-income families.

The austerity measures proposed by the Conservative Government are disproportionately harming the poorest and most vulnerable households while giving tax breaks to the better-off, thus increasing inequality, not closing the gap. Much has been said about families claiming benefits and families in work as if they were different people, different sections of society, but the reality is that the majority of people who will be affected by the provisions of the Bill are families in work.

The changes are regressive; they take proportionately more from low-income households and give to the richer ones. Planned cuts to tax credits increase the burden on the working poor and the children living in such households. The IFS has found that 63% of children living in poverty are in working households—I repeat: 63% of children living in poverty are in working households. The increase in the minimum wage for people aged 25 and over, which has been wrongly branded a living wage, is nowhere near enough to offset the cuts. The changes run contrary to the Government’s own policy of making work pay and they weaken the incentives to work, because the impact of cuts will fall disproportionately on low-income working families. This is not war on poverty; this is war on the poor.

Photo of Priti Patel Priti Patel Minister of State (Department for Work and Pensions)

I am speaking on behalf of my hon. Friend the Exchequer Secretary, who has been paired for the clause.

It is clear that we are going to disagree on this clause. I will speak about the tax credits changes in the context of the new deal presented by the Government in the summer Budget. As my right hon. Friend the Chancellor stated at the time, the deal was to move Britain from a high welfare, high tax, low wage economy to a low welfare, low tax, higher wage economy. I know that I am rehearsing arguments that hon. Members have heard previously, but spending on tax credits more than trebled in real terms between 1999 and 2010; at the same time that increase in spending did not address issues of poverty. There was a 20% rise in poverty at that time.

Photo of Debbie Abrahams Debbie Abrahams Shadow Minister (Work and Pensions)

On a point of order, Mr Streeter. The fact is that child poverty was reduced during the period the hon. Lady is referring to, and so was pensioner poverty. Not to have the opportunity to challenge those points is a question for the Chair, I believe.

Photo of Gary Streeter Gary Streeter Conservative, South West Devon

I am afraid that is not a point of order, but the hon. Lady has skilfully made her point, and there is of course an opportunity for others to speak after the Minister, should they wish.

Photo of Priti Patel Priti Patel Minister of State (Department for Work and Pensions)

I will restate my point. Nine in 10 families with children were eligible for tax credits. That was reduced to six in 10 in 2010 following the coalition’s reform in the last Parliament. The present reforms will reduce that and take tax credit spending back to where it was in 2008 and not, as Opposition Members suggest, to a world without tax credits. Alongside the tax credits changes, we are introducing the national living wage, which, we have clearly heard, Opposition parties do not support. That will be worth more than £9 an hour by 2020.

Photo of Emily Thornberry Emily Thornberry Shadow Minister (Work and Pensions)

With great respect, the hon. Lady is talking nonsense. Of course we support wages going up by whatever means that can be done. What we do not support is the ridiculous associated rhetoric suggesting that the proposals are somehow taking over or working on the national living wage campaign, which is based on a completely different set of statistics. It is typical of the Conservative party to try to confuse people and confabulate as it is doing. Of course we support increases in wages.

Photo of Priti Patel Priti Patel Minister of State (Department for Work and Pensions)

It is typical of the Labour party to scaremonger and distort some of the facts that we have heard, as well.

The national living wage will be worth more than £9 an hour by 2020. The increase in the personal allowance is part of a single thought-out and coherent plan to ensure that people keep more of their money, rather than having more of their income taxed. The new national living wage means that someone working full time on the current national minimum wage will have a pay rise of nearly £1,000 gross next year, and about £5,000 by 2020. Of course, the personal allowance will go up from £11,000 to £12,500, which means a typical taxpayer will pay more than £1,000 less income tax by 2020.

The Opposition have given illustrations of their view, and I want to give illustrative examples of how families will benefit over the course of the Parliament when the welfare and tax changes announced in the Budget are taken fully into consideration. The income of a couple with two children where only one parent is in work on the current national minimum wage will increase by £2,480. The income of a lone parent with one child working 35 hours at the current national minimum  wage will rise by £1,500. A family with two children where the parents are working 35 hours a week on the national minimum wage will see their income increase by £5,500. And a single person with no children working 35 hours on the current national minimum wage will see their income rise by more than £2,000.

There will also be a wider ripple effect in the economy, which is growing, through the national living wage pushing up wages above the current national minimum wage. As we have discussed, not just in this clause but in previous ones, we are committed to doubling free childcare for three to four-year-olds and providing £5,000 of support in childcare for working parents.

No analysis has taken into account those factors from 2016, with the wider ripple effects, which are set to benefit more than 3 million working people. On top of the uplift in the free childcare, there is the £2,000 per child that working families and parents will be entitled to through tax-free childcare.

Photo of Neil Coyle Neil Coyle Labour, Bermondsey and Old Southwark 10:15 am, 20th October 2015

On childcare, will the Minister explain how families with children older than the qualifying age will benefit from that policy?

Photo of Priti Patel Priti Patel Minister of State (Department for Work and Pensions)

They will benefit from tax-free childcare. That will be available for families whose children are at school—basically, those who are still school age. That is a Treasury policy.

Photo of Priti Patel Priti Patel Minister of State (Department for Work and Pensions)

My understanding is that tax-free childcare will cover after-school clubs and school holidays, but I will get clarification—[ Interruption. ] Well, I will give the hon. Lady clarification.

The point I would like to make is that, as we discussed in the previous sitting, the Government have a very strong record on childcare provision, tax-free childcare and support for disadvantaged two-year-olds. The fact that we have been spending in excess of £5 billion on supporting childcare provision for working families should be welcomed by all parties. It is sad that political parties choose to point-score about childcare provision.

We are clearly going to disagree on the content of the new clause. I have highlighted how the increased personal allowance, the national living wage and the welfare changes announced in the summer Budget will provide support for working families. For the reasons I have set out, the new clause is not appropriate for inclusion in the Bill, and I urge the hon. Member for Islington South and Finsbury to withdraw it.

Photo of Emily Thornberry Emily Thornberry Shadow Minister (Work and Pensions)

We will not withdraw the new clause, Mr Streeter.

Question put, That the clause be read a Second time.

The Committee divided: Ayes 8, Noes 10.

Division number 55 Decision Time — New Clause 15 - Repeal of Tax Credits Regulations 2015

Aye: 8 MPs

No: 10 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.