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New Clause 15 - Repeal of Tax Credits Regulations 2015

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

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Photo of Emily Thornberry Emily Thornberry Shadow Minister (Work and Pensions) 9:45 am, 20th October 2015

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.