Tax Credits

Debate between Lord Clarke of Nottingham and Alistair Carmichael

Tuesday 20th October 2015 Commons Chamber

[Mr Clarke]

I do not want to take as long as the Front Benchers, so I will make a little progress.

Why do this now? There is never going to be a better time again to make more substantial progress in loosening our dependence on this subsidy to pay. I will not repeat what the Minister said admirably from the Dispatch Box about all the other things that are being done in more sensible areas, where we support the income and help with the expenditure of working families. That of course has to be key. That is the alleviation that everybody is demanding of what is bound to be difficult when we move forward. I am not naive. Politically, I point out to my Conservative colleagues that this is early in a Parliament, six months in, and my guess is that if we do not take this decision now, everybody will run for the hills if we decide we are going to do it in two years’ time. If we are looking, as a governing party should do, to what we are going to be able to show to the public by way of a successful economy when we next face them in five years’ time, we will see that now is the time to take the necessary decisions to get on with this.

More substantially, as has been mentioned by, among others, my hon. and learned Friend the Member for North East Hertfordshire (Sir Oliver Heald), the former Solicitor-General, the employment situation is extraordinarily strong. This is the time to do it, because we are never going to get all the full compensating reactions in the labour market if we do not get them at a time when employment is at a record-breaking high, unemployment is very low and real incomes are rising at an amazing 3% a year.

In all the figures that keep being cited about what will happen to those who lose tax credit, there is one great incalculable, although people have tried to estimate it: what will employers do as they realise that their staff are losing their tax credit? We have already seen various firms lining up to say that they are going to pay my right hon. Friend the Chancellor’s living wage, some straightaway. That is because the labour market has changed, they do not want demoralised staff and they want to race ahead of the Government and say that they are giving a big pay rise. I accept that not everybody will be able to do that, but I think that employers, finding that the subsidy of tax credit is being drained away again, are in a better position now than they have been for years to say, “Perhaps we are going to have to give—perhaps we ought to give—a reasonable pay rise to the staff working for us because we can no longer rely on the Government setting in behind us.” Again, if we do not do it when the employment market is so strong, we will never do it at all—now is the time.

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

I thank the right hon. and learned Gentleman for giving way, because I agree with an awful lot of his analysis of the problems caused by the whole system of tax credits. The difficulty is that we do not start with a blank sheet of paper. The fact is that the cuts are in the here and now, whereas the possible increase in wages will come only in the future. Can he really see any employer giving somebody a wage rise because they have just had a third child who will not be eligible now for tax credits?

[Mr Clarke]

Quite a lot of low-paying employers will realise the effect on the morale of their staff, some of whom will tell them that they are losing their tax credits. I am not naive and know that this will not mean that nobody loses. Not everyone will be able to do that. The downsides of the change—my hon. Friends on the Front Bench explained the upsides that will affect a lot of these working families—may not be totally eliminated, but there will be fewer problems now if we go ahead with this. I have already said that getting rid of electoral bribes, which most parties have given over the years, always proves to be terribly difficult. I have seen some dreadful things introduced and then nobody has the nerve to vote against them. Perhaps I should not worry. I receive a free bus pass, free television on which I do not pay a licence, and a winter fuel allowance to save me from winter poverty. I know that I was meant to say to the previous Labour Government, “God bless you, Mr Brown. You are a worthy man, and I shall vote for you from now on.” My political views are more complicated than that. Tax credits were about the Labour Government bumping up people’s income on the eve of an election.