Budget Resolutions and Economic Situation

Debate between Baroness Laing of Elderslie and Stephen Timms

Thursday 9th July 2015 Commons Chamber

[Stephen Timms (East Ham) (Lab)]

Let me begin, as others have, by congratulating all those who have made their maiden speech during the debate: my hon. Friends the Members for St Helens South and Whiston (Marie Rimmer) and for Bradford South (Judith Cummins) and the hon. Members for Berwickshire, Roxburgh and Selkirk (Calum Kerr), for Caithness, Sutherland and Easter Ross (Dr Monaghan) and for North Warwickshire (Craig Tracey). The House enjoyed hearing from each of them today and we look forward to hearing from them again in the years to come.

Yesterday’s Budget contained a number of ideas that we support, not least because we campaigned for them at the election. For example, we argued that the pathway to a surplus that the Chancellor committed to in March would in fact lead to spending cuts so extreme that they would not be credible. We discovered yesterday that the Chancellor had caved in and accepted our argument. He has deferred the planned surplus for a further year, and I have to say that that was a sensible U-turn. He might have told us that that was what it was, but he did not. As a result of his U-turn, the scale of the cuts, though still substantial, will no longer be as extreme as he suggested in March.

We said that it was unreasonable to try to take £12 billion out of the social security budget in two years. The Chancellor has done a U-turn on that as well. He now plans to do it over four years. We also campaigned for Britain to have a pay rise, stating that an increase in the national minimum wage was key to reducing the cost of welfare. The Chancellor has accepted that argument. On the basis that imitation is the sincerest form of flattery, we welcome his change of heart on that as well.

It is a great disappointment, however, that productivity growth is so low. My hon. Friend the Member for Luton North (Kelvin Hopkins) was right to draw the House’s attention to what the Office for Budget Responsibility had to say about that. It has stated that productivity growth has fallen short of expectations once again. It is a relief that this Budget speech at least mentioned productivity—there was no such mention in March—although it was accompanied by a very thin package. My right hon. Friend the Member for Newcastle upon Tyne East (Mr Brown) and my hon. Friend the Member for Kingston upon Hull North (Diana Johnson) pointed out that the cancellation of the electrification of the TransPennine line was a glaring failure if we are to bring about the infrastructure investment necessary to improve productivity across the country. It is a big disappointment that so little is being done.

It is a tragedy that the Chancellor is accompanying his welcome U-turns with such a swingeing attack on the incomes of working families. The analysis published today by the Institute for Fiscal Studies highlights the fact that the proposed tax credit cuts focus on working families. It is working families that are going to be hit. They have been badly let down by a party that had promised to be a party for working people. That promise seems to have been torn to shreds in everything other than the rhetoric. Vital support has been ripped away at a time when so many of those working families are already struggling to make ends meet.

In 2010, the Chancellor promised

“we will bring down the benefits bill”.

At the beginning of this year, the Institute for Fiscal Studies said:

“Real terms benefit spending…is forecast to be almost exactly the same in 2015–16 as it was in 2010–11.”

The benefits bill has not been brought down. The reason is that, in the previous Parliament, the Government failed to tackle low wages and rising private rents, which are the real drivers of welfare spending. As a result we saw 400,000 more people who are in work forced to rely on housing benefit to pay the rent, and 1.5 million more people paid less than a living wage at the end of the Parliament than was the case at the beginning. That led to a £25 billion overspend on welfare by the Secretary of State’s Department. With this Budget, working families are being told to pay for that failure—so much for being on the side of working people.

The Chancellor is cutting tax credits immediately, but taking five years to increase pay. As my hon. Friends have pointed out, the tax credits cuts hit immediately, full scale, from the beginning of the next financial year. The pay rises intended to compensate for them, which in fact do not compensate for them, are being phased in over five years. Working families are losing out in a very big way. This is not about making work pay, but about making working families pay, which is wrong.

Today, the IFS said:

“Unequivocally, tax credit recipients in work will be made worse off”.

That is the reality of what was announced in the Budget yesterday. The Chancellor’s decision to cut tax credits leaves 3 million families worse off. Working families who are doing the right thing are finding that the rug has been pulled out from under them. A couple with one person working full-time on average earnings will lose more than £2,000 in tax credits next year. A single parent trying to provide for her two children, working 16 hours a week, will lose £860 in tax credits next year. Those losses are nowhere made up for by the modest pay rise that that person is likely to receive.

I cannot help wondering what happened to the families test. The Prime Minister promised that

“every single domestic policy that government comes up with will be examined for its impact on the family.”

Well, here are working families being hammered. The measures clearly fail the families test, but they are being announced nevertheless. That is another broken promise from this Government when so many families are losing out.

The IFS says that the striking consequence of yesterday’s cuts is that the work incentive effects of universal credit—if we ever see universal credit; only 1% of benefit claimants have been switched on to it so far, and at that rate it will take 150 years or so to roll out fully—are being substantially reduced.

I have made it clear that we welcome the increase in the national minimum wage—indeed, we campaigned for it. However, as my hon. Friends have pointed out, just because the Chancellor calls it a living wage does not make it a living wage. My hon. Friends the Members for Birmingham, Erdington (Jack Dromey) and for Ellesmere Port and Neston (Justin Madders) emphasised that point in particular. The Living Wage Foundation, the custodian of the living wage, made the position clear last night. It said that

“this is effectively a higher National Minimum Wage and not a Living Wage.”

That is the reality. Simply calling it a living wage does not make it one. The Chancellor is trying to sell us a dud.

That was not the only dud in the Budget speech. I cannot resist the temptation of quoting what the Financial Times said about the Budget speech yesterday: “When you heard” the Chancellor

“say six times in his Budget speech that he had moved British towards a ‘lower tax society’, he made a small but important mistake. He really meant ‘higher tax’.”

Of course that is right. The living wage is based on the full take-up of benefits such as tax credits and housing benefit. With the cuts to tax credits, the current figure for the living wage will no longer be enough and will certainly have to be revised upwards. We are in favour of tax cuts for those on middle incomes and we support the increases in the personal allowance and the higher rate threshold, but cuts to tax credit mean yet again that the Chancellor is giving with one hand and taking away with the other.

What a missed opportunity the Budget was to promote a proper living wage by introducing Labour’s plan for tax breaks for firms that pay a proper living wage! My hon. Friend the Member for Brent Central (Dawn Butler) drew attention to the excellent initiative that Brent Council has introduced along those lines. It is clearly succeeding, and our make-work-pay contracts could have started to boost wages straight away.

My hon. Friend the Member for Lancaster and Fleetwood (Cat Smith) was right to point out that, once again, young people have been badly hit by the Budget, but where there are good reforms, we will support them. We support the Government’s plan for a youth obligation, which is strikingly similar to our manifesto pledge and the Institute for Public Policy Research proposal that underpins it. The principle of earn or learn is right. Of course, it is absolutely vital that the right exemptions to the withdrawal of housing support should be in place. My hon. Friend the Member for Sheffield South East (Mr Betts) underlined that absolutely rightly. Can the Minister confirm in winding up that young people leaving care, those who are at risk of abuse or homelessness and those who are the parents of young children will still be eligible for housing support under these proposals?

We will not support cuts for disabled people. We were told in the election campaign that the £12 billion package would protect the vulnerable and the disabled, but cutting employment support allowance will hit those who are assessed as not fit for work, which is the reason why they are not on jobseeker’s allowance. That includes people with cancer and people with Parkinson’s disease. Ministers said that they would protect sick people in these changes; instead, they are cutting their support, and that will hit some very vulnerable people very hard. It will also drive even more claimants into the ESA support group at even higher cost. In 2010, Ministers said that they would cut the cost of ESA. In fact, given their failure to manage assessments and the failure of the Work programme for ESA claimants, costs have rocketed. ESA will cost £4.5 billion more this year than they said it would in 2011, but that is no justification for punishing the sick.

There is nothing in the Budget to boost the number of homes being built. The cost of renting and buying is soaring out of reach, particularly in London and south-east. My hon. Friend the Member for Mitcham and Morden (Siobhain McDonagh) drew attention to that. Yet again, rather than tackling the housing shortage and bringing rents down, the Government have chosen to cut housing support.

We welcome the Chancellor’s U-turns from his election campaign, but this is not the Budget that working people need. It leaves working people worse off. Working people needed a Budget that supported them and their families, not one that cut the support that so many people rely on. We support reform that protects those who cannot work and that makes work pay. We will not support cuts that make working families pay.

[Madam Deputy Speaker (Mrs Eleanor Laing)]

Before I call the Minister, the House should note that several Members who have taken part in the debate were not here for the beginning of the speech of the right hon. Member for East Ham (Stephen Timms). That is discourteous. Some Members who have taken part in the debate are still not here. That is extremely discourteous and has been noted.

The Economy

Debate between Baroness Laing of Elderslie and Stephen Timms

Thursday 4th June 2015 Commons Chamber

[Stephen Timms (East Ham) (Lab)]

Thank you and congratulations, Madam Deputy Speaker. As you have said, we have had a good debate, which has demonstrated the seriousness and commitment with which we are ready to take up our duties as Opposition Members.

It has been widely acknowledged in this debate that my right hon. Friend the Member for Doncaster North (Edward Miliband), the former leader of our party, made a fine and powerful contribution. It was especially welcome for being so soon after our bruising election defeat. He addressed the topic of one nation, which was the theme of his leadership as well, drawing attention to the problem of rising inequality across western democracies. He spoke of the rungs of the ladder getting further apart and reminded the Prime Minister of his 2006 commitment to address relative poverty. I think the whole House will look forward to my right hon. Friend developing those ideas in the months ahead.

We have had valuable contributions from both sides of the House. I particularly congratulate everyone who has made their maiden speech today, including the hon. Member for Bexhill and Battle (Huw Merriman), the hon. and learned Member for South East Cambridgeshire (Lucy Frazer), the hon. Members for Glasgow South West (Chris Stephens), for Horsham (Jeremy Quin) and for Cannock Chase (Amanda Milling), my hon. Friends the Members for Greenwich and Woolwich (Matthew Pennycook) and for Cardiff Central (Jo Stevens), the hon. Members for Mid Worcestershire (Nigel Huddleston), for Kirkcaldy and Cowdenbeath (Roger Mullin) and for Thirsk and Malton (Kevin Hollinrake), my hon. Friend the Member for Sheffield, Heeley (Louise Haigh) and the hon. Members for North Dorset (Simon Hoare) and for Charnwood (Edward Argar). I congratulate each of them and wish them well for their membership of this House. The whole House will look forward to hearing more from each of them in the years ahead.

At the heart of this debate is the security of working families. Many families feel deeply insecure at the moment, in ways spelled out in a fine maiden speech by my hon. Friend the Member for Greenwich and Woolwich. How is the programme that has been announced going to affect them? We have yet to hear clear answers from the Government on how they plan to strengthen the foundations of our economy so that we can deal with the deficit, control social security costs and secure better living standards and a better future for the working people of Britain.

My hon. Friend the Member for Nottingham East (Chris Leslie) began by highlighting the fragility of our economic recovery. Productivity continues to stagnate, leaving output per worker far behind that of comparable advanced economies—a point that was highlighted by the hon. Member for Dundee East (Stewart Hosie).

The right hon. and learned Member for Rushcliffe (Mr Clarke) was right to point out that employers are struggling to find people with the right skills for their jobs. Many employees have roles that do not make full use of their talents and potential, and we have heard a great deal in the debate about the grave challenges relating to infrastructure and the need for more progress. Those underlying weaknesses will make it harder to get the public finances in order and to get social security spending under control.

Fragility in the economy translates into insecurity for working families, who have seen their living standards go backwards over recent years and still worry about whether they will be able to keep on top of their bills. Working families are struggling to balance the demands of work with the rising cost of childcare. They wonder whether the NHS will still be there for them when they need it in future and want their children to have a decent career and a realistic prospect of getting on the housing ladder. Too many at the moment are stuck in low-paid, insecure work and a growing number are depending on housing benefit to make ends meet. Those families all want to know what difference the measures in this Queen’s Speech will make to them.

There are welcome commitments in some areas, but questions remain about how some of them will be paid for. It is, however, what has been left out that gives the greatest cause for concern—actions not taken, details not provided—and makes many families less secure and fear for the future.

We all support any cut in taxes for low-paid workers, but we also need a serious plan to tackle low pay and boost wages for the majority by raising investment, as my hon. Friend the Member for Cardiff Central pointed out in her excellent speech. The hon. Member for Thirsk and Malton also rightly called for the adoption of a living wage in the UK. We need to raise the levels of skills and productivity across the economy, securing sustainable tax revenues and reducing the reliance on in-work benefits.

It was disappointing to have sprung on the House this afternoon, without any proper detail or explanation, a series of spending cuts in the Chancellor’s speech. There is a press release that outlines what they are, but there is no proper information. We should have had a statement so that the House could scrutinise the cuts. They include a significant cut to the skills budget.

We will welcome any help for working parents with childcare, but families can be forgiven for believing it when they see it, after five years in which it has become harder, not easier, to afford the childcare they need. There is a worry that the proposals in the Queen’s Speech are likely to result in fewer affordable homes and bigger housing benefit bills for taxpayers.

Britain succeeds only when working people succeed. Hard work should be rewarded, prosperity should be shared and we should protect the most vulnerable. Those elements, which are vital for our society, need to be underpinned by a strong social security net. The Opposition support the work that local authorities are doing under the Government’s troubled families programme, but we are aware that a majority of the families involved still have nobody in work and that the Work programme is not doing enough to help them. We will be glad to see additional money for apprenticeships.

We have made clear our support for the principle of a benefit cap to ensure that people are better off in work and for reforms to ensure that young people are earning or learning, and do not become caught in a benefits system that at the moment does too little to improve their skills and prospects. We will scrutinise—[Interruption.]

[Madam Deputy Speaker (Mrs Eleanor Laing)]

Order. I hesitate to interrupt the right hon. Gentleman. There is no heckling or bad behaviour going on, but there are an awful lot of private conversations. He has a difficult job to do and he should be given peace in which to do it.

[Stephen Timms]

We will scrutinise those proposals with great care. The well-meaning rhetoric on apprenticeships needs to be matched by action on the quality, as well as the quantity, of the apprenticeships that are being created. When the rules are changed on benefits for 18 to 21-year-olds, we will look carefully at the safeguards for the vulnerable young people who will be included. We need to ensure that reducing the benefit cap does not end up costing more than it saves.

Those measures amount to only a fraction of the £12 billion reduction in social security spending that the Government promised. We want to see savings where they can sensibly be made. We have argued consistently for keeping the system affordable. We have said that that requires a readiness to take tough decisions on low-priority spending, alongside action to tackle the underlying drivers of rising benefit bills, such as low pay and high housing costs. The unwillingness or inability of Ministers to explain to this House or the public how they intend to make the reductions that they have set out is adding to the insecurity that is felt by many working families today.

There will be widespread relief that the Prime Minister has, reportedly, overruled the Secretary of State on child benefit. However, working families need to know whether the tax credits and other in-work benefits that they depend on will be taken away. The Prime Minister yesterday declined my invitation to reaffirm his election campaign commitment that benefits for disabled people are safe. The Institute for Fiscal Studies says that it will be virtually impossible to achieve a £12 billion saving without hitting low-income working families hard.

When he gets to his feet, the Secretary of State needs to assure those who are clearly not well enough to work that support for disabled people and their carers will be protected. Government failures in that area—the failure of the rushed and ill-prepared incapacity benefit reassessment exercise and the failures of the Work programme for people in receipt of employment and support allowance—mean that the Government are spending nearly £5 billion more this year on employment and support allowance than they forecast five years ago. That is a serious failure.

We heard a Queen’s Speech five years ago that promised

“to simplify the benefits system in order to improve work incentives”.

That was a worthy aim, but there has been very little progress since then. My hon. Friend the Member for Bishop Auckland (Helen Goodman) touched on the problems with the IT for universal credit. In 2011, the Secretary of State told us that universal credit would be complete in six years; now he is telling us that it will be complete in another six years. In four years, completion has slipped by four years.

The Opposition will continue to stand up and speak for the working people of this country, who have endured years of falling living standards and economic uncertainty. They now need assurances and action from the Government to promote their security and to secure their finances and the public services that they rely on, and on which all our futures will depend.