(9 years, 5 months ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
18:59 - The House divided: - Ayes: 286 / Noes: 316 - Question accordingly negatived.
Shabana Mahmood (Birmingham, Ladywood) (Lab)
I beg to move,
That this House believes that people should be given support and incentives to find employment and stay in employment; notes that, at a time when the recovery is still fragile for many, the impact of a significant reduction in in-work tax credits could increase hardship and undermine the importance of making work pay; believes that any meaningful effort to address the real causes of high welfare costs should tackle the underlying drivers of low pay, housing costs and insecure working conditions; further notes that the threat of a £5 billion reduction in child tax credits would see 3.7 million working families lose an average of £1,400 a year in income; and urges the Chancellor to guarantee that any assistance in the July 2015 Budget is focused solely on people on middle and low incomes.
I am pleased that we have finally come on to our Opposition day debate. It was postponed last week and has been delayed today owing to the emergency debate on English votes for English laws. It is important that we have this debate ahead of the Budget, because what the Government decide to do tomorrow in relation to tax credits will show up the rhetoric they have been using since the election and prove whose side they are really on. It is not the side of working people. They say that they are now the workers’ party. Indeed, the Chancellor’s op-ed in The Sun this weekend started with the line:
“We were elected in May as a party for working people; that’s how we’ll govern; and that’s who my budget this week is for.”
On reading that line for the first time on Sunday morning, I would have choked on my cereal were it not for the fact that it is Ramadan and I am fasting. Saying it—asserting it—simply does not make it true. It is about what we do and the choices we make. If the decision the Government make tomorrow on tax credits is as we expect, it will prove that their rhetoric is very far removed from the reality.
We know from what the Chancellor said over the weekend that £12 billion of savings from the welfare budget had been found. It is reported that a substantial chunk of that money will come from cuts to tax credits. Certainly, the Government’s attempts to discredit the tax credits regime suggest that they are laying the groundwork ahead of tomorrow’s Budget. The independent Institute for Fiscal Studies has suggested that the Government could cut the childcare element of child tax credit back to its 2003-04 level, saving £5.1 billion per year. The IFS says that a £5 billion cut in tax credits in this way would mean some 3.7 million families losing £1,400 a year on average and would push a further 300,000 children into relative poverty. Those are huge sums of money for working people on low pay—people who are trying to do the right thing, who are at the mercy of a labour market that, at the lower end, is insecure and of high housing costs that keep going up and up. Without tax credits to help them through, those who are working and stuck on low pay simply cannot make ends meet.
Luciana Berger (Liverpool, Wavertree) (Lab/Co-op)
I thank my hon. Friend for very kindly giving way during her remarks, which are so incredibly important. I am so glad we are having this debate today. She talks about the millions of families who will be affected by the announcement we are expecting tomorrow. Does she agree that behind those millions of families are individuals, such as my constituent Joanne Todd, who is already struggling to feed and clothe her children? If these cuts go ahead, she does not know if she will be able to put the heating on this winter.
Shabana Mahmood
My hon. Friend makes a really important point in her customary powerful way. She is absolutely right. Behind each of these statistics—3.7 million families and 300,000 children are shockingly large numbers—are individual stories of hardship and toil: people trying to do the right thing and being punished by the choices the Government will make tomorrow.
Lucy Frazer (South East Cambridgeshire) (Con)
Does the hon. Lady accept that in my constituency the number of jobs has increased since 2010 and that unemployment is down? The people behind those statistics are individuals. Does she accept that they are individuals the coalition Government helped to get into work and get paid to support their families?
Shabana Mahmood
And many of those people going into work, I gently say to the hon. and learned Lady, will be in receipt of tax credits. The only way that that work will pay for those individuals moving from unemployment into work is through the tax credits her Government may well cut tomorrow.
Andrew Gwynne (Denton and Reddish) (Lab)
My hon. Friend hits the nail on the head: tax credits are also in-work benefits. Has she sensed any intention on the part of the Government to offset cuts to tax credits to working families in my constituency and hers with an increase in the minimum wage, which would have to rise by about 25%?
Shabana Mahmood
My hon. Friend is absolutely right. The national minimum wage would have to rise by 25% overnight tonight if the Government make these changes tomorrow. I shall come later to the difficulties and to the changes we need to make to the national minimum wage.
Frank Field (Birkenhead) (Lab)
To help reinforce that point and in response to the hon. and learned Member for South East Cambridgeshire (Lucy Frazer), was not mark 1 of welfare reform—moving large numbers of people from benefits into work—one of the successes of the last Labour Government and the coalition Government—and is not mark 2 of welfare reform how we now help those individuals to so increase productivity that they can be paid a fair or living wage? Should we not have been relaxed about this, given that we have five years to make these changes and make mark 2 a success? Instead of punishing people in work—the strivers—should we not be encouraging them up the career ladder?
Shabana Mahmood
My right hon. Friend is absolutely right, and this is where I disagree with the tenor of the comments from Government Members in the debates on the economy thus far in this Parliament. For them, a job is a job is a job, whereas we have a better, bolder vision for people moving into work, not just for their first job, which could be any job, but for progressing. We do not do that by punishing people and taking away the support they rely on when stuck in low-paid work. We have to chart a course towards a higher skilled, higher wage economy, but that is not going to happen before tomorrow’s Budget. The support for those on tax credits should not be removed before we have that high-wage economy.
Chris Philp (Croydon South) (Con)
Will the hon. Lady join me in welcoming the fact that the personal allowance rose to £10,600 in the last Parliament, putting £800 a year directly back into the pockets of the people on the lowest pay?
Shabana Mahmood
I gently say to the hon. Gentleman that 60% of those in receipt of tax credits do not pay income tax anyway. If someone is working 30 hours a week on the national minimum wage, they are below the £10,600 personal allowance threshold.
Lyn Brown (West Ham) (Lab)
The last comment and the one earlier from the hon. and learned Member for South East Cambridgeshire (Lucy Frazer) amply illustrate Government Members’ failure to understand the impact the proposal will have. It will affect 22,000 children in my constituency alone—children who live in homes of families who work but are on low wages—through no fault of their own.
Shabana Mahmood
My hon. Friend makes her point powerfully, but it is not that Government Members do not understand—I think they know full well the impact of their decisions; they simply want to pretend it is not going to be as bad as everybody knows it will be.
A Resolution Foundation study of these proposals just a couple of weeks ago suggests that
“over two-thirds of the families affected would be in-work”,
that
“almost two-thirds of the cut would be borne by the poorest 30 per cent of households; and”
that
“almost none of the cut would fall upon the richest 40 per cent of households”.
On what basis, then, can the Tories claim to be the party of working people? These are the working people the Government are choosing to hit and hurt. If the Government are happy to make these choices, they should at least admit that, rather than hiding behind the rhetoric of being the party of working people, as if somehow that will get them through the next five years.
Caroline Lucas (Brighton, Pavilion) (Green)
The hon. Lady is making a powerful case. Like many others, I have been inundated by constituents who are really frightened by the impact of these cuts. One wrote to me saying:
“Child Tax Credit allows people to get over difficult times which happen despite working hard, and cuts will end up forcing more people into poverty”.
Does the hon. Lady agree that these cuts will be counter-productive as well as deeply cruel?
Shabana Mahmood
The hon. Lady makes a powerful point, and I absolutely agree with her. Of course, it was the support available via tax credits that meant that in the recession some people could remain in work even when their employers had to cut back on their hours as a result of the global financial crisis. That is an important point.
The Government’s critique of tax credits over the last couple of weeks has implied that this is a flawed regime that does not work and simply subsidises so-called poverty pay, but a simple examination of the facts shows that the case undermining tax credits is weak. If the Government were serious about tackling the reasons why people have to rely on tax credits, they would come forward tomorrow not with planned cuts or immediate cuts to tax credits, but with longer-term measures to tackle the underlying factors of low pay, high housing costs and insecure employment.
There are 4.6 million households in the UK claiming tax credits. Four million of the families claiming them have children and 2.7 million of those families are in work. There are 5 million children in working families receiving tax credits, and over 70% of all of those, with or without children, claiming tax credits are in work. They were introduced in 2003 to tackle poverty and make work pay. Much of the debate at the time was focused on helping single parents to get into work. We know that the lone parent employment rate rose by 28% between 1997 and 2010, and by a staggering 43% between 1997 and 2014.
Shabana Mahmood
I want to make some progress, but I will give way a little later.
A study of tax credits by the Resolution Foundation in 2012 found that the introduction of working families tax credit, which was the predecessor to working tax credit, provided a
“small but direct boost to employment”,
particularly for single parents. The economics editor of the Financial Times recently said:
“Britain’s financial support for low income working families is a key reason why we now have a high employment rate and…the Prime Minister must take care not to put at risk a 20 year success story”.
Kevin Hollinrake (Thirsk and Malton) (Con)
The hon. Lady cites the Resolution Foundation report. Does she agree with the same foundation’s report which says tax credits have
“a predictably negative impact on work incentives”?
Shabana Mahmood
No, I do not agree, and there is a difference between eliminating support from working people in the Budget tomorrow and charting a course that would look more like long-term reform of working tax credits to deal with some of the issues relating to clustering at 16 hours, which Members have spoken about previously. However, that should not be done before tackling the underlying factors that are driving people into low-paid employment and keeping them stuck in that employment.
Rob Marris (Wolverhampton South West) (Lab)
My hon. Friend is making a powerful case. She touched on a point mentioned in the motion: dealing with the causes of high social security spending, not just the effects. One such cause to which she adverted and that can be found in the motion is housing costs. We have shockingly high housing costs all around the country, caused by huge housing shortages. Can she indicate what the Labour Front-Bench team thinks should be done to address high housing costs?
Shabana Mahmood
In the end, it is about building more houses. That is something that this Government have singularly failed to do over the five years during which they have already been in office. In view of what is being briefed ahead of the Budget tomorrow, it does not seem to me that they are going to come forward with a game-changing plan when it comes to house building in our country.
Tax credits and child poverty are inextricably linked. The same Resolution Foundation study of 2012 found that there was a clear inverse link between spending on tax credits and child poverty rates. The latest households below average income figures show that progress in tackling child poverty has ground to a halt since this Government came to office, with 2.3 million children remaining in relative poverty and 2.6 million in absolute poverty.
The Work and Pensions Secretary spent most of last week trying to distract from the Government’s record on child poverty, first by trying to claim a win on child poverty on the basis that the figures were not as bad as some suggested they might have been—in itself indicative of a shocking complacency—and then by changing the definition of child poverty. The reality remains that too many children in our country struggle with a poor and difficult start in life that directly impacts on their life chances as adults. If not dealt with early, this means that we will all face higher costs further down the track. As I mentioned, the IFS says that cutting £5 billion-worth of tax credits tomorrow will push a further 300,000 children into relative poverty. Tax credit cuts will do nothing to address child poverty; they will simply add to it.
Government Members would have us believe that by cutting tax credits, wages will automatically rise to compensate workers, but that is simply not going to happen. Employers will not give everyone a pay rise on the day the Chancellor cuts tax credits. As I said, the national minimum wage would have to rise by 25% overnight to compensate a lone parent working 16 hours a week for the loss of tax credit, and the wage of a worker on average earnings of £22,000 a year would have to rise by 6% overnight. That would require employers to raise pay overnight by twice the amount by which the Office for Budget Responsibility has said that they will raise pay over a full year, and we know that there is not a chance in hell that that will happen.
Julie Cooper (Burnley) (Lab)
A reduction in tax credits will be not only a kick in the teeth for working people, but be totally counterproductive. A constituent who contacted me this week is a single mum who is struggling to put a roof over her head for her young son and teach him a strong work ethic. If the cut goes ahead, she will no longer be able to afford the childcare that enables her to go to work in the first place.
Shabana Mahmood
My hon. Friend has made a powerful point, and I agree with all that she has said.
Graham Evans (Weaver Vale) (Con)
When Gordon Brown introduced tax credits in 1998, he said that the cost would be £2 billion. It is now £30 billion. Will the hon. Lady tell us whether that is too much, too little, or about right?
Shabana Mahmood
I think that what we are talking about is the cost of making work pay in the economy that we have at the moment. As I will explain in more detail later, the Government are doing things the wrong way round. As was pointed out by the Chair of the Work and Pensions Select Committee, my right hon. Friend the Member for Birkenhead (Frank Field), we must establish a higher-skill, higher-wage economy before we remove the support for those who are stuck on low pay. I would prefer people not to be in that position.
Ms Margaret Ritchie (South Down) (SDLP)
My hon. Friend is advancing powerful arguments. Does she agree that there is a compelling need for the Government to spell out how they intend to increase pay to a living wage, and increase economic growth, so that people can have more access to jobs in our economy?
Shabana Mahmood
I think that it is for the Government to tell us what they plan to do about the living wage, and I hope that the Minister will enlighten us when he winds up the debate. At the time of the general election, we made a manifesto commitment to incentivise employers to pay the living wage. The Government are welcome to steal that policy, but they should steal it—and allow it to embed a living wage, and higher wages, in our economy—before they start messing around with tax credits.
Shabana Mahmood
I will give way to the hon. Member for Bedford (Richard Fuller), but then I must make some progress.
Richard Fuller
The hon. Lady mentioned the Labour party manifesto. Will she be a bit more specific? For example, does she favour the granting of tax credits for training contracts to take people from the minimum wage to the living wage, does she support a requirement for local authorities that commission care to commission it in a way that enables employers to pay the living wage, and does she agree that, given the persistence of zero-hours contracts for less than two years, there should be a requirement for such contracts to carry the living wage?
Shabana Mahmood
The hon. Gentleman has made some interesting and important observations about the way in which we can encourage employers to pay the living wage, and I hope that Ministers take up his suggestions. Ours was a clear, straightforward policy to incentivise the paying of the living wage by sharing with employers the benefit that the Government obtain because people are earning more money.
Shabana Mahmood
I am afraid that the boy-band operation on the Government Back Benches is a little unimpressive. Rather than give way for a further Whip’s question, I shall make a little more progress.
Another argument advanced by Government Members in recent weeks is that tax credits have been subsidising poverty pay. There is academic and expert evidence that they have not depressed wages at the lower end, and that there has been no general slippage in the part of the earnings distribution where they bite. For the sake of argument, however, let us agree that in an ideal world we would not even take the risk that tax credits might depress wages, or subsidise low or poverty pay. Indeed, let us agree that we would ideally want a system in which they were not needed at all, because everyone could earn a high enough wage to manage perfectly well without them. If the Government were serious about that, they would come forward first with proper and realistic proposals for increasing wages and tackling low pay, and then start thinking about reform of tax credits. Instead, they are putting the cart before the horse and doing things the wrong way round, salami-slicing the tax credits budget but without any credible plan to get wages up before the cuts bite. The Government have no plans to ensure working families do not lose out from their tax credit cuts.
Instead of tackling low pay, the Conservatives are attacking the low paid, and they have form: they cut tax credits 14 times in the last Parliament, including cutting the childcare element of working tax credits from 80% to 70% of a child’s childcare costs, costing some working families up to £1,560 a year—an average loss of £570 per year—and increasing the working hours threshold for couples to qualify for WTC from 16 to 24 hours per week, with an average loss of £2,600 for families unable to increase their working hours, according to research commissioned by us from the House of Commons Library. We also know that a number of indicators suggest that the recovery is not feeding through to job security and pay growth for those who have to rely on tax credits.
Catherine West (Hornsey and Wood Green) (Lab)
Has there been an equalities impact assessment of this measure, which will be introduced tomorrow?
Shabana Mahmood
My hon. Friend raises an important point, and we will have to see whether we get any additional information on the impact on equalities ahead of the Budget, but we already know from what we saw over the last Parliament that women are disproportionately affected when the Government start to cut tax credits, as are black and minority ethnic communities.
Shabana Mahmood
I am going to make a little more progress.
As I have said, we also know that a number of indicators suggest that the recovery is not feeding through to job security and pay growth for those who have to rely on tax credits. The number of jobs in low-paid sectors grew at twice the rate of those in non-low-paid sectors between the second quarter of 2010 and the second quarter of 2014. The number of working people paid housing benefit has risen by 400,000 since 2010, because working people are not bringing home enough money to pay the rent. The number of people earning less than the living wage has increased by 1.8 million since 2009. Now it seems that these same people—the strivers, the doers and the workers whom the Chancellor claims to want to put his arms around and hug close—are, having been hit hard over the last five years, going to bear the brunt again.
Labour believes the way into work and off welfare is by tackling the real causes of high welfare costs: the underlying drivers of low pay, high housing benefit costs and insecure working conditions. The Government’s failure to address these underlying causes in a meaningful way over the past five years has meant they have spent £25 billion more than they expected to spend on welfare in 2010. The welfare bill remains higher than expected for the same reason as the deficit remains high: we cannot disconnect what happens in household budgets from the economy overall, and that means we cannot remove tax credits for working people without creating the conditions that allow that to be done in a way that does not penalise workers on low pay.
We want a higher-wage economy where people are less reliant on tax credits to make ends meet. That is why we set out plans to raise the minimum wage to at least £8 an hour by 2019, and it is why we support the living wage and set out proposals in our manifesto to encourage and incentivise businesses to pay it. I strongly encourage the Government to steal our policy, and if they do steal it they should do so as a first step to embedding higher wages in the economy before they consider going ahead with any changes to tax credits.
The Government should also remember that the way in which the living wage is set assumes that families are already taking up their full tax credits entitlement. The Greater London Authority, which works out the London living wage, says:
“If means-tested benefits were not taken into account (that is, tax credits, housing benefits and council tax benefit) the Living Wage would be approximately £11.65 per hour.”
That is more than £2 higher than it is at the moment. The living wage already has tax credits priced in, and it will not be a living wage in the face of tax credit cuts. If the Government come forward tomorrow with proposals on the living wage, they will have to explain either that they are going to go for a much higher living wage than we have at the moment or why they are going to hit working people again and again.
The proposed tax credit cuts tomorrow have attracted widespread criticism across the political spectrum. Everyone agrees that people should be better off in work than unemployed, but removing or significantly cutting tax credits without having charted a course towards a high-skill, high-wage economy means that this Government are not tackling low pay, but are attacking the low paid. That is wrong; those people will be punished for circumstances outside their control as they try to do the right thing. Hon. Members from across the House should send a clear signal to the Government that that is the wrong approach and vote in favour of our motion.
The Financial Secretary to the Treasury (Mr David Gauke)
A fundamental part of this Government’s long-term economic plan is to support working people at every stage of their lives. We have a record we can be proud of: we are providing our children with the best start in life; we are helping millions of people to secure their first job; we are allowing people to keep more of the money they earn; we are helping families get on the property ladder; and we are providing our pensioners security in their old age. We can do that only on the back of a strong, stable and growing economy. This is the Government who have delivered sustained growth—the fastest in the G7 last year. This is the Government who drove income inequality down, reduced pensioner poverty to record low levels and, according to data released earlier this week by the Office for National Statistics, have seen living standards rise by 3.9% on the year. We now need to finish the job. We need to keep our economy secure; to run a surplus; to start paying down our debts; and to put in place the stable future that this country’s citizens voted for.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
How does what the Minister has just said marry up with the International Monetary Fund research showing that taking money from the poorest 20% in society actually stifles growth? IMF figures show that if we invest in the bottom 20%, there would be growth of 0.38%.
Mr Gauke
The hon. Lady quotes the IMF, but this is the same IMF that has praised this Government’s record in turning round the economy. The head of the IMF said that she shuddered to think what would have happened had we not got to grips with the deficit. The reality is that if we want to help every part of society, which is what this Government want to do, we need to make sure that we have a strong economy, and that is what this Government are delivering.
Mr Gauke
In 2014, the UK was the fastest-growing economy in the G7 and it looks likely that that will also be the case in 2015. [Interruption.] The hon. Lady talks about wages, but they are up 2.7% in the last year. As I said, living standards have risen by 3.9% on the year, despite the fact that we are still living with the consequences of the deepest crash and the biggest deficit, which we inherited from the Labour party.
Rob Marris
Does the Minister not recognise a contradiction in his position? If the economy is as strong as he suggests, there is no need to cut tax credits. If, on the other hand, as Labour Members think, the economy is not nearly as strong as he and his colleagues are making out, we need tax credits because of poverty.
Mr Gauke
The economy is growing strongly, but we are still recovering from the deepest crash. We inherited the biggest peacetime deficit in our history, and we must take difficult decisions to address it. We took difficult decisions in the previous Parliament, which were opposed by the Labour party, and we still have more to do. The Labour party might wish to learn that, if a Government or a political party cannot face up to those challenges, they will not win the trust of the British people.
Kwasi Kwarteng (Spelthorne) (Con)
Does my hon. Friend agree with those of us who were in the previous Parliament that it is strange that the Labour party has learned nothing about welfare reform, deficit reduction and the need to have sound public finances?
Mr Gauke
My hon. Friend makes a very, very good point. We are in a similar position to that of five years ago: we have one side of the House recognising the need to address our deficit and to put in place the conditions for growth and the other side opposing any measures to try to address the problem.
Mr Jim Cunningham
If the hon. Gentleman cuts tax credits, the difference will be made up by employers, say some on the Government Benches. But how will he do that without legislation? Will we not return to the days of previous Conservative Governments when some people in Coventry were on £1 an hour?
Mr Gauke
The position is that we have to make difficult decisions to address the public finances. Tomorrow, my right hon. Friend the Chancellor will announce the first Budget of the Conservative Government. I will not discuss what may or may not be in that Budget, and I do not think that Members would expect me to do so one day beforehand, but I can reassure the House that we will have four days of debate on the Budget to discuss the measures that it contains. None the less, I reiterate that we must address a deficit that remains too large. I am afraid that, once again, as we saw throughout the previous Parliament, Labour is failing to address the issue.
Sammy Wilson (East Antrim) (DUP)
Does the Minister accept that, although tough decisions must be made—we all have to realise that they must be made—he should consider whether they are self-defeating. Given the multiplier impact of money in the hands of the poorest people in our economy, they are self-defeating. Secondly, does he recognise that such decisions will have a bigger impact on some parts of the United Kingdom, such as Northern Ireland, which have a high number of people who are low paid, and they are the very parts that he wants to see growing?
Mr Gauke
We want to see growth in every part of the United Kingdom. Again, we have a Budget tomorrow. The record of the Chancellor shows a determination to ensure that there is growth in every part of the United Kingdom. I also make this point: it is a fundamental point of principle that taxpayers’ money must be spent wisely to make Government more efficient, effective and accountable. As a consequence, we need to target our spending so that we continue to support those who need supporting while helping millions of people achieve their fullest potential, which we refuse to believe is a life on benefits.
Kevin Hollinrake
Does my hon. Friend agree with this information from the House of Commons Library that says that tax credit changes in the previous Parliament were about focusing support on those on lower incomes? The Institute for Fiscal Studies said that, in terms of net incomes, the average household was £900 a year better off at the end of the previous Parliament than it was at the start.
Mr Gauke
My hon. Friend is right on both points. It was only because of the difficult decisions that we took that we were able to restore credibility to the UK as an economy and that we were able to make the progress that we made. Labour said that it is committed to closing the deficit. It voted for the Charter for Budget Responsibility, and the shadow Chancellor told us at the weekend that the Government should run a surplus in normal years. It is therefore disappointing that the Opposition have not yet set out how they will do so, because if they continue to oppose finding savings in the welfare budget they will have to explain whether they would borrow more, tax more or cut departmental spending more.
Debbie Abrahams
Does the Minister consider it a success that the debt to GDP ratio, according to House of Commons Library figures, is running at more than 80% whereas after recapitalising the banks and the biggest global crash in history it was running at only 60%? Is that a success or not?
Mr Gauke
Let me put this as simply as possible. The debt is essentially the accumulation of deficit and for the past five years every measure that the Government took to reduce the deficit was opposed by Labour. Indeed, Labour’s economic argument—its whole case—was that we were going too far, too fast in reducing the deficit and that we should have a looser fiscal policy. A looser fiscal policy means borrowing more. If we borrow more, the debt will rise more quickly. The hon. Lady cannot have it both ways. She can argue that we should have been prepared to borrow more and to allow the debt to rise because that was a price worth paying, but she cannot then turn around and say, “We want the debt to be lower, even though our policies called for higher debt.”
Geraint Davies (Swansea West) (Lab/Co-op)
The Minister is construing tax credits as a welfare cost, but will he not accept that if someone is starting a small business and can afford to pay someone £10,000 to run a café, or whatever it is, but the person who is being employed needs £15,000, those tax credits would have helped generate a business with a much greater turnover than just the incomes of the individual employees? Tax credits are an instrument for generating new small businesses, not simply an act of charity from the Tories.
Mr Gauke
Cutting corporation tax rates for small businesses, introducing the employment allowance, helping under-21s and apprentices whose employers no longer have to face national insurance contributions, reducing the regulatory burden, restoring the economy to health and ultimately improving access to finance is what helps small businesses, and that is a record that we are proud of.
Wes Streeting (Ilford North) (Lab)
On two occasions in this House, the Secretary of State for Work and Pensions has been challenged on his argument that we can cut tax credits because we can increase the minimum wage or encourage employers to pay the living wage. The problem with that argument is that unless employers are encouraged or coerced to do that overnight, which would hurt small businesses disproportionately, it will hit families with children on tax credits the hardest. Is the Minister saying that the Government will not cut tax credits without compelling employers to pay the minimum wage? If he is not, the lectures he is giving us on hard choices are nothing compared with the hard choices facing those families.
Mr Gauke
He did it very skilfully, but unsuccessfully, I fear. If we want to help small businesses, we need to put in place a pro-enterprise environment and if he wants to see a Government who have done that, he should look at the record of the Government over the past five years.
Caroline Lucas
The Minister is talking about borrowing, but does he recognise that further cuts to Government spending are leading to a rapid rise in household borrowing? Official forecasts project that household debt will surpass the record pre-crisis levels of 2008 before the end of the decade. Does he not recognise that that instability, which his policies are creating, is likely to lead to yet another financial crash as he is simply moving debt from the public sphere to the private sphere, and making it very unstable?
Mr Gauke
I do not accept that argument. On the question of the fear of further crises and so on, we need to ensure that the public finances are on a sound footing, recognising that there will be times at which there will be turbulence in the economy. This is one of the differences we had at the general election. The Government recognise that we have to be serious about getting debt down, which is why we believe that there should be a surplus in normal years. If the Opposition are coming to that view, I welcome it, but their refusal to consider a role for the welfare budget in making a contribution towards reducing the deficit suggests that their heart is not in it.
Jim Shannon (Strangford) (DUP)
In 1998, tax credits were introduced for two reasons—low wages and the high cost of living. They enabled the proportion of children in poverty to be reduced from 35% to 19%. Barnardo’s in Northern Ireland has expressed concerns about welfare reforms, particularly to tax credits. It says that 160,000 families will find themselves in child poverty as a result. How would the Minister answer that and reassure Barnardo’s and me as an elected representative that that will not happen?
Mr Gauke
We need a fair and sustainable welfare system. Five years ago we inherited a welfare system that was not working for people throughout our country. Those who worked hard found more and more of their earnings being taken away to support a welfare system that was dangerously out of control. On tax credits alone, in 2010-11, nominal spending had increased by an extraordinary 180% compared with the benefits they replaced. Worse, the benefits system as it stood created the most perverse incentive of all: for some people it made financial sense to choose to live on benefits rather than earn a living. It rewarded doing the wrong thing, punished doing the right thing, alienated millions of hard-working people and let down millions more. It was financially and morally unsustainable.
Graham Evans
Working tax credits of £30 billion—my hon. Friend may have noticed my question to members of the Opposition Front-Bench team whether that was too high. They did not answer. Does not the whole debate show that Labour is the party of welfare?
Mr Gauke
I fear that my hon. Friend is right. Given what we inherited, it was necessary to introduce wide, comprehensive reforms to reward work and allow people to fulfil their potential. We have cut taxes. We have capped benefits so that no household earns more in out-of-work benefits than the average household earns by working. We are simplifying the benefits system through the roll-out of universal credit. We tightened the rules to prevent abuse of the system and, perhaps most importantly, we ensured that there were decent, full-time jobs for people to go to. At the same time, we have ensured that benefits continue to help the most vulnerable.
Before I set out how we will continue to help working people to achieve their aspirations, I shall say a few words about tax credits. Tax credits have helped to support many of our most vulnerable families. Over the past five years, we have channelled the support they provide towards the people who need it most—for instance, by increasing the disability element of tax credit in line with the consumer prices index. The next five years will see us continue to roll out universal credit, which will simplify the complex web of benefits and tax credits currently in place.
Mr Gauke
Let me make a little progress, then I will give way to the hon. Lady.
Universal credit will replace six working-age benefits—housing benefit, jobseeker’s allowance, income support, employment and support allowance, working tax credit and child tax credit—with a single application process and a uniform taper rate across the UK. It will improve the incentives for people to work. It will target support at those who need it most. It will diminish the opportunities for fraud or simple error and it will make administering the system much more efficient. Universal credit is the most radical transformation of the welfare system we have ever seen, making it simpler, easier and fairer. Once it is fully implemented, it is estimated that it will increase the number of people in work and make households throughout the country better off.
Jo Cox
I thank the Minister for giving way. Does he agree with the Resolution Foundation analysis that for a hard-working single parent with one child in my constituency working 16 hours a week on the national minimum wage, if some of the cuts go through she can expect an annual loss of earnings of £1,500, which will take 12 years of incremental 2% pay increases to recoup? What is his plan to help her to get a faster pay rise?
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. This does not apply only to the hon. Lady: when an intervention is made, it should be short and sharp and address one point. It should not be a written script to be read out in the House. I am not addressing these remarks specifically to the hon. Lady. Everybody has been doing that this afternoon. The Front-Bench speeches have therefore taken a very long time, and there are people who have asked to speak this afternoon who will be here all day and will have only two minutes at the end of the debate, whereas people are making interventions and will then leave the Chamber and not take part in the rest of the debate. That is not fair play in this Chamber and we expect better.
Mr Gauke
Thank you, Madam Deputy Speaker. I will try to make a little progress. In response to that intervention, I will not speculate about announcements that might or might not be made tomorrow, but I will say that universal credit is a sensible reform that comes alongside a whole raft of other measures by which the Government are helping hard-working people.
Mr Gauke
My hon. Friend makes a reasonable point. There was a certain correlation between the previous Government’s generosity and election years.
The Government are bringing in a raft of measures to help working people. We are giving this nation’s children the best start in life. We have increased our spending on childcare and early-years education by £1 billion. We have given 15 hours of free childcare entitlement to all three and four-year-olds, as well as to the poorest 40% of two-year-olds, and we are doubling that for families in which both parents work. We are extending the right to request flexible working to all. Through tax-free childcare we are giving 20% support on childcare costs, up to £10,000 per child. Universal credit will increase the childcare support for low-income families to 85%. Our pupil premium and early-years pupil premium are giving schools, nurseries and childminders additional money to ensure that children from the most disadvantaged backgrounds do not fall behind. Through our childcare business grant scheme we have 4,500 new childminders and over 30,000 new childcare places.
Catherine West
Will the Treasury be doing a proper equalities impact assessment for tomorrow’s statement?
Mr Gauke
We will perform the required assessments, as we always do.
The best way to prosperity is still employment. The past five years have seen a jobs miracle—1,000 jobs a day; 2 million in total. For every job lost in the public sector, the private sector has created over five and a half more. I simply do not accept Opposition claims that they have somehow been second-class jobs on part-time or zero-hours contracts. Over the past year 85% of jobs created have been full time and 92% have been high or medium skilled. Unemployment has fallen by 349,000 people over the past year alone. That is 349,000 more people standing on their own two feet, and 349,000 households with greater financial security.
We want to continue our fantastic record on jobs so that we achieve full employment in the UK. We are providing our young adults with a route to employment through a record number of apprenticeships, and we have committed to supporting 3 million new apprenticeships. We will work with our Jobcentre Plus network to provide routes into work experience and apprenticeships for young people leaving education.
When people are in work, we will cut their taxes. We have increased the tax-free personal allowance for 27 million people, from £6,475 to £10,600 this year. That will rise to £12,500 by the end of this Parliament. We will enshrine the concept of a tax-free minimum wage in law. We will also raise the 40p income tax threshold to £50,000, because that should be for high earners, not middle earners. Already, a typical basic-rate taxpayer is paying £905 less income tax than in 2010, and by 2017-18 we will have lifted over 3.7 million people out of income tax altogether.
We have frozen fuel duty since 2011 and council tax since 2010. We have said that over the next five years we will not raise income tax, VAT or national insurance contributions. Our record low inflation is keeping down the cost of household goods. We have increased the national minimum wage by 3.1%—3.3% for 18 to 21-year-olds—thus benefiting over 1 million people. At the same time, wages have increased by 2.7% on the year for the three months to April. That all means more money in people’s pockets, more incentives to work, and a fundamental shift from dependency and towards productivity.
Back in 2010 we were a country living beyond our means and with worrying signs of being addicted to that lifestyle. Whenever that is proved to be unsustainable—something that global markets have a habit of proving—the poorest and the most vulnerable are hit the hardest. That is what we wanted to avoid, and that is why we have strived so hard to turn around Britain’s economy. Despite the best efforts of the Labour party, which opposed every difficult decision we took on the path towards recovery, we have achieved a lot. We have shielded the most vulnerable and those on the lowest incomes and have asked those with the broadest shoulders to bear a heavier burden. We have given greater economic security and a higher standard of living to millions of people in this country. At every opportunity, we have stood up for those who want to work and do the right thing. We have promoted work and helped create the opportunities to work. We have helped people to achieve their goals and secure themselves a brighter future. We have done all this while cutting the deficit and creating the highest growth in any of the major advanced economies. It is a record we are proud of, and one we will continue.
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. Before I call the next colleague to speak, let me say that it is obvious that there are far more people who wish to speak than there is time available. If I were to put a time limit on now, it would be some four minutes. I consider that that is unfair to people who are making their maiden speeches. I trust that everyone else in the Chamber will wish to give a decent amount of time to people who are making their maiden speeches, as they themselves have had. I therefore ask other Members to limit their speeches to some five minutes or less in order to show courtesy to the other Members of this House who wish to speak, and especially those who are making their maiden speeches. That stricture does not apply to the Front-Bench spokesman for the Scottish National party, Mr Ian Blackford.
Ian Blackford (Ross, Skye and Lochaber) (SNP)
Thank you, Madam Deputy Speaker.
I congratulate the Labour party on bringing this most important debate to the House. Having listened to the Minister over the past 25 minutes, I think that we on the SNP Benches must live in a different world from the one that he lives in. When we revisit what has been happening over the past couple of weeks, with the scandal of the Secretary of State for Work and Pensions coming to this Chamber and wanting to redefine how we measure child poverty, we can see that that indicates the scale of the problem we face. But the cat is now well and truly out of the bag. We listened to the Minister taunting the Labour party and accusing it of being the party of welfare. On these Benches, we see the importance of what we call social security in Scotland. We believe that society is as strong as its weakest link. The battle that we are facing in this Parliament is an ideological one with a Government who want to demonise the poor of this country.
Let this House take the opportunity to say to the Chancellor of the Exchequer, before he rises to deliver his emergency Budget tomorrow, that he should not use the failure of the Government to fix the deficit as an opportunity to attack the poor and the disadvantaged in our society. In particular, the Government should pause and reflect on the importance of tax credits to those who rely on the contribution that they make to the household budgets of many of our citizens. Tax credits have a significant impact in raising the income of low-income households, particularly those with children. The tax credits system was designed as a key mechanism for tackling poverty and inequality, and the SNP firmly opposes any moves to gut it, as the Tories have hinted at doing.
Tax credits require a significant amount of expenditure, which largely goes to supporting children in lower income families. In 2013-14, tax credit expenditure in Scotland was £2 billion, supporting thousands of people on low incomes. The SNP recognises the vital role that tax credits play in providing such support, and that is why our manifesto proposed to protect their value by increasing tax credits annually in line with inflation.
We need to go much further, however, and do more to raise wages, including raising the minimum wage, promoting the living wage and increasing the work allowance in universal credit. It is the delivery of real wage growth that will lead to a natural reduction in tax credits. These benefits cannot be removed at a time when many are on low pay.
Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)
My hon. Friend is right to talk about the moral case and the position in which the poorest in our society are being put. The Conservative party also talks about productivity. Does my hon. Friend agree that cutting tax credits will harm the possibility of raising productivity in the economy?
Ian Blackford
My hon. Friend is absolutely right. We hear much in this Chamber about productivity, but the reality is that over the past seven years productivity has fallen by 0.7%. Rather than attacking the poor, which is what the Government are doing, their Budget tomorrow should introduce a programme for investment in this country that will lead to a rise in real wages, improve productivity and negate the need for tax credits. Removing tax credits will not fix the problems this country is suffering.
The failure to drive sustainable economic growth means that many people who are in work are in poverty. As a result, many of them rely on tax credits in order to put food on the table to give thousands of young people a decent start in life. There has to be dignity in work, and much has to be done to drive investment in our economy, enhance productivity and see a sustained rise in real wages.
Tax credits are an investment in our people and, as a consequence, the future prosperity of our country. Tax credits have made an important contribution to tackling poverty and inequality. In 2013-14, 90% of tax credit expenditure went to families with an income of less than £20,000. Families with children received an average of £6,900, and families without children an average of £2,200, from tax credits. That represents a very clear contribution to boosting incomes and tackling poverty and inequality. Tax credits help tackle in-work poverty and child poverty.
It is worth noting that about 70% of tax credits go to families where somebody is in work, predominantly supporting low-income working families. Given that a majority of people in poverty are already in work, tax credits are thus a crucial tool to support working people.
The Child Poverty Action Group estimates that the UK Government’s welfare cuts will push an additional 100,000 children in Scotland into poverty by 2020—and that does not take into account the additional £12 billion-worth of cuts that this Government want to push through. Given that 500,000 children benefit from the tax credit system in Scotland, cuts to tax credits would certainly have a further detrimental impact on the wellbeing of children in Scotland and on child poverty figures.
Figures due to be published tomorrow by the Scottish Government show that if the Chancellor cuts child tax credit back to 2003 levels in real terms, as has been reported, the poorest 20% of Scottish families with children will lose an average of nearly 8% of their income. That will have the impact of taking a total of £425 million out of the Scottish economy. How are we to deliver sustainable growth when we take £425 million out of the pockets of the poorest in our society? It beggars belief. We want a caring, compassionate society; that is not what we are getting from this Government.
Ian Blackford
That comment from a sedentary position is correct. We used to talk about the nasty party when Thatcher was in power; it seems to have returned.
SNP Members will reflect on the choices made by the previous Government and this one. Some £375 billion of new money has been created through the quantitative easing programme. We recognise that some of that was necessary, but it created circumstances in which those in the financial markets benefited massively. A 90% increase in the value of the FTSE 100 since 2009, a huge increase in the value of financial assets, and banker’s bonuses that continue to reach eye-watering figures are the impact of this Government’s political choices. They have created the circumstances that have delivered increased value in financial markets; they have not created the circumstances in which wages could rise and the country as a whole could benefit. “All in this together”? You’ve got to be kidding!
Chris Philp
Will the hon. Gentleman join me in welcoming the fact that inequality actually fell during the past five years?
Ian Blackford
I must tell the hon. Gentleman that according to the figures released two weeks ago, child poverty in Scotland is up by 20,000. That is the reality of what his Government have done to people in my country.
Sammy Wilson
The hon. Gentleman made a point about quantitative easing. Does he accept that one of the problems identified was the lack of bank lending to industry, and that banks needed liquidity to increase lending to businesses?
Ian Blackford
I thank the hon. Gentleman for his question, because we need a debate about that in the House. The real reason behind quantitative easing was exactly that—to produce an increase in bank lending—but if we look at what has happened over the past five or six years, we can see that there has hardly been a significant increase in bank lending. The money has gone into the financial markets and benefited the banks and the bankers, but we as a country have not seen the benefits that we should have had. That is the reality of what has happened. The previous Government had the choice between investing in the real economy and sticking cash into the back pockets of the bankers, which is what they achieved.
Why do the Government not invest in growing the economy and supporting low-paid workers, rather than punishing them for the Government’s failure to deliver sustainable economic growth?
Imran Hussain (Bradford East) (Lab)
Does the hon. Gentleman agree that this Government need to stop persecuting the poorest in society, and instead put pressure on big business to provide a proper living wage?
Ian Blackford
Absolutely. I concur 100% with the hon. Gentleman. When we come to vote on the emergency Budget, I appeal to Conservative Members to examine their own consciences, look at the pain that will be caused if they go ahead with cutting tax credits, and recognise that we need to invest.
Kwasi Kwarteng
Why in such debates do Opposition Members never mention the deficit or the country’s financial and fiscal situation? I am curious as to why they make no attempt to address that matter.
Ian Blackford
I must say that I find it remarkable that the hon. Gentleman has asked such a question. I have spent much of the past 10 minutes talking about the need for sustainable economic growth, because that is how we can reduce the deficit, not by punishing the poor in this country. That is what he fails to accept.
Ian Blackford
I will make some progress and then I will give way.
The SNP firmly believes that we need to do far more to tackle poverty, and addressing inequalities is at the heart of the Scottish Government’s programme for Scotland. We challenge the UK Government to commit to a more ambitious rise in the minimum wage, and to follow the Scottish Government’s lead in paying all staff the living wage.
The UK Government have already cut tax credits. In 2012, the eligibility threshold for child tax credit changed from a family income of £41,000 to £26,000 for lone parents and to £32,000 for families with two children. The number of hours that couples with children had to work in order to be eligible for working tax credit went up from 16 hours a week to 24, with one parent having to work at least 16 hours. As a result of those changes, 11,370 Scottish families lost working tax credits worth up to £3,870 per year and 73,300 Scottish families lost child tax credits worth about £545 per year.
More than 500,000 children in Scotland benefit from tax credits. Two thirds of the £2 billion expenditure on tax credits in 2013-14 went to low-income families with children; only 5% went to households without children. That is why we are alarmed. Any removal of tax credits will clearly lead to an increase in child poverty. It is simply inhumane to consider such a move.
In a speech last week, which was widely interpreted as a statement of intent to gut tax credits, the Prime Minister said:
“There is what I would call a merry-go-round. People working on the minimum wage having that money taxed by the government and then the government giving them that money back—and more—in welfare. Again, it’s dealing with the symptoms of the problem: topping up low pay rather than extending the drivers of opportunity—helping to create well paid jobs in the first place.”
Those comments suggest that the Tories are planning to target child tax credits and working tax credits, which provide support to low-income working people.
Although we agree that we need to take urgent action to tackle low pay and raise wages, removing the vital support that tax credits give cannot be the answer. The SNP has set out a range of policies that aim to boost low incomes and drive wage growth. We have proposed raising the minimum wage to £8.70 by 2020, raising the incomes of the lowest-paid in our society and reducing dependence on tax credits.
The Scottish Government are the first living wage-accredited Government in the UK, and we are actively promoting the living wage by encouraging companies to sign up to our Scottish business pledge. We challenge the UK Government to follow suit and guarantee that all their staff will be paid the living wage.
We want to see a £600 increase in the work allowance of universal credit, which determines when people entering work begin to have their benefits reduced. That would support people on low incomes and boost the income of a worker who receives universal credit by £390.
Removing much need financial support for those on low incomes, in the form of tax credits, simply cannot help make work pay. The SNP wants to make work pay, but we must do so by raising incomes and tackling low pay.
Rebecca Long Bailey (Salford and Eccles) (Lab)
The problem with the Government’s suggestion that cutting tax credits will lead to higher pay is that the labour market is weighted in favour of the employer, rather than the worker. The only way to restore wage growth across the board, especially in the private sector, is through the expansion of collective bargaining. We simply cannot have wage growth in a country where the erosion of trade union rights is right at the top of the Tory agenda. The Government are doing the exact opposite of what they intend, which is to get people back to work and on decent pay—
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. Order! Honestly, we must have short interventions. I want everybody to get to speak. Interventions are not meant to be speeches. We have to help each other today because a lot of people wish to speak. The shorter the interventions, the more people we will get through.
Ian Blackford
I agree with the gist of what the hon. Lady said. We need to ensure that there is proper protection for trade union rights throughout the UK.
The Resolution Foundation, which has been much commented on, has assessed the proposed plans. It found that more than two thirds of the families affected—2.7 million of them—would be in work. Working families with two children would lose up to £1,690 a year. Almost two thirds of the cut would be borne by the poorest 30% of households; almost none of the cut would fall on the richest 40% of households.
A poll by YouGov and The Sunday Times the other week found that there was opposition across the UK to cuts in tax credits, and that the opposition was highest in Scotland: 56% of Scots are opposed to the cuts and only 37% are in favour. Clearly, there is public opposition to any attempt to target tax credits, and that opposition is strongest in Scotland.
The Tory assault on the welfare system is already pushing more and more people, particularly thousands of children, into poverty. There are worrying links between welfare reform and food bank use. The Trussell Trust has reported that 117,689 people picked up a three-day supply of groceries from Scottish food banks in 2014-15, including 36,114 children. That is eight times the number of people who were helped just two years ago. Given the social harm that is already being done by Tory welfare cuts, the future damage that could be caused by gutting tax credits is unthinkable. The Tories’ plans, and the high degree of uncertainty about the future of that lifeline support, demonstrate the need for full powers over Scotland’s welfare system to be in Scottish hands, not those of the Chancellor and the Secretary of State for Work and Pensions.
James Cartlidge (South Suffolk) (Con)
I am delighted finally to have the opportunity to speak on this subject because I profoundly believe that tax credits are one of the greatest policy errors in the history of the welfare state. I say that not because of the Resolution Foundation, the International Monetary Fund or any theory; I say it because of my experience in the real world running a small business.
Let me share two key experiences with the House. The first was when I set up as a mortgage broker in 2004. We focused on the shared ownership sector, so most of our applicants were on lower and middle incomes. I was distinctly surprised when I found that people could take out mortgages based on tax credits. It its wisdom the Financial Services Authority decided that that was suitable, and I would be interested to know whether there are any Treasury figures on the amount of credit—both secured and unsecured—that was taken out on the basis of tax credits, using other people’s money to borrow other people’s money, and reinforcing the double dependency at the core of the tax credit system.
In my experience, the most serious issue with tax credits was when we started to recruit staff. In 2009, we embarked on our first round of pay rises after the great recession—Labour Members will be familiar with that—and I found it extraordinary when I received emails from staff declining those pay rises. Why did people not want a pay rise? One would expect anybody to want one—we all would; we want to get on in life. People rejected those pay rises because they would lose too much in tax credits, and that is the fundamental flaw in the tax credit system. I found that with various members of staff and parents at our school: people were in a dilemma about whether they should press on in life and try to earn more, even though they would lose money from tax credits and other benefits. I think that the tax credit policy is such a profound error because at a time of general prosperity we should not be seeking massively to expand the benefit system.
Let us consider our three core economic challenges. The first is the productivity puzzle, but it is no puzzle to me that people do not become more productive or work harder when there is no incentive for them to do so. Secondly, why is it a surprise that we have flat wage growth when there is such a disincentive for millions of workers to earn more? Thirdly, and most importantly, we have a real problem with social mobility, which is frozen. Everybody talks about that problem, but why would someone try to get on in life and be socially mobile if the massively expanded benefit system does not reward them for doing so? That is fundamental. To me, the essence of the tax credit system is that we are spending £30 billion a year to put a cap on the wages of British people and a ceiling on ambition and aspiration.
Jess Phillips (Birmingham, Yardley) (Lab)
I would like the hon. Gentleman to recognise that quite a lot of Opposition Members lived on tax credits and it is insulting to say that we have no ambition. I am sure he will recognise that we do.
James Cartlidge
I am delighted that the hon. Lady has searing ambition, and I am sure that when she achieves her full ambition she will want to reform welfare and ensure that people make the most of themselves. Tax credits are a massive barrier—that is a fact even if no Labour Member will recognise it—and we are spending £30 billion a year to put a ceiling on the aspiration and ambition of British working families. My hon. Friends and I believe in a safety net, but I do not believe in a ceiling. We should not put ceilings on ambition and hold people back from making the most of their natural talents and abilities. We should empower them to make the most of their skills.
Dr Eilidh Whiteford (Banff and Buchan) (SNP)
The hon. Gentleman thinks people are getting a king’s ransom in tax credits. The reality is that the Government are taking people on low pay that simply will not keep a person and their family and bringing them just to the breadline. They are not exactly incentivising them to stay in poverty. That is the crucial flaw in his argument.
James Cartlidge
Of course it is not a king’s ransom. That is the point. We are trapping people on benefits.
At the end of the day, the money has to come from somewhere. Someone else has to earn the wages to pay for the tax credits of the people who receive them. If we reduce them, people will have to be more productive, will have to work harder and will take alternative employment to make that up. That is what happens in the real world. I am proud to be in a party that is ready to take the tough decisions to deal with the fundamental problems we face.
We must look at a solution to the problem the hon. Lady describes. Clearly, we cannot just cut the whole system overnight, but it is worth reflecting that, according to the House of Commons Library, if we spent the £30 billion we spend on tax credits on education, we would have the best-funded education system in the European Union and the fifth best-funded system in the entire world.
There are choices—to govern is to choose—and there is an opportunity cost to spending. My view is that we should reduce tax credits, increase the minimum wage over a long period towards the living wage and reduce employer’s national insurance with the savings we make so that employers can cope with the increase. That is a one nation policy. It is radical and tough. I say to my hon. Friends on the Front Bench: be brave, be bold and reform tax credits, because they will be helping working people who are being held back by that massive dependency culture.
Sir Gerald Kaufman (Manchester, Gorton) (Lab)
I thought South Suffolk was part of Britain, but it is perfectly obvious that it is not. The experience the hon. Member for South Suffolk (James Cartlidge) describes bears no relation whatever to reality or to the reality in the constituency I represent.
Tomorrow, we will have a Budget. The Minister said we will hear about the Government’s long-term economic plan. I can tell the House what the Government’s long-term economic plan is: to him that hath shall be given, and from him that hath not even that shall be taken away.
The fact is that the inequality and inequity that have been deliberately created by the Government is an abomination to a country that is supposed to be a democracy. They have forced schools in my constituency to go into an academy system. I will visit one of those schools next week in one of the most deprived areas of my constituency. The Government forced it to go into a group and put in charge a woman called Dana Ross, who was the headteacher of Altrincham Grammar School for Girls. She has formed a group, Bright Futures, to run those schools. She has just increased her own pay from £120,000 a year to £220,000 a year. That is the kind of opportunity that this Government give to people.
I represent a constituency of major deprivation, with some of the highest unemployment in the entire country. When I go back to my constituency and see how people are being victimised and deprived, it horrifies me. Let me give the House some statistics. My constituency—Manchester, Gorton—has the 10th highest level of child poverty in the UK out of 650 constituencies. My city, Manchester, is No. 4 among the top 20 local authorities with the highest level of child poverty in the UK. Forty-two per cent. of children in my constituency live in poverty. That is the direct result of the Government’s deliberate policies. They have created intolerable poverty in my constituency and they crow about it.
The situation in my constituency, with regard to low-paid parents with dependent children who rely on tax credits to make up the difference between what they earn and what they need to get by, is that there are 21,300 children in families who receive tax credits. Cuts will hit working families with those low incomes the hardest, potentially meaning that more children will fall below the poverty line.
Let us look at four statistics relating to tax credits. The number of families with children claiming tax credits in the Gorton constituency: 11,000. The number of working families with children claiming tax credits in the Gorton constituency: 6,800. The number of children in working families receiving tax credits: 14,800. The percentage of families in the Gorton constituency receiving tax credits: 79%. Tomorrow that lot on the Government Benches, who give money to the bankers and the property owners, are planning to victimise the people who live in that kind of poverty.
Sir Gerald Kaufman
No, I am not going to give way to the hon. Lady, unless of course she has an intervention provided for her by her Whips like the rest of her colleagues who have intervened so far.
Let us be clear about this: working-age households with the lowest incomes lost the most, as a proportion of their income, in the previous Parliament. In working-age households, the incomes of those with children have been hit hardest by the Government’s tax and benefit changes. Families with children have been hit the hardest of all. Working families with children lost up to £2,000 a year, which is double the average loss of £1,100. Cuts to tax credits far outweigh the increases in the personal allowance over the period. The Social Mobility and Child Poverty Commission, in its state of the nation report for last year, said:
“We have come to the reluctant conclusion that without radical changes to the tax and benefit system to boost the incomes of poor families, there is no realistic hope of the statutory child poverty targets being met in 2020.”
There will be radical changes tomorrow, but they will not be radical changes to help the people who live in my constituency. They are good, decent and hard-working people when they get the chance of a job, rather than being unemployed. There will be nothing in the Budget for them. The Government do not care, but we shall remember.
Julian Knight (Solihull) (Con)
It is a particular pleasure to follow the right hon. Member for Manchester, Gorton (Sir Gerald Kaufman), the Father of the House.
Tax credit payments play an important role in the finances of many of my constituents, helping them to provide for childcare, meet ongoing expenditure and, crucially, join the workforce. My constituency is the prosperous town of Solihull, but there is still a legion of very hard-working people on not particularly high salaries who are helped by tax credits. I remember one door I knocked on in Shirley about a year or so before the general election. I met a young couple who told me that they both worked full time, brought up two children and earned something like about £20,000 a year between them. They had to drive around in a 15-year-old car. Their lives were difficult financially and tax credits really helped them to get over a hump in the road. It would therefore be wrong to lose tax credits overnight without proper recompense through the tax system and other means of helping individuals. Incidentally, the couple also commented on how the state provided for people local to them who did not work, but had a much higher standard of living—a strong argument for a sensible cap on benefits, with which it seems that the shadow Chancellor now agrees.
We should not pretend, however, that tax credits are perfect. When they were launched, there was a massive problem with over and underpayments—2 million instances in the first year alone—and this has not stopped. Okay, they are better managed by Her Majesty’s Revenue and Customs, but there is still a great deal of confusion in the tax credits system. If we were designing a system now to help people into work and to support families, would we really design tax credits with the inbuilt pitfall of overpayments that must then be clawed back, often to the great personal distress of the claimant?
There are also long-standing issues of fraud in the tax credits system. The online portal was closed in 2005 when tens of millions of pounds was defrauded, much of it by organised gangs from overseas. I remember reporting on the story in my capacity as BBC News personal finance correspondent and being told by officials that although it was unfortunate, the fraud was seen as a price worth paying to deliver the project. The phrase used was “spray and pay”.
In addition, there is an issue, touched on by hon. Members, about how tax credits effectively top up low pay in the economy. They are effectively a subsidy for big business. I note that the hon. Member for Birmingham, Ladywood (Shabana Mahmood) disputed this fact, but that august publication, The Guardian, carried a story on 20 April saying that £11 billion was being used to top up low pay through the tax credits system.
There is also a strong cultural issue. Does it not damage society and individual entrepreneurialism to have so many people effectively in receipt of welfare and beholden to the state, as my hon. Friend the Member for South Suffolk (James Cartlidge) asked earlier? As we have seen in Greece and elsewhere, over-reliance on the state damages society and leaves individuals incredibly vulnerable to global financial shocks, as well as domestic economic shocks. He made an interesting point about whether many loans that are now active are predicated on tax credits. Surely that needs to be investigated further by the Financial Conduct Authority.
Also, it is possible that some governing parties have used tax credits as a means by which—heaven forbid—to curry favour with the electorate. We should not forget that the biggest rises in tax credits came just before the 2005 and 2010 general elections. Is it not significant as well that tax credit spend rose by 340% between 1997 and 2010, whereas average salaries rose by only 30%? Tax credits have increased by 10 times the level of average salaries, drawing more and more people into dependence on the state. There is also the wrongheaded situation of people on salaries far in excess of the national average being dragged into tax credits. In particular, single people often do not get any help whatsoever, yet the pattern in this country is of more single households being formed.
No Government Member has so far suggested that tax credits should be done away with overnight. They should, however, be replaced slowly over time by a different, cleaner system less open to fraud and miscalculation. For me, increasing the personal allowance, from £10,000 to £12,500 and potentially beyond, is key. We should cut out the middle man. There is no need to claw cash back. It is also essential to raise the 40p personal allowance. There are many people paying tax at 40p in the pound who should not be; the system should not have been so designed that they have to pay it.
We are doubling the amount of free childcare from 15 hours to 30 hours—a key means by which to enable people to get back into the workforce—while fuel duty is now 18p cheaper than it would have been under Labour’s plans, which has made a massive difference to family finances. In addition, ending the green levies on energy, including home energy supplies, should press down on home energy costs. In Solihull, we have just managed to freeze council tax for the fifth year on the trot—another means of delivering tax cuts, in effect, when compared to inflation, for working people. This has happened while unemployment in my constituency has fallen by 67% since 2010.
Peter Dowd (Bootle) (Lab)
Does the hon. Gentleman agree that the Chancellor was very specific about how he intends to cut tax credits for poorer working families, but very woolly about how, as part of the so-called long-term economic plan, he would encourage employers to pay decent wages?
Mr Deputy Speaker (Mr Lindsay Hoyle)
Before the hon. Gentleman continues, he has spoken for quite a while now, so I am sure that he is right at the end of his speech and wants to let others in.
Julian Knight
Thank you, Mr Deputy Speaker.
My answer to the hon. Member for Bootle (Peter Dowd) is that we will find out a lot more about the future direction of tax credits and other welfare measures from the Chancellor’s Budget statement tomorrow, so we should wait on that announcement.
I am running out of time, so let me say that I completely understand why tax credits were invented. They have done a lot of good in our society. There have, however, been unintended consequences. Worst of all, they are making millions of healthy, working-age adults reliant on cash from the state. We must preserve elements of the system for those trying to get into work, but we should augment it by active programmes of raising personal allowances and enhancing childcare provision.
Naz Shah (Bradford West) (Lab)
Thank you, Mr Deputy Speaker, for allowing me to speak and share my thoughts today. Maiden speeches in this Chamber are quite different and unnerving, but I will grasp this opportunity to introduce myself and my constituency to you, and to my colleagues.
Being a Member of this House is an honour and privilege that we all share, but to earn the trust of people we grew up with against a backdrop of one of the most vile and personalised election campaigns ever seen in Great Britain makes my smile just that extra bit broader as I stand here today. It is a further honour to be the first woman ever to represent the Bradford West constituency.
It is customary to say a few pleasant words about my predecessor—[Laughter.] I have many words, but sadly only a few pleasant ones. My predecessor was, I am told, a great orator. The sad truth is that the only words he ever directed towards me were misogynistic, vitriolic, very dangerous and, to quote him,
“only ever had a fleeting relationship with the truth”.
However, it would be most unwise of me not to compliment him on his sensational acting abilities, not forgetting, as demonstrated in “Big Brother”, his taste for red leotards and black hats. I would like to take this opportunity to thank him for his actions, which united the people of Bradford West. Their patience—and, indeed, mine—certainly paid off when we handed him his P45 on 8 May. The Spandex Cat has truly left the building.
Despite continued attempts to undermine democracy, here I stand. For me, this speech is far from just my maiden speech; it signifies for me the unity of the people of Bradford West. Their voices, which for too long have not been heard, now demand not just to be heard, but to be listened to. My presence here is a testament to many people—my family, friends and local volunteers who were immensely supportive, and a close group of people who supported me throughout my campaign. These include my hon. Friend the Member for Birmingham, Perry Barr (Mr Mahmood), Ben Gallagher, Jo Miller, the noble Baron, Lord Roy Kennedy, the noble Baroness Glenys Thornton and the many shadow Cabinet Ministers who came to visit and support me.
It is also fitting to pay tribute to my Conservative opponent, George Grant, and the noble Baroness Warsi for issuing statements of support during this vicious campaign, and indeed to the Southall Black Sisters and the Muslim Women’s Network UK, who also issued public statements of condemnation. I would be doing an injustice to the victims of forced marriage and the agenda of violence against women if I did not mention that questioning whether a marriage is forced if a parent is present, and asking why victims do not seek support, flies in the face of years of campaigning and hard work, undermining the work of our very own forced marriage unit. A forced marriage, with or without parents and families present and regardless of age, is a forced marriage. “Being irresponsible with his rhetoric” is an understatement.
If I had the opportunity, I would talk at great length about the fantastic history and heritage of my constituency and the wonderful contributions made by my other predecessors, most notably the late Marsha Singh, who is remembered fondly both here and at home. The constituency is a rich tapestry of multicultural heritage. It is the birthplace of not just the Bronte sisters but the Labour party itself, which I now proudly represent. It is a welcoming city and it is the curry capital of the country, firmly situated in the north—the north that the Government continue to fail.
I chose to make my maiden speech in a debate about child tax credit because the issue will have an impact on real families in my constituency. Child poverty is not just an abstract notion in respect of which statistics over-represent the true figures; it is a reality. Some schools in Bradford serve lunch at 11 am because they know that it may be the first meal of the day for many children.
As others have pointed out today, many of those who face the worst cuts are people in work. In an ideal world, work would pay fair wages that allowed people enough money on which to live and support their families, but in many parts of the country that is simply not the case. I represent a place that is about to become the youngest city in Europe, where young people are driven to succeed, but lack the opportunities that would enable them to do so. It is a place where the average full-time weekly wage is almost the lowest in the country, and it is a place that the last Government failed to support. Its council faces swingeing cuts in services that are vital to people in my constituency. It has a university whose fees have increased, and a college whose higher education funding is under attack. Not one but three hospitals provide varied and vital care in an NHS that is struggling.
That brings me to the issue of benefits. For me, the question should never be “Do we help people who are struggling, or blame them?” Do we blame those people for an economy that does not work for them, or for an education system that is failing our children? Do we punish them by taking away the small amount of money that we deem to be everyone’s entitlement? That is our safety net—and I say “our” because we should own it. We should be proud that, since the introduction of a welfare state, this country has striven to stop our citizens from going hungry and our children from living in poverty. During my election campaign I visited the Bradford metropolitan food bank, whose output increased from a few hundred bags a year to thousands.
There are challenging times ahead. I have never shied away from a challenge, and nowhere will this challenge be felt more than in constituencies such as Bradford West.
Kevin Hollinrake (Thirsk and Malton) (Con)
I congratulate the hon. Member for Bradford West (Naz Shah) on an excellent maiden speech, on an excellent election victory, and on the many excellent curry establishments in her constituency, which I have visited on a number of occasions.
Let me start by drawing the House’s attention to my entry in the Register of Members’ Financial Interests. I have been an employer for more than two decades.
This is a debate about dependency: the dependency of the worker. I cannot believe that any workers make their career choices thinking that they will bring up a family and will have to rely on state aid in order to do so; nor am I aware of any business people who embark on their business plan thinking that the state will subsidise their businesses. That, however, is exactly the situation in which we find ourselves. Subsidies are anathema to business people. They suppress innovation and deter investment. Someone earning £10,000 a year who has three children can receive as much as £12,000 in in-work benefits. That is not a sustainable position. The total benefit bill for working tax credit and child tax credit is £30 billion. We frequently talk about productivity in this House. To engender real productivity in our economy we need business people to invest, and not just in the cheapest labour.
The system is very complex. Adam Smith said that the first rule of the tax system is that it must be simple. This revolving door of people paying tax then collecting it back through tax benefits cannot be right. All of us in this House are charged with the responsibility of cutting the cost of government and the cost of this system of tax credit, which must cost hundreds of millions of pounds every year.
The tax credit changes under the last Government were, according to the House of Commons Library, focused on supporting those on the lowest incomes. The 2012 Resolution Foundation report said that tax credits have a negative impact on work incentives and in turn on productivity. That cannot be right. We need people to climb the ladder of success, not stand in the queue.
We need simplicity in order to deliver incentives to work. Universal credit has been introduced to do that. It also makes sure there is transitional protection so that nobody is worse off. I believe that we need to change the tax credit system to make work pay.
Work is paying for more people, however. There are 600,000 more people in work than there were in 2010, and 40,000 households who had never worked are now working. Can there be a finer example to the children in those households than to see somebody getting up and going to work? These are all parts of the change to the system that we need to make.
We need to make work pay by getting the employer to make work pay. The minimum wage is too low and we should move over time towards a living wage. We have a strong economy, and in a strong economy everybody deserves a decent standard of living.
We should reform the tax credit system, and ideally lose the tax credit system if everybody in work is earning a decent amount of money. We need to make these changes progressively and over time.
Tommy Sheppard (Edinburgh East) (SNP)
Does the hon. Gentleman therefore agree that wages should rise and tax credits fall accordingly as they rise, rather than take money away from families already living on the breadline and impoverish them still further?
Kevin Hollinrake
Under the universal credit system there is transitional protection so no one is worse off, and I absolutely believe in that. If we increase the minimum wage by 5% a year, over 10 years it would reach the then current level of the living wage. This needs to be done sensitively—sensitively for business, as we do not want it to cost jobs. It therefore needs to be done progressively. I absolutely believe we need to reform the system, and that should be reflected in what employers pay, so that there is something in it for them.
What we need is higher wages, lower tax credits and lower tax for the employer.
Kate Hollern (Blackburn) (Lab)
Let me begin, Mr Deputy Speaker, by thanking you and the House for the honour you do me by listening to my maiden speech today.
As MP for Blackburn, I follow in the footsteps of illustrious predecessors. After the war, a formidable woman, Barbara Castle, represented my constituency until 1979. When Barbara Castle made her maiden speech 70 years ago, she made a promise that in her career in this House she would be the “pineapple of politeness”, an aspiration I will seek to emulate—but with no guarantees.
Barbara was known as a fighter. She fought for fairness and equality, and she was unquestionably the most successful female politician of her generation. Barbara was somebody with immense personal and political courage. She was able to inspire others and is still remembered very fondly in Blackburn today. She campaigned tirelessly to secure pensions and benefits, particularly child benefits. She would rightly be appalled and angry at this Government’s welfare reforms. She would be outraged at the glib statements Ministers make when speaking about poverty and deprivation.
My immediate predecessor, Jack Straw, will be familiar to this House, where his parliamentary career included holding, with distinction, a number of high offices, including Home Secretary, Foreign Secretary, Lord Chancellor and Leader of the House. But in Blackburn we remember a very different Jack; we remember an extremely hard-working Member of Parliament who served our town for over 36 years. Whether it was when on his soapbox—again, I cannot guarantee to copy that; stiletto heels will go through the box—or in his walk-in surgeries, he always made time for his constituents.
I am therefore really pleased that, despite standing down as MP, Jack’s connections with Blackburn are due to continue. He is to become chair of the fantastic Youth Zone, an initiative that was led by local business. It is a great example of collaboration between the private, voluntary and public sectors. It gives young people tremendous facilities to develop as individuals and engage in positive activities right next to the new Cathedral Quarter. Jack will also continue to be a governor at Blackburn’s University Centre, another facility that is testament to his energy and commitment to bring the best to Blackburn. I am under no illusion that Jack will be a hard act to follow.
To represent Blackburn, you need to know, understand and love the town. I moved there in 1977 from the west coast of Scotland, working in a shoe factory, where, I am proud to say, I worked full-time and received family tax credits. I am also proud to say that my two daughters have always worked and, fortunately, have never been in a position where they have had to claim tax credits. In Blackburn, I learned from the best; the people were warm, welcoming and hard-working, and their passion for the place is infectious. We have a rich and diverse community who are only too pleased to play their part in improving the town, as was vividly demonstrated when thousands of volunteers came out to spring-clean the town to honour Her Majesty the Queen’s visit on Maundy Thursday last year.
We have a number of initiatives that bring people together: the Your Call campaign, where residents take responsibility for their own area; the 100 Voices initiative, which brings together people from right across the town to discuss issues; and Just Good Friends, which gets older people out to reminisce, have a dance and help tackle social isolation. The diverse communities of Blackburn are strong, and I am immensely proud they have chosen me to represent them in this place. In Blackburn, there is a strong partnership between residents, the council and local businesses. For example, the local college and the council have just, in partnership, built a new state-of-the-art leisure centre. The private sector has committed to having apprentices from more disadvantaged groups and to fund the youth facilities.
I served as a councillor for 20 years, many of which as leader of the council, and I have seen Blackburn go through good and bad times. In every case, the people of Blackburn pulled together. To know Blackburn and to understand where it is going, we have to understand its history. Blackburn was one of the key mill towns that were the driving force behind the industrial revolution. By the end of the 1840s, there were 75 cotton mills. By 1860, that number had more than doubled.
One hundred years earlier, the cotton industry was revolutionised by the invention of the spinning jenny. James Hargreaves patented his invention—[Interruption.] Blackburn led the northern powerhouse more than 100 years ago, and I am sure that it will continue to do so.
Mr Deputy Speaker
As much as I would love to let you carry on—you are my neighbour—I dare not. Chris Philp.
Chris Philp (Croydon South) (Con)
I warmly congratulate the hon. Member for Blackburn (Kate Hollern) on an excellent maiden speech. It is clear that she is deeply rooted in her community, and I have no doubt whatsoever that, when people talk about Members of Parliament for Blackburn, her name will trip off the tongue very naturally behind those of Barbara Castle and Jack Straw, and that she will be a distinguished successor to them.
This debate has been based on a great deal on speculation about what may be in tomorrow’s Budget. Before turning to the specific topic of tax credits, perhaps I should focus briefly on some facts. I am talking about the performance of the coalition Government over the past five years. If we examine the facts, rather than the speculation, we will see very clearly that the Conservatives in the coalition Government did a good job in standing up for working people and ensuring that work paid.
Let us spend a moment rehearsing those facts. During the previous Parliament, 2 million more jobs were created, of which 75% were full time. More jobs were created in this country than in all of the countries in the European Union put together. Indeed, more jobs were created in the county of Yorkshire, in which the constituency of my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) is located, than in all of France put together. That is a record of which to be proud.
In my own constituency, in the borough of Croydon, the number of jobseeker’s allowance claimants halved over the previous Parliament.
Anna Turley (Redcar) (Lab/Co-op)
Can the hon. Gentleman tell me the number of food banks in Yorkshire that have emerged over the past five years? Perhaps that would also give us a helpful factual correction.
Chris Philp
Unfortunately, I do not have that figure at my fingertips. What I do know is that, thanks to the tax cut for people on low incomes, £800 a year was put directly into their pockets. One Opposition Member made the point that many people on tax credits do not pay income tax. Well, that is precisely because the coalition Government raised the income tax threshold so high.
We have also heard a great deal about the cost of living, to which the hon. Member for Redcar (Anna Turley) alluded a moment ago. The fact is that wages in this country are now growing at around 3% a year, at a time when inflation is at zero. Yes, it did take time to get there, but that was because it took some time to fix the mess that had been left behind for us. The cost of living problem to which the hon. Lady referred is being alleviated with every month that passes, and that trend will continue.
I also welcome the planned increase in the minimum wage from £6.50 an hour to £6.70. That is the first real-term increase since 2008, and it will help. When we pause and consider the facts rather than the speculation, we will see that the record of the coalition Government was extremely strong in helping people on low incomes. Speaking of poverty, there are now 800,000 fewer people and 300,000 fewer children in relative poverty than there were five years ago, and that is fantastic progress. Those are the facts, so let us now consider the topic before us—[Interruption.] They are the facts.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. The hon. Lady has just come into the Chamber and we know that Members cannot just come into the Chamber and intervene. It is better for all of us if they do not, and we certainly want to get to the next maiden speech, which will be from an SNP Member.
Chris Philp
I look forward to hearing the point after the debate, perhaps.
Let me turn now to the topic before us. When Gordon Brown introduced these measures in the early 2000s, he told us that tax credits would cost perhaps a couple of billion pounds a year. The truth is that today they cost £30 billion a year, an astronomic burden on the Exchequer.
Let us think for a moment about what tax credits mean. They are a subsidy paid to top up wages because employers are not paying their staff properly. I deplore the fact that some employers are not paying their staff properly and are effectively abusing the generosity of the Government by underpaying their staff. Any reforms in tomorrow’s Budget that end that abuse will be extremely welcome.
Tax credits provide disincentives to work, as some of my colleagues have pointed out already. They are withdrawn at the same time as income tax and national insurance kick in. Effectively we have marginal tax rates at around the 75% to 80% mark, so it is no surprise that employees in the companies run by my hon. Friend the Member for South Suffolk (James Cartlidge) were reluctant to take pay rises when marginal tax rates were so high. One Member mentioned the 16-hour-a-week limit, now raised to 24 hours a week. I know people who have employed part-time staff who refused, understandably given the system, to work extra hours for fear of losing those extra tax credits. That is all wrong. The fundamental fact is that people are helped out of poverty not through Government handouts but through hard work and earning more money.
Ian Blackford
The hon. Gentleman was asked about food banks in Yorkshire and we have heard a lot about facts, so perhaps I can give him a fact. Between the end of 2012 and September 2014, nearly 150,000 sanctions were applied in Scotland, affecting 85,000 individuals. That is what is driving people towards food banks. Does he think that that is right?
Chris Philp
It is right that wages are now rising, that people on low incomes have been helped with tax cuts and that the Government are directing assistance to people on low incomes. That is what is right. Over time, as the cost of living issues that have been mentioned are eroded by rising wages combined with zero inflation, the problem that the hon. Gentleman has referred to will without a doubt be alleviated.
There are other issues with tax credits. Employers who abuse tax credits by underpaying their staff have no incentive to invest in education, training and technology and, unfortunately, that contributes to our productivity problems. I believe that tax credits, introduced by the previous Labour Government, are a symptom of failure. They encourage companies to underpay their staff and place the burden of that underpayment on the general taxpayer. Any move in tomorrow’s Budget to reduce the burden of tax credits on the Exchequer while improving the earnings power of people on low pay will be very welcome. I join many colleagues on the Government and Opposition Benches in supporting moves towards a higher minimum wage. I have publicly called for that in London and I think that it would be a good move for the country as a whole.
We have heard about another cost of living issue: housing. There will be a housing Bill in the autumn that will promote house building and therefore affordability, but I point out to Opposition Members that the number of housing starts last year was about 50% higher than the number of starts in 2009-10. The Government have already made fantastic progress.
The foundations of prosperity and the way out of poverty lie in work, not benefits, and I endorse the Government’s approach.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. To try to help everybody, I will drop the time limit to five minutes. Every time someone intervenes, we allow the speaker an extra minute, which is killing us for time.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
Thank you, Mr Deputy Speaker. In the light of that, I shall not take any interventions.
I congratulate all the Members who made their maiden speeches this afternoon. They have been fantastic and it is a privilege to follow them.
As lovely a place as Oldham is—the place where I live and which I represent—it has a very low-wage economy. One in three of the people who work in Oldham earn less than the living wage. That is significantly above the north-west average and the UK average. Associated with that there are high rates of deprivation and child poverty— 27% overall, and in some wards it is nearer one in two. We have talked about food bank use: we used not to have a food bank in Oldham, but we have one now. I undertook a fairness commission report to look at the core issues underpinning that and to set out how we could address them. It was not unique; other boroughs and cities have done a similar analysis. One of the key truths, unfortunately, is that the UK is one of the most unequal countries in the world. In its recent report, the International Monetary Fund, which the Minister did not seem to know anything about, says:
“Widening income inequality is the defining challenge of our time”.
Forty years ago, 5% of income in the UK went to the highest 1% of earners. Today it is 15%. We should spare a thought for our cousins across the water, where the figure is even higher.
This is the IMF’s second report. In the light of the work of Joseph Stiglitz and others, it found that inequalities are a drag on growth and can make growth volatile. This supports work by the OECD, which rejected the trickle-down economics so popular with Thatcherites. That idea supposed that increasing wealth at the top would trickle down to the rest of the food chain, and that policies aimed at reducing inequality would remove incentives and slow growth. Now the evidence is clear: inequalities have slowed growth, not increased it. According to this analysis, raising the income share of the poorest 20% of the population increases growth by as much as 0.38% over five years. By contrast, increasing the income share of the richest 20% by 1% decreases it.
We have a weak, stagnant economy, and the measures proposed will only make it worse. As colleagues have mentioned, over the past five years Institute for Fiscal Studies analysis has shown that the bottom 20%—the people on the lowest income—have been disproportionately affected by both tax and benefit changes. This is compounded by the cuts to public services, skewing resources away from areas of high need, and by the impact of the disastrous housing policy on housing costs. The Government justify this by saying—we can hear the mood music—“We are far too generous with benefits.” A comparative analysis of benefits spending as a proportion of GDP shows that we are 17th among EU countries. We spent 15% of our GDP on social security. That does not support the claim that we are incredibly generous.
One of the other myths that the Government are spreading is that everyone will be fine if they are in work. Again, the evidence does not support that. We have one of the highest under-employment rates in the EU, and about 80% of the increase in employment comes from self-employment. The average income drawn by people who are self-employed is less than £10,000 a year. In Oldham 20,000 working families with nearly 30,000 children are claiming tax credits. That is two in three families and three in four children. For them, tax credits mean the difference between just about keeping their heads above water or not. The Oldham fairness commission that I run has produced strong evidence of the impact of parental income on cognitive development, behaviour and health outcomes, which will have a negative effect on those children’s life chances—
Huw Merriman (Bexhill and Battle) (Con)
I, too, will take no interventions, following that example. I thank those Members who came in earlier, intervened and then walked straight out again, eating into the time available for my speech in the process.
In opposing the motion, I wish to explore three areas mentioned in—or, in fact, omitted from—the proposal. The first relates to in-work tax credits, what they were designed to achieve and what has happened in practice. “In-work tax credits need substantial reform to end the practice of employers paying low wages which are topped up by the state.” I was heartened to read that they were the words of Alistair Darling, who introduced tax credits in the early 2000s. I am a firm believer that it is always wise to listen to those who pioneered a measure, as they are best placed to review whether it is meeting the objective it set out to achieve.
I submit that tax credits were not introduced to encourage large and profitable employers to keep wages low and to keep employees on the lowest rung of the ladder or risk losing a taxpayer-funded subsidy. Tax credits were introduced to incentivise employment, but with the view that as the employee showed his or her worth, their pay and prospects would increase and they would move beyond the tax credit threshold. However, I contend that tax credits have instead acted as a drag on real-time pay increases, because to increase pay would mean that the employee no longer received a top-up from the state. As such, they tend to keep employees in part-time work or on lower pay. With hindsight, it might have been better to put a time limit on the payment of tax credits, in the way this Government have done for the two-year national insurance holiday.
The second area relates to whether there is a better model for Government intervention in working pay. The motion talks about a belief
“that people should be given support and incentives to find employment and stay in employment”.
Indeed, with over 2 million new jobs having been created since the Government came to power in 2010, there is compelling evidence that the Government have supported people to find work. The motion should talk about the need to incentivise employers and employees to move up through the pay scales, which will boost spending in the economy overall and lead to increased productivity. The Government have provided incentives by reducing the tax rates for 26 million workers. However, while the Government, and therefore the country, find the money to give employees more of their own money through lower taxes, we continue to pay employers for employing staff. It is not as if the Government have increased the tax burden on companies to compensate for the cost of tax credits, because corporation tax has been reduced from 28% in 2010 to 20% in 2015.
Assessing whether it is possible to phase out tax credits, with an expectation that employers will cover the pay differential to staff, will free up more money for essential public services, such as health and education, where funding would be better utilised by us as a whole. Under the alternative—stepping out of private pay provisions that should be set by employer and employee, and funded by the employer only—there is a case for the Government sharing the cost of this reduction with employers and employees, with some of the savings being recycled as further corporation tax and income tax reductions.
The third point is more of an omission. It relates to high earners. The motion
“urges the Chancellor to guarantee that any assistance in the July 2015 Budget is focused solely on people on middle and low incomes.”
I fear that is another attempt to try to segregate those on higher incomes from the policies affecting this country. It should be remembered that the top 3,000 earners pay more tax to the Exchequer than the lowest 9 million—a third of all workers. Many in this House would say that is eminently sensible and just. However, it is crucial for any Government to assess whether the tax rates applicable to higher earners make economic sense for the rest of us, and not merely to play politics by demonising those who do so much to keep our public services funded through their own risk-taking and endeavour. In the last financial year, the wealthiest were funding a greater share of Government spending than at any time in history, notwithstanding the reduction of income tax from 50p to 45p. The wealthy are now largely weaned off the state.
In conclusion, the Government have created a remarkable economic climate, with 2 million new jobs and a 40% reduction in out-of-work benefits. The challenge, as we hopefully move to a period of growth and rising pay and incomes, is to set the jobs market free, lift people above the tax credit threshold, and, in so doing, ask employers to contribute the full share of pay.
Corri Wilson (Ayr, Carrick and Cumnock) (SNP)
Thank you, Mr Deputy Speaker, for giving me this opportunity to make my maiden speech today. Like others before me, I would like to thank the House staff for being incredibly helpful, with a huge thank you to Estelle, who was assigned the onerous task of stopping me getting lost in all the nooks and crannies. She has been an enormous help to me over the past few weeks.
I would not be here today were it not for the incredible support from family and friends and activists back home. It was a very much a team effort. As I often said, “This isn’t about me; it’s about us.” I pay tribute to my predecessor, Sandra Osborne, who served the constituency for 18 years. While we had some political differences, there was much we could agree on. I know that Sandra was dedicated to representing the constituency during her time in office. I thank Sandra for her work and commitment over the years and wish her well for the future.
My journey began as a civil servant. During this time, I saw at first hand how people struggled to interact with the benefits system and how successive Governments, of whatever hue, failed to work for the benefit of those less well off. What I have heard in the Chamber today leads me to believe that little has changed for these people—our constituents—in the years since I ceased to be a civil servant. It was my experiences in the civil service that led me into the third sector and to give something back to my community, with voluntary roles in education, health, youth work and criminal justice, to name but a few.
Thyroid cancer in 2010 forced me to re-evaluate my life. It reaffirmed my priorities and I realised that some of the small stuff just was not important. I took charge of my own destiny and started my own business. At the same time, no longer being constrained by working in the civil service I became more politically involved and was asked to stand in a local election, where I was successfully elected as a councillor to the Ayr East ward. This allowed me to address some of the barriers and red tape that people had constantly come up against.
I think the community representative is stronger in me than the politician. I am not here for glory or to be a media star in this pantomime that is called Government. In no other environment is the behaviour acted out here regarded as acceptable. I am here to represent the people in my constituency, who live lives far removed from this Westminster bubble. I see my role here as to work tirelessly for the people who voted for me, and for those who did not. I want the constituency to thrive and the people who live there to have the opportunity to reach their full potential. It is about having a future you choose rather one that is dictated by circumstances and damaging Government policies.
My constituency is famous for its rugged coast, challenging hills and walks, its history, and a thriving food and drinks industry, which includes a whisky distillery, a microbrewery, a chocolate factory, and of course the famous Ayrshire tatties. From bordering Dumfries and Galloway in the south, it goes past the fishing town of Girvan, towards the reinvigorated Turnberry golf resort, and up to the ancient place of Maybole, which received a charter from the Earl of Carrick in 1193. Across the water is the tiny island of Ailsa Craig where blue hone granite was quarried to make curling stones. Moving inland towards the east, we have the Doon valley, where there are many sites of scientific interest, including the Dark Sky park. Close by are New Cumnock and Cumnock, where Keir Hardie, the father of the Labour party, spent a large part of his life. He started up the Ayrshire Mining Union and was a journalist on the local paper. He spoke at Cumnock town hall, along with Emmeline Pankhurst. It was clear that she was in the area for a reason, because it is noted that in 1914 two suffragettes tried to bomb Burns Cottage and set fire to Ayr racecourse, causing thousand of pounds-worth of damage.
Fast forward to the present, and there are many beautiful, historic, picturesque villages such as Barr, Dailly, Kirkmichael, Straiton, Dalrymple, Drongan and Coylton, to name but a few. Many of these old mining villages have been left marred by abandoned open-cast mines, and many in the constituency are waiting with bated breath to see if tomorrow’s Budget is going to address this. The biggest town in the constituency is Ayr—a university town that hosts campuses for the University of the West of Scotland, Scotland’s Rural College, and Ayrshire College. It is also home to Ayr United.
In 1315, this historic burgh saw King Robert the Bruce convene a parliament in St John’s Tower, which is still there today, to decide the succession to the throne. It is an historic past. Our gory past also includes a ghostly piper at Culzean castle and the burning of Maggie Osborne, the last witch. Our famous baird is Robert Burns, who is celebrated the world over and who said that Ayr had
“honest men and bonnie lasses.”
And who am I to disagree?
It has been 35 years since I first started working with people in need. Let us not make it another 35 years before this House actually does something constructive for our poorest and most vulnerable.
Mr Roger Godsiff (Birmingham, Hall Green) (Lab)
First, may I congratulate the hon. Member for Ayr, Carrick and Cumnock (Corri Wilson) on her excellent maiden speech, which I am sure will be the first of many?
A lot of my constituents are low-paid workers. Many are paid the minimum wage and some receive even less. They work very long hours and some have two or three jobs to bring in enough money to feed their families and pay the bills. Even then, some of them cannot afford to put food on the table seven days a week and have to endure the humiliation of going to food banks with their families.
These low-paid workers are not shirkers or skivers, lazy or feckless; nor, as a matter of interest, are they the people who caused the financial and banking crisis in 2008. If the curtains on their houses are drawn at 7 or 8 in the morning, it is not because they are skiving or being lazy, but because they only got home from work after midnight. These are the people in my constituency who rely on working tax credits to top up their poverty pay, and it is they who suffer if tax credit support is reduced or abolished.
I agree with the Prime Minister that employers should pay the living wage, but many of them do not and will not unless they are forced to do so. If the Government are serious and want to save money on tax credits, they must turn the statutory minimum wage into a statutory living wage. Indeed, the Prime Minister should understand that argument, because Steve Hilton, who was his adviser until recently, has advocated exactly that. I hope very much indeed that that is what the Government will do. I suspect that they will offer incentives to employers to pay the living wage, but by doing so they would just be subsidising employers—they would not save money.
In a different world we would have unions that were strong enough to bid up their members’ wages, but they are not strong enough. Conservative Members smile and laugh whenever unions are mentioned. Unions have a traditional role of negotiating better terms and conditions for their members. The Conservative party hates trade unions. Indeed, it has made it absolutely plain that it will bring in even more draconian restrictions on them, so trade unions will not be able to do their traditional job of bidding up wages. Therefore, it is down to the Government—if they are serious—to turn the minimum wage into a living wage. Is that what Treasury Ministers intend to do?
Mr Godsiff
No, I will not take interventions.
The Government could set an example by insisting that the contractors they use pay the living wage, not the minimum wage. That would be positive. Treasury Ministers could set an even better example. When Her Majesty’s Revenue and Customs, which is the Treasury’s responsibility, put out its cleaning contract to ISS and was offered a contract price based on either the minimum wage or the living wage, why did it choose the minimum wage? It could have set an example by choosing the living wage, but it chose the lowest common denominator. Low pay is a national scandal. It is not the fault of hard-working, low-paid families in my constituency or anywhere else in the country. It is the Government’s responsibility to address this issue.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. I want to call everybody. If Members aim for three minutes, everybody will get the same amount of time.
Kate Osamor (Edmonton) (Lab/Co-op)
I congratulate everyone who has made their maiden speeches today. They have been wonderful to witness and to listen to.
This issue is of particular concern to me. Any cut to tax credits by this Government will hit my constituents in Edmonton especially hard. In my constituency, 18,000 children are in families that receive tax credits. Overall, 72% of families in the area receive tax credits, which is 21% higher than the national average. Those families and children will suffer if tax credits are cut.
The Institute for Fiscal Studies has estimated that cutting £5 billion from tax credits means that working families will lose an average of £1,400 a year. That is not political scaremongering, but the finding of an independent and highly respected organisation. In my constituency surgeries, I already meet many people who are in work but are struggling to get by. The people of Edmonton simply cannot afford this further reduction in their income.
The charity End Child Poverty estimates that 42% of children in Edmonton already live in relative poverty, after housing costs are taken into account. We found out only last week that progress in reducing child poverty has stalled since the right hon. Member for Witney (Mr Cameron) came to power. All the evidence suggests that cutting tax credits will push thousands more families below the poverty line, robbing children in my constituency of the opportunities they all deserve.
It should be plain to everybody in the Chamber that cutting tax credits for working families is immoral, but we must also realise that this is a bad approach to bringing down the welfare bill. The main driver of welfare spending during the last Parliament was low pay and the shortage of affordable social housing. Both those problems have got much worse since 2010. The coalition Government’s attack on working families has meant that the number of people paid less than the living wage has gone up 45% since 2009. That is a particular issue in London, where the minimum wage is already £2.65 an hour lower than the living wage.
If the Government were serious about bringing down the welfare bill, they would take urgent action to move us towards a high-wage economy in which people can afford to live on the wages that are paid. It is clear that cutting tax credits will not help to achieve that. Instead of making further attacks on the low paid, the Government should work to make the minimum wage a genuine living wage, and take much stronger action against companies that flout minimum wage laws. However, this Government have no plans to deal with these issues, but seem determined to push ahead with tax credit cuts that will leave more working families in Edmonton and across the UK in poverty.
Harry Harpham (Sheffield, Brightside and Hillsborough) (Lab)
Thousands of families in my constituency will go to bed tonight with a sense of foreboding. They are waiting for an axe to fall that will take a chunk out of their weekly budget, but they do not know where or when it will fall. I do not expect the Government to spell that out chapter and verse before the emergency Budget tomorrow, but my constituents and people across the country deserve better than the Prime Minister’s and the Chancellor’s media-teasing statements about merry-go-rounds.
Tomorrow, the Chancellor will announce a series of deep cuts to working-age benefits. We know that tax credits will, in one way or another, be reduced significantly. For many of my constituents who are in low-income work, it is tax credits that enable them to go to work in the first place. They cover childcare and transport costs, which low wages alone do not meet. They provide the security that this Government’s low-pay, low-productivity recovery has not. The irony is that without tax credits, many people would not be able to afford to work.
This is the heart of the matter: over 60% of the families with children who receive tax credits in my constituency contain someone in work. It is tax credits that make that work pay. A cut to tax credits will put at serious risk the ability of many of my constituents to support themselves. One of my constituents wrote to me just last week with her fears about the cuts. Her family’s situation sums up the vital role that tax credits play:
“My son and his wife are barely surviving with the Tax Credits that they do get. If the Tax Credits get cut, they will end up living in my attic again.”
The Government should be ashamed of creating such a situation.
Tomorrow, the Chancellor will no doubt try to justify his cuts by telling us that tax credits are letting employers off the hook, making it easier for them to pay poor wages and leaving taxpayers to make up the shortfall. I say that he is looking at things the wrong way round. Instead of cutting family incomes and hoping that employers will suddenly step in, he should be asking why those employers are underpaying their staff in the first place.
We need a substantially higher minimum wage, and I hope that tomorrow we will see positive action from the Chancellor to get more employers paying the living wage. If he wants to reduce the amount the Treasury spends on tax credits, he should not cut them, which only punishes those on low incomes, but set out a Budget that boosts low incomes, thereby taking people out of a reliance on tax credits and other in-work benefits.
Given the recent speculation in the media about the possible reduction of child tax credits back to their real-terms 2003-04 level, it is worth looking briefly at the impact that such a change would have. It would affect 3.7 million low-income families, costing them £1,400 per year on average. More than two thirds of those who would be hit would be in work, and almost two thirds would come from the poorest 30% of households. Most shockingly, the Institute for Fiscal Studies has estimated that if the cut were introduced, 300,000 children would be pushed into living in poverty.
Matthew Pennycook (Greenwich and Woolwich) (Lab)
I welcome this important debate, which I am sure, given the volume of correspondence that I and other hon. Members have received on the subject, is being watched closely by a great number of my constituents.
As other hon. Members have said, we do not know the precise details of what the Chancellor will unveil in his Budget tomorrow, but if the assault on tax credits is anything like what has been trailed in the press over recent days, many thousands of families in my constituency should be bracing themselves this evening for a big hit to their household budgets.
I will briefly examine the implications for my constituents of the potential proposal that has received the most attention over recent days: a reduction in the value of the child element of child tax credit back to its 2003-04 level in real terms. That entitlement is paid to approximately 9,300 families in my constituency and benefits 17,500 children. More than two thirds of those families are in work and the annual value of the child element for each is £2,780. Scaling it back to its 2003-04 level would constitute a reduction in support of 30%, costing those families a staggering £845 a child. A reduction in a family budget of that scale would be deeply damaging. By its very nature, the impact would be felt disproportionately by women, ethnic minorities and single-parent households like the one that I grew up in.
The Chancellor is likely to defend taking the axe to tax credits by pointing to the much-vaunted pledge to lift low-income households out of tax altogether or, in the Prime Minister’s words, to end the “merry-go-round” of people paying tax while receiving state support. They are both tilting at straw men. As my hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood) mentioned, more than half the families who claim tax credits already pay no tax at all. For those who do pay tax, the likely options of bringing forward a rise in the personal allowance threshold or a rise in the national insurance threshold, while easing the strain, will nowhere near compensate them for the likely scale of reductions in in-work support.
Few, if any, now believe that the growth in tax credit support that occurred over the past 17 years can be repeated, but let us be clear: tax credits are necessary and they will continue to be so, not just to incentivise employment and reduce child poverty, but to address the underlying flaws in a low-pay, low-skill, low-productivity economic model that requires significant amounts of in-work support. For all their flaws, tax credits have provided a lifeline for those on low and middle incomes, and they will still be necessary in some form, even if the UK becomes a living wage economy overnight.
Of course we must be open minded about the need to simplify what is a fiendishly complex system, and we should question rigorously the sustainability of the underlying economic model that has made tax credits necessary. While doing so, let us not delude ourselves that another, deeper, round of cuts to tax credits will do anything other than cause untold hardship for thousands of families in my constituency and across the country who rely on state support to make the most of their lives.
Anna Turley (Redcar) (Lab/Co-op)
There are 4,200 working families with children who are claiming tax credits in my constituency. That is 4,200 families with parents who are working hard, doing the right thing, trying to stay off welfare, proud to be in work with the dignity that that brings, and trying desperately hard to get through the month, keep afloat and provide for their families. They rely on tax credits to survive. Tax credits are not a luxury.
Tax credits were introduced by the Labour Government because we cared about in-work poverty. We cared about making work pay, particularly for single parents who were struggling in and out of a working life. That is why we introduced the historic minimum wage—despite fierce opposition from those on the Conservative Benches—and why we brought in Sure Start to give kids the best start in life. That is also why we introduced tax credits, which have been a lifeline for so many people and contributed to the huge fall in child poverty on our watch.
Tax credits are vital to help people get through the month. As my hon. Friend the Member for Greenwich and Woolwich (Matthew Pennycook) said, we have received a lot of correspondence in the past few days about this issue. Let me quote from one of my constituents who wrote to me this week about her fear of losing tax credits. She stated:
“I am literally terrified at the idea of losing my tax credits. I am a 29 year old single mother of an eight-month old baby. I have been in full-time employment since the age of 17 and even worked as a weekend pot washer when I was at school. Both my parents worked and I have been brought up with a good work ethic and to understand the value of money. I am currently on maternity leave but start back at work in a week. However, after 12 years of working full time I am going back part time for two years so I can also focus on the upbringing of my son…I am anything but a ‘scrounger’ and have never had to rely on the benefit system, but for the next couple of years tax credits will be essential to help me survive financially. I do not drive a fancy car, I don’t have Sky\cable TV, I live in a tiny terraced house and I NEVER go on holiday, so I live anything but a luxurious lifestyle that these idiots in power seem to think”—
forgive me, Mr Speaker, those are not my words, however much I may agree with the sentiment.
My constituent continues:
“I could quite easily go on income support and be a stay at home mum, but I choose to work to distil into my son from a young age that it is important to have a good work ethic (as my parents did with me). I am very good with money but have no idea how I will survive if my tax credits are cut. I have worked for 11 years, paid into the system and for the sake of a couple of years getting something back to help me just make ends meet, I don’t think this is me being a drain on society or a lazy scrounger the Tories seem to think anyone who claims a penny is. I lay awake at night worrying about all this, the Tories say ‘they are the party for working people’ but they make me sick. I have never heard such a bunch of”—
I will leave the rest of it there as it is probably not appropriate.
Obviously, my constituent does not agree with the hubris and self-congratulation that I have witnessed from those on the Government Benches who seem so delighted with their long-term economic plan, and I will say more about that in debates over the next few days. I would love to say that I am looking forward to the Budget tomorrow, but I am afraid that I will do so with fear and trepidation on behalf of many of my constituents.
Carolyn Harris (Swansea East) (Lab)
This debate is an important opportunity for Members to express concern and show their support for families on tax credits. Tax credits give families in constituencies right across the UK the choice between eating and heating their homes. Unfortunately, the Government’s vision of a society in which work pays is skewed by the reality that many working families are living on the breadline. Parents on low wages are dependent on tax credits to raise their income to a level where they can “get by”—not live the high life, but possibly stop having to use food banks.
In my constituency of Swansea East, 13,000 children benefit from tax credits. The independent Institute for Fiscal Studies has suggested that any cut to tax credits will push a further 300,000 children into poverty in the United Kingdom. Tax credits provide the vital top-up funds that make a difference for families and allow them a basic standard of living—a basic right, but not something that Conservative Members are comfortable talking about.
A shocking indictment of that catastrophic austerity plan is that the people who face the daily hurdles of feeding their kids and keeping them safe and warm are feeling threatened that their safety net is about to be pulled out from under them. The child poverty targets for 2020 will be missed, the number of households below average income shows that no real progress has been made for two years running in tackling child poverty, and charities tell us that child poverty is increasing alarmingly, yet Conservatives think their policies are working. Ahead of tomorrow’s Budget, I say one thing to the Chancellor: he should think before he speaks. He is putting children’s lives at risk. Bear that in mind.
Stephen Timms (East Ham) (Lab)
We have had a good debate. I begin by congratulating my hon. Friends the Members for Bradford West (Naz Shah) and for Blackburn (Kate Hollern), and the hon. Member for North Ayrshire and Arran (Patricia Gibson), on their excellent maiden speeches and their contrasting reflections on their predecessors. The House looks forward to hearing much more from them in the years ahead.
The Minister said at the beginning that he wants the Government to be a Government for working people. That is a laudable ambition, but they are failing. My hon. Friend the Member for Sheffield, Brightside and Hillsborough (Harry Harpham) is right that working people feel uncertainty and insecurity. Working families are deeply worried about what the Government have in store. They have suffered a long squeeze on their incomes, and they are worried about a fragile recovery and what the future holds for their grandchildren and children. Their insecurity has been heightened by the prospect of deep cuts to the tax credits that they rely on, and which it appears the Chancellor will announce in the Budget tomorrow. Working families will pay the price for the decision of the Prime Minister and his Chancellor to promise big reductions in social security spending before the election without having worked out a plan to deliver them. The announcements tomorrow will not be about making work pay—in this instance, that is baloney—but about making working families pay.
The Opposition welcome new concern from Conservative Members about low pay—we have heard a good deal in the debate about the living wage and the need for more secure, high-skilled and high-productivity jobs to support that. We all want a higher-productivity, higher-wage economy, but that requires a change of direction in the management of the economy. For example, it would mean delivering infrastructure, not just second or third announcements of future projects, or announcing and then cancelling them, as has happened in the past couple of weeks. It would mean high-quality training and apprenticeships for young people, not just rehashing old courses.
What the Chancellor must not do—it appears that this is exactly what he plans to do—is make working families much worse off by cutting their tax credits long before any increase in their pay. In millions of working families, people work hard but rely on tax credits for the family budget, as was acknowledged by Conservative as well as Opposition Members. It is high time to tackle low pay, but the Government should not attack the low paid, which is exactly what cutting tax credits will do. It will be an attack on working families on low and median incomes.
It would be fantasy to claim—I am glad nobody did so in the debate—that cutting tax credits will in itself lead to higher pay. Research has shown that the introduction of tax credits did not push pay down, and the drastic cuts now envisaged will not push pay up. Raising the personal tax allowance is not the answer—60% of tax credit claimants earn too little to pay income tax. Only about 1% of the cost of the planned personal allowance rises will actually be spent on lifting lower earners out of tax.
Tax credits recognise the needs of children in a household in a way that wages never can. The hon. Member for South Suffolk (James Cartlidge) suggested that tax credits provided a ceiling on earnings. That is completely untrue. That is not how the system works at all. In fact, tax credits have been by far the most effective move we have ever made in Britain to make work pay. They were introduced by the Labour Government alongside the boost to pay of the national minimum wage, improved and expanded childcare with Sure Start, and groundbreaking welfare-to-work support with the new deal.
The combination was a huge success, boosting employment by making work pay, supporting the incomes of large numbers of working families, and reducing child poverty in large part by making it worth the while of many more lone parents to be in work. The lone parent employment rate was less than 45% in 1997. Today, it is nearly 65%. Researchers have shown that that transformation was largely thanks to tax credits. The benefits have gone much wider. My hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood) opened the debate. In an excellent speech, she drew attention to what the Financial Times said recently, which is that the system of financial support we have in Britain for low-income working families is a key reason for our high rate of employment.
The flagship reform of this Government, universal credit, aims to build on the success of tax credits. We have always supported the principle of universal credit and we still want it to succeed. It is a good idea. The Government, however, have utterly failed to deliver it. Five years after it was announced, less than 1% of claimants are receiving it and 99% are still on the old benefits. In 2011, we were told it would take six years to deliver universal credit. Today, we are told it will take another six years. Now, before it has even properly begun, the Chancellor wants to make drastic cuts in support for working families that would hole universal credit below the waterline.
Will the Minister tell us whether he understands the crucial difference between reforming welfare and labour markets to get people into work and make work pay, and taking an axe to social security and to employment support? These cuts will store up far greater costs if they send into reverse the progress of decades in raising employment rates and reducing child poverty. We will welcome any credible plans to tackle low pay. We have championed the living wage. As my hon. Friend the Member for Edmonton (Kate Osamor) pointed out, the coalition Government presided over a 45% rise in the number of people paid less than the living wage,
Mr Stewart Jackson (Peterborough) (Con)
There is consensus on the living wage. I personally hope that there will be fiscal incentives in the Budget, and in future, to persuade employers to look at that. Does the right hon. Gentleman agree that unless the issue of working tax credits is reviewed, we will be continuing the practice of de facto subsidising large employers to underpay their staff?
Stephen Timms
If he had been present during the debate, the hon. Gentleman would have heard a lot of agreement that raising levels of pay is a good thing. That is the right way to reduce the cost of tax credits; not taking an axe to them now in the hope that pay will go up at some point in the future. Calculation of the living wage assumes that families receive tax credits. Those who calculate the living wage say that if families did not receive tax credits, the living wage would have to go up by another 25%.
Working people need a long-term plan to back businesses that commit to paying the living wage—I agree with the hon. Member for Peterborough (Mr Jackson) on the importance of that—and share with them the Exchequer savings, as we have proposed with our “make work pay” contracts. We need to give the Low Pay Commission the remit and the powers to tackle low pay across the country, as proposed in the report by Alan Buckle, the former deputy chair of KPMG. We need economic and industrial policies to support more high-skill, high-productivity jobs created by innovative competitive businesses of the future. Belated conversion to the cause of tackling low pay must not be an excuse for Ministers cutting away the vital support on which so many working families rely. As my right hon. and learned Friend the Member for Camberwell and Peckham (Ms Harman) pointed out to the Prime Minister two weeks ago, not a single family will be helped into work and not a single worker will see their earnings rise simply as a result of cutting tax credits. Ministers should be tackling low pay, but they must not attack the low paid.
The Government promised to eradicate the deficit in one Parliament and failed completely to do so, but working families must not be made to pay the price for that failure. Can the Minister assure us that any action taken to tackle low pay or in other ways to support the finances of working families will make up for the losses arising from tax credit cuts? I fear he cannot. He will not be forgiven for a shabby raid on the incomes and security of working families simply to get the Prime Minister and the Chancellor out of a hole. I hope that Members on both sides of the House will join us in supporting this important motion tonight.
The Exchequer Secretary to the Treasury (Damian Hinds)
The Government’s clear mission is to support working people as they strive to build security and achieve their ambitions throughout their lives. We know that most people want to do their best to provide for themselves and their families; that education and skills are the bedrock of success and security; that productive employment is the only sustainable way of delivering them; that the state should incentivise independence and self-reliance; and that when someone is working, they should keep more of what they have earned.
We need to make welfare savings so that we do not have to ask other working families to pay more, but when people need support, of course it is right that we support them. These are the principles that have underpinned our welfare and employment policies: making work pay; creating jobs and apprenticeships; improving childcare, education and training; cutting taxes, especially for the lowest paid; and, for those who need extra support, making the benefits system simpler and fairer for them and other taxpayers. On all these fronts, we have achieved a great deal, and we have done it at the same time as cutting the deficit and restoring growth.
Before responding to some of the points made during the debate, I want to make one thing clear. We have set out our commitment to reducing the deficit, which, among other things, requires £12 billion of savings to be realised on welfare, on top of the £21 billion we saved in the last Parliament. Further details, of course, will come from my right hon. Friend the Chancellor in tomorrow’s Budget, and clearly I am not going to pre-empt any of that this evening.
We have had a very good debate today. In particular, we have heard three distinguished maiden speeches. The hon. Member for Bradford West (Naz Shah) spoke of the sartorial act she had to follow, and she united the House—a rare occurrence—in sharing her pleasure at giving her predecessor a little more time to work on his wardrobe. She was also very generous about her Conservative opponent and the positive role he played in that difficult campaign. That was very much appreciated.
The hon. Member for Blackburn (Kate Hollern) spoke about her ambition to be the pinnacle, or indeed the pineapple, of politeness—a reputation she brings with her from her leadership of Blackburn with Darwen Council—and reminded us of the long historical roots of the northern powerhouse. She also reminded us of our schools days with her comments about Hargreaves and the spinning jenny. She, too, has a hard act to follow, in the shape of Jack Straw and Barbara Castle—two great parliamentarians.
The hon. Member for Ayr, Carrick and Cumnock (Corri Wilson) spoke about maintaining a sense of perspective. She also spoke movingly about her battle with serious illness and about how that helped her get perspective on what was most important in life. In reminiscing about the election, she also reminded us that, in our work in the House, it is not about “me”; it is about “us”.
There were some other excellent speeches. My hon. Friend the Member for Bexhill and Battle (Huw Merriman) advised that we should always listen to the originator of a policy and what they intended. I am sure that in this case the originator did not intend, and never expected, that the total cost of tax credits would eventually top £30 billion. My hon. Friend the Member for Solihull (Julian Knight) talked about the uneven generosity of the Labour party in reaching that figure and about the particular increases just before 2005 and 2010. My hon. Friend the Member for South Suffolk (James Cartlidge) spoke about the jagged edges in the welfare system that universal credit—that great reform—is set to smooth out.
My hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) spoke about the importance of productivity, which is what underpins real-wage growth and is an absolute focus for this Government. We shall hear more about the productivity plan very soon.
Today’s debate occasionally strayed into realms of speculation about what may come in the days to follow, but in a powerful speech, my hon. Friend the Member for Croydon South (Chris Philp) reminded us to focus on the facts. Some of those facts include this Government’s strong record on reducing income tax, which has already seen a typical basic rate taxpayer benefit to the tune of £825 since 2010, with that figure set to rise to £905.
Responding to some points raised by Opposition Members, I first remind them that the number of children in workless households is at a record low, which is something we should all celebrate. I say to the Father of the House, the right hon. Member for Manchester, Gorton (Sir Gerald Kaufman), that according to the most recent statistics, the number of children in low-income households in Manchester has fallen.
In contrast to what the hon. Member for Oldham East and Saddleworth (Debbie Abrahams) said about the quality of the enormous number of 2 million jobs created since 2010, there has been a 1.5 million increase in the number of people in full-time employment and a 1.27 million increase in the number of people in high- skilled employment. I remind the hon. Members who spoke about zero-hours contracts that they account for something in the region of 2.5% of the total jobs in this country, delivering an average of 25 hours’ work a week.
Even the Labour party nominally agrees that tens of billions of fiscal consolidation will be necessary over the course of this Parliament. I have to remind Opposition Members that the Charter for Budget Responsibility was passed by 505 votes to 18, and we will have to continue the journey towards balancing the budget. I hope that that is a journey we will be able to go on together.
In 2010, spending on tax credits had spiralled out of control, with nine in 10 families with children eligible for tax credits. We were taking money away from people in the form of income tax and then giving it back to them through another route. That is why we reformed the system to target support at those who needed it most—for example, by increasing the disability element while lowering overall Government spending.
Damian Hinds
I am sorry, but I am too short of time.
In the longer term, we will be migrating tax credits into the new system of universal credit, which will improve incentives to work, reduce reliance on benefits, make households better off and increase the number of people in work.
There are three key ways to help people to build success and security for themselves and their families: make sure everyone can get a good start in life; create the strong economy that sustains quality jobs; and let people keep as much as possible of what they have earned. We have been doing all three. We have increased our support on childcare and early years education by £1 billion; radically extended childcare provision; and increased funding for the most disadvantaged children in our schools and nurseries. We have created record job growth of 2 million—more than the rest of the EU put together—moved more and more households out of unemployment and supported millions of new apprenticeships. We have lowered income tax for 27 million people, including moving the lowest-paid 3 million out of tax altogether, and for the next five years, there will be no increases to income tax, VAT or national insurance contributions. These are the policies that our working people deserve—the ones they expect and have recently voted for.
The only sustainable way to raise living standards is to keep working through the Government’s long-term economic plan to build a resilient and dynamic economy. Just last week, we learned that living standards had risen again by 3.9% against the same period last year—further proof of how our long-term plan is helping hard-working families. We have reversed the system inherited from Labour, where it could be more rewarding to live off benefits than to get a job. We have cut income tax for 27 million people. We have capped benefits in a fair way and increased support for those who need it most. We have simplified the benefits system, cracked down on those who abuse it, and helped to provide millions of jobs to empower people to help them get on in life. This Government have continuously stood up for both the vulnerable and the hard working in our society, and we will continue that support every step of the way.
Question put.