Tax Credits (Income Thresholds and Determination of Rates) (Amendment) Regulations 2015

Baroness Hollis of Heigham Excerpts

Monday 26th October 2015 Lords Chamber

[Baroness Meacher]

I thank my noble friend Lord Listowel. I should mention that a petition signed by 270,000 members of the public over the weekend was handed to me this morning. There is huge fear and anger about these cuts. I am very grateful for the support of the public and the media—believe it or not—and their appreciation of the efforts in this House, although I personally never sought any of it. That is a rather important point to make: I am really not here to grandstand.

I support the Government’s raising of the tax threshold, the increase in the minimum wage and free childcare for three and four year-olds, but those measures will not protect the most vulnerable. The Institute for Fiscal Studies makes clear in its analysis that the biggest losers from the 2015-16 tax and benefit changes, even by 2020, will be the poorest working families. The very poor will hardly gain at all from the increase in the minimum wage or the national living wage. Very poor self-employed people will not gain at all from the increase in the minimum wage. I have had a pile of emails from self-employed very poor people. The biggest gainers from the increase in the income tax threshold and the higher rate threshold will be those earning £43,000 to £121,000 per year. We seem to have a massive redistribution of income here, but it seems to be going the wrong way.

The Government have for five years urged unemployed people to take a job. The sanctions regime has been extremely brutal, but having said that, it is, of course, much better for people to work, if they can, than to remain unemployed. The main justification for the Government’s policy has been that work pays. Yes, and working tax credits achieved that objective. Working tax credits prevented unemployment soaring in the recent recession.

Finally, I repeat that the aim of this amendment is to support the democratic process to enable the elected House to hold the Government to account. That is the duty of this House. If we cannot do that, we might as well not exist.

[Baroness Hollis of Heigham (Lab)]

My Lords, on the amendment standing in my name, two issues concern this House. The first is whether this amendment improperly challenges Commons financial privilege—a constitutional issue. The second is whether this amendment improperly challenges Government cuts to welfare—the policy issue.

Let me address the first, on constitutional propriety. As the noble Baroness, Lady Stowell, said, when we have framework Bills on childcare and social security, all the serious detailed work is done, rightly, by regulations—that is, SIs. We can amend Bills; we cannot amend SIs, yet often we do not know the Government’s intent until we see the SI itself. We then face either a draconian fatal Motion or a lamenting regret Motion that changes nothing, so instead this is a delaying amendment. It is not fatal, as the Government know. It was drafted with the help of the clerks and it calls for a scheme of transitional protection before the House further considers the SI. Essentially, the cuts would apply to new claimants only. Frankly, that new SI could be drafted in a week and implemented next April exactly as planned.

However, does it none the less break convention by trespassing on Commons financial privilege? No. The advice from the Clerk of the Parliaments—and he has seen and confirmed my words on the specific issue—is that Commons financial privilege is exercised in two ways. We can amend an education Bill, say, but the Commons can reject our amendment if the Speaker certifies that the Commons has financial privilege on this issue. Secondly, says the Clerk, the Commons can pass a supply or money Bill, which we cannot amend. He goes on: financial privilege does not extend to statutory instruments—it simply does not. Nor are statutory instruments covered by the Salisbury/Addison convention. The more so, I would add, because the Prime Minister ruled them out himself, and he did because these layered elements to tax credits are all affected by the taper and the cuts.

As has been said, if the Government wanted financial privilege, these cuts should be in a money Bill; they are not. If they wanted the right to overturn them on the grounds of financial privilege, they could be introduced in the welfare reform Bill on its way here; they did not. So why now should we be expected to treat this SI as financially privileged when the Government, who could have made it so, chose not to do so? It is not a constitutional crisis. That is a fig-leaf possibly disguising tensions in the Commons between members of the Government. We can be supportive of the Government and give them what they did not ask for—financial privilege—or we can be supportive instead of those 3 million families facing letters at Christmas telling them that on average they will lose up to around £1,300 a year, a letter that will take away 10% of their income on average. That is our choice. Those families believed us when we all said that work was the best route out of poverty and that work would always pay. They believed the Prime Minister when he promised that tax credits—and they are one package—would not be touched.

But why do people need tax credits? There is a lot of misunderstanding about this. If the House will allow me, consider two women in a call centre: one is single, working 35 hours a week, who from April earns £13,000 a year for herself, and the other, a deserted mother with two young children, managing 25 hours a week, earns £9,000 a year for the three of them. The Government are completely right that we should certainly not subsidise employers’ low pay, but no employer could pay the deserted mother twice as much per hour as the single woman on the next phone in the call centre to make up for her family’s circumstances. The employer cannot do that and it is not reasonable to ask it to do so. That is the job of tax credits. They reflect family circumstances, which an employer cannot reasonably do.

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[Baroness Stowell of Beeston]

An important point for the House to understand is that the original Bill—the Tax Credits Act 2002—was not certified as a money Bill because it included changes to the administration of the welfare system. Had it just been about the financial measures that we are debating, it would probably have been certified as a money Bill. It was the addition of administration that caused it not to be certified as a money Bill.

[Baroness Hollis of Heigham]

My Lords, I took those two Bills through this House. I can tell the Minister that such considerations never arose.

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[Baroness Smith of Basildon]

My noble friend Lady Hollis is very keen to tell the noble Lord.

[Baroness Hollis of Heigham]

Yes, my Lords. I had hoped that the noble Lord, Lord Forsyth, in his courteous way, would have heard my argument that the savings would come to the Government automatically; first, by the rise in the living wage, of which three-quarters of a billion pounds each and every year accrues back to the Government; secondly, by the fact that new claimants to tax credits are not covered by our amendment; and thirdly, because the National Audit Office says that, by 2019, more than 90% of those on tax credits will be on universal credit, where they will have their cuts. Over the entire Parliament, the Government will have matching savings that probably exceed the very cuts that they demand.

[Baroness Smith of Basildon]

My Lords, the point made by my noble friend is that this is a choice for the Government, not a necessity. What we have seen in the last week has enlightened all of us on the Government’s reluctance to accept challenge or proper scrutiny. There is no constitutional crisis looming at all. The Prime Minister has provoked a rather phoney constitutional crisis in this House rather than dealing with the very serious problems with his and the Chancellor’s tax credit policy. In the last Labour Government, we lost many dozens of votes here in the House of Lords on a range of issues, including one on 42 days’ detention, and one on the entire Second Reading of a Bill. Of course we did not like it, but we accepted it and moved on. At no point in this Session of Parliament have this Official Opposition not accepted the right of the Government to get their legislation through, but they have to do so properly, and they do not have a monopoly on getting things right all the time. In this case, we really believe that the Government have it wrong.

The threats that have been made to the House of Lords as an institution have been nothing less than parliamentary bullying.

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Moved by

[Baroness Hollis of Heigham]

As an amendment to the motion in the name of the Lord Privy Seal, to leave out all the words after “that” and insert “this House declines to consider the draft Regulations laid before the House on 7 September until the Government, (1) following consultation have reported to Parliament a scheme for full transitional protection for a minimum of three years for all low-income families and individuals currently receiving tax credits before 5 April 2016, such transitional protection to be renewable after three years with parliamentary approval, and (2) have laid a report before the House, detailing their response to the analysis of the draft Regulations by the Institute for Fiscal Studies, and considering possible mitigating action.”

[Baroness Hollis of Heigham]

My Lords, we have had the arguments. I wish to test the opinion of the House.