Tax Credits

Debate between Lord Field of Birkenhead and Graham Allen

Thursday 29th October 2015 Commons Chamber

[Frank Field]

I very much agree. I know that the Exchequer Secretary also has an interest in improving Treasury data so that we can better understand tax and benefit changes. I hope that the hon. Gentleman’s plea will not fall on deaf ears.

[Mr Graham Allen (Nottingham North) (Lab)]

Will my right hon. Friend take into account the fact that we need to have something that is saleable to the people who are benefiting from tax credits? Language such as marginal rates of return, thresholds and differentials can completely confuse not only the beneficiaries but small employers. Will he make it clear in negotiations with the Treasury that we must try to make this saleable and to keep the concept simple, so that people who genuinely need tax credits can claim them, because there is still massive underpayment?

[Frank Field]

There is indeed. That leads me neatly on to what the proposals for reform might be. I wish briefly to touch on four.

First, I make a plea to the Government to recognise just how quickly this whole debate is changing and to take advantage of that. Tax credit payments are here for the long run. When we began this debate back in 2010, there was enthusiastic talk about, in almost no time, a new benefit—universal credit—that would sweep away means tests and deliver a seamless service to our constituents. To be truthful but gentle about universal credit, its progress is very modest. I do not disagree with the Secretary of State in looking back at previous instances of trying to smash reform through whatever the costs, but at some stage somebody in Government has to look at how slow the progress of roll-out has been and question whether a full flowering will ever see the light of day. This raises questions about how tax credits might be reshaped, given that universal credit is not for the chop and is here for the longer term. It will not, in the lifetime of this Parliament or even the next, make tax credits redundant.

We have begun to have debates about this with the public. When I recorded a programme this morning, every time I said a word that people thought the public would not understand, we had to stop and start filming again. I could not say how long it took to film. We have our own language, which is a shorthand that is not understood by people outside.

--- Later in debate ---

[Frank Field]

There would of course be a tendency for any Chancellor to say, “I’m going to make the Lords agree to my new SI.” If it was an SI that this House cheered on its way down to the other place, that might be wise. If it is an SI on which there was still deep disagreement, particularly among Conservative Members, I think it would be very unwise not to bring forward the proposal in primary legislation.

[Mr Graham Allen]

Is there not room for a little bit of forethought and pre-emption? We are only six months into a five-year Parliament, and this is the first of many changes that may happen. Will my right hon. Friend stress that Parliament could be seen as a partner in this process? Rather than having a crisis-management approach to social policy, can we not involve the Work and Pensions Committee, the Treasury Committee and colleagues in both Houses? The Government can set the object, but we could be allowed to say something to help them on their way. We know that there has been a general election and that they are entitled to get their laws through, but they should use Parliament as a partner, rather than have this constant crisis management.

[Frank Field]

I could not agree more. In my speech opening this debate, I am in a sense saying that this is a glorious opportunity for the Chancellor to get it right: both to change his image and to become a much more serious reformer on the tax and benefit front. I am sure that he did not want to land himself in this position, but now he has, I hope that he will be optimistic not only about the partnerships he can build, in the way that my hon. Friend suggests, but about the opportunity it gives him in beginning to take into account the effect of a national minimum wage on the welfare debate. I sometimes wonder whether he has quite realised just how significant change is and could be.

If hon. Members will allow me, I will turn to the fourth suggestion for reform. I have put it forward, largely to get a debate going, and I now wish to attack it. The suggestion was to take the Chancellor seriously when he said that reforms should be done at nil cost. I wanted to show that it would be possible to raise the thresholds—the point at which people begin to lose tax credits—to the national minimum wage at nil cost, but that would require an even greater penalty in the loss in tax credits for people above that level.

There is not a great deal of support for that idea, but I put it forward merely to stress this point. When we had a huge great uprising of Back Benchers from both sides of the House over the abolition of the 10p rate, the Government were adamant that they were not going to listen, but then, on the night before the big concessions, huge sums of money were found at the Treasury to go everywhere but to help those on the 10p rate. It is now clear that the Chancellor will put some extra money into the whole operation. If we suppose that he wants to go down the nil cost route, the extra money ought to go to protecting those who will lose, rather than to those not claiming tax credits—including all hon. Members, who are not affected—who would benefit if he raises the tax threshold further or increases the national insurance threshold.

I will make my last point quickly, not because I do not want to develop it further, but because I am conscious of the large number of hon. Members who wish to participate in the debate. If we are saying that the Government should give up £4.5 billion from savings toward the reduction of the deficit, we are required to say where that money might come from. I wish to suggest two areas. I have lifted the first from the Treasury. It is now briefing the media that one possible way of finding the extra resources for a delay and a staged introduction—that is certainly what Conservative Back Benchers are asking for as a bare minimum—of this reform, if that is what we can call it, would be to have a smaller budget surplus by 2020. I just put that forward, because it certainly seems to be a possibility for the Treasury.

My second proposal relates to pension tax relief. It is very interesting that the Chancellor has asked for views on how we might reform it. Huge sums of money are involved. I am not advocating that we should abolish it overnight. I do not think that we should treat people higher up the income scale in the same horrible way that the Government were proposing to treat those on tax credits. When Governments start changing incentives, people need to have time. If, however, we abolished it overnight, we are talking about an extra £34 billion. If we made the tax concession 15% for everybody, the figure would be more than £15 billion, and if we made it 20%, it would be £10 billion. These are mega-sums of money.

I raise that issue because I do not believe that the Government’s consultation on pension tax relief is up to speed with their pension reforms. The reason pension tax relief has been built up over a century is that previous Governments gave up the ghost of ever introducing a state pension that would take people off means tests. Hence, we had to bribe people to save more so that they would not be subjected to the horrors of poverty in old age. The Government are now introducing a basic state pension for the first time ever. That is an achievement. [Interruption.] I will certainly make way on the Bench for my hon. Friend the Member for Coventry South (Mr Cunningham). Shall I give him my notes so that he can finish my speech? I have never seen that before. I had always thought that if a Member was on their feet they were meant to be speaking, but never mind.

Sometimes Governments are very slow to look at how one really radical reform will have a knock-on effect on other parts of their programme. I do not think that this Government have taken into account the resources they are beginning to unlock now that the vast majority of people are going to be given a pension that will take them off means-tested assistance. Therefore, the reasons for bribing people to save in particular ways fall away, and that begins to unlock huge sums of money. I have not made proposals without also suggesting where the money might come from.

I want to end with what the tax credit changes will mean to our constituents if we are not successful today in convincing the Government to rethink radically their proposals. Having talked to my constituents and to others on television programmes, I cannot but be incredibly conscious of their fear at what the changes will do to them. People we should be saluting and cheering are sick with worry about how they are going to make ends meet and about whether they are going to lose their homes and whether they are going to be able to pay the interest on their mortgages, not to mention how they are going to protect their children properly.

Although it is important that we sometimes use technical language as shorthand, I am sure that we will never, ever forget what this debate is about. It is about some of our most vulnerable constituents, whose efforts in work we should be saluting. We should not be handing out this sentence, which terrifies them. For that reason, I hope the House will come to one mind and pass our motion and that we will get a very clear response from those on the Treasury Bench.