18:59 - The House divided: - Ayes: 286 / Noes: 316 - Question accordingly negatived.
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.
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.