Autumn Statement: Economy

Baroness Hollis of Heigham Excerpts

Tuesday 29th November 2016 Lords Chamber

[Baroness Hollis of Heigham (Lab)]

My Lords, the outlook, says the IFS, as has already been quoted, is dreadful, especially for the poorest third of our people, especially women and children. Stagnant wages—0% in real terms between 2017-18—severe benefit cuts, job insecurity, unaffordable rents and rising debt all compound their family poverty. Some 4 million children are already in poverty, even though two-thirds have a parent in work. Some 200,000 children will this Christmas need a food parcel to get a Christmas dinner.

I do not blame the DWP, but George Osborne for cutting welfare spending because recipients either do not vote or vote the wrong way, and claiming that public opinion supported him. Yet the public mood is ambiguous. They believe that 40% of social security goes on the unemployed, although it is actually under 4%, and that £50 billion a year is lost to fraud—it is probably £1 billion, exceeded by DWP errors. They believe that people on benefits like their own are deserving, but people on other benefits are probably not. Yet out of 30 leading economies, we are fifth from the bottom. Only Chile, Portugal, Ireland and the US are more unequal than we are. Every other country is fairer than us, and 80% of the public believe, decently, that our society is too unequal.

For this confusion of outlook, I blame the stigmatising language of welfare employed by politicians and media alike. They talk of handouts to the feckless and fraudulent. But welfare includes, rightly, not only cash benefits but health, education and pensions. We spend about £80 billion a year on working-age benefits and tax credits—as a percentage of GDP that is actually falling—but we spend £48 billion on pension tax relief alone, some two-thirds of that going to the better off. That includes tax relief on ISAs, the protection from schedule D on family property, the artificially low cap on council tax bands, the reduction in levy on capital gains and IHT and the higher rate threshold in tax in prospect for all of us, while those on benefits lose every penny if their scratched-together savings reach £16,000. At that point they lose all benefit entitlement against our tax privileges. Tax relief is a transfer payment to the better off—a shadow welfare state for the wealthy, which most of your Lordships, and I, take as our entitlement even if it may exceed direct welfare spend on the poor.

I will be told that the top 10% pay more taxes—58%—but then, of course, they have more money. As Michael Johnson has calculated, they get back 49% of tax reliefs. Our tax system is not progressive; it is merely and simply broadly proportional. Over their lifetime, the rich may pay more in, but rich and poor get much the same out. Even the poorest deciles pay through their taxes, especially indirect taxes, for half the benefits they receive, while the top 10% get back four-fifths of what they pay in. As Professor Sir John Hills has said, over their lifetime, people pay for their own social security irrespective of income. Three-quarters is self-financed and only a quarter is redistributed. We are not talking about handouts but about social insurance and social security, and that is the language we should employ.

Against that, how do we assess the Autumn Statement? Universal credit offered a ladder out of poverty and into work. Except that, despite the gallant efforts of the noble Lord, Lord Freud, now it does not. Her Majesty’s Treasury has savaged not only tax credits but the moral and economic case for UC, and it has done so quite deliberately. As the Resolution Foundation has noted, 3 million families getting tax credits will lose them entirely while 1.2 million will be significantly worse off. Some 4 million children are in poverty, two-thirds of them with a parent in work. People will now be even poorer under universal credit. Far from transforming lives, the Resolution Foundation which is chaired by David Willetts—the noble Lord, Lord Willetts—states that universal credit has become,

“little more than a vehicle for rationalising benefit administration and cutting costs to the exchequer”.

Precisely so. Peter Aldous, Waveney’s Tory MP, told the Commons a fortnight ago that since May this year UC has been fully rolled out in his constituency:

“I have to report that it is not going well. Those in my constituency office are spending most of their days addressing very real problems people face in having nothing to live on, nothing to pay for food, and no money to pay the rent … people in areas now on universal credit will, as a result of these changes, be significantly worse off than their neighbours … who remain within the tax credit regime”.—[Official Report, Commons, 17/11/16; col. 419.]

In 2010 universal credit promised to lift 350,000 children and 600,000 adults out of poverty. Instead, child poverty will be 50% higher by 2020. Why is that?

Let us take first the work allowance; that is, earnings before the withdrawal of the taper of 65 pence in the pound, now 63 pence, kicks in. As the right reverend Prelate said, it is still three times the rate of basic income tax. The work allowance has been cut by a third for those with children and halved for lone parents, down from £8,808 taper-free to £4,764, cutting £3 billion. I refuse to use the word “saving”—it saves us but it certainly does not save them.

Add to those the cuts due next April: scrapping the family premium, scrapping support for future children beyond the second one even though we know that larger families are poorer. That will ultimately result in a cut of £5 billion a year.

Add to those the four-year benefits freeze. As my noble friend Lord Livermore mentioned, the Office for Budget Responsibility has stated that by 2020 it will cut claimants’ income cumulatively by 12%. So by 2020, a lone parent with two children working 30 hours a week as a shop assistant on the national living wage will have lost more than £60 a week—£3,210 a year. Having done everything we asked her to do, she will be punished for it. That will result in a cut of £4.6 billion.

Finally, we must add in the benefit cap, which is being reduced from £26,000 to £20,000, irrespective of family need or size. Some 100,000 families are facing cuts this winter of an average of £60 a week. Before the Minister tells us that this has got them back into work, which is often said, it is not true. The Institute for Fiscal Studies shows that only 5% have done so.

Against this litany of cuts, what has the Autumn Statement offered? There is no mitigation of the work allowance cut, which would have made a real difference. There is no restoration of the CPI link when inflation rises above, say, 1%, which would also have made a real difference. There is no review of the benefit cap when even affordable rents cannot be afforded and families are becoming homeless. Instead, the noble Lord, Lord Young, has listed offsetting goodies—the rise in the national living wage, the higher tax threshold, the 2% reduction in the UC taper, the freeze in fuel duty, and the additional hours of childcare. But, as the right reverend Prelate said, for the bottom third of our people they are basically trivial. When set against the benefit cuts, a main earner—a husband in full-time work on the national living wage with two children, say—will be £1,780 a year worse off, while gaining just £190 from the Autumn Statement.

By 2020 we will have spent nearly a decade and nearly £2 billion in implementation costs for UC to make people poorer than they would otherwise have been, sending half a million more children into absolute poverty and into the dark shadows of our economy. Ministers talk about difficult decisions. I am sorry, they are not difficult decisions for Ministers, but they are for those whose living standards will spiral down and down. Their difficult decisions will be how to cut out another adult meal to feed the kids. How much extra can be borrowed from the family? How limited and low can the heating be set?

Four-fifths of the Budget and Autumn Statement goodies go to the richest half of households. The gains go to the rich, the cuts to the poor. It is simple really. The Government have made a deliberate choice that the poor will pay for austerity. Net, they lose proportionately 25 times more than the top deciles, the IFS says. The Government have taken pounds from them and given back pence. As the IFS said, it is dreadful.