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

Debate between Baroness Manzoor and Lord Cormack

Monday 26th October 2015 Lords Chamber

[Baroness Manzoor (LD)]

My Lords, there has been a lot of discussion in the run-up to this debate about the role of this House in debating statutory instruments. I know that many noble Lords will wish to pick up on the constitutional role of the House. We have already started to see some of those points being made.

I do not discount the strength of feeling on the issue of whether this House should seek to reject the views of the elected Commons, but I want to be clear about what we are talking about today. We are talking about a measure that, according to the expert analysis of the Institute of Fiscal Studies, will hit 3 million low-income working families. These are people doing the right thing: going out to work and trying to make ends meet. They are exactly the kind of people whom the Government have said they want to help. Yet this change will have a seriously damaging impact on their ability to keep their heads above water. These families will, according to the IFS, lose an average of around £1,000 a year. For many people on low incomes, that will mean the difference between being able to continue to pay to heat their homes, pay their rent and feed their families and not being able to do so. In total, 4.9 million children will be directly affected by the change. Almost a quarter of single parents living in the UK will see their incomes cut.

Yet the Government continue to ignore the overwhelming consensus among charities such as the Children’s Society and Gingerbread—I could name many others, including taxation experts and even their own Children’s Commissioner—that these changes need to be reconsidered. It is no surprise that the Low Incomes Tax Reform Group—by no means a leftie organisation—has said that the impact of these changes,

“on the majority of tax credit claimants will be devastating”.

The problems with the Government’s proposals go far wider than those directly affected. They will also have a huge impact on the important principle—that this Government claim to support—that work should always pay more than a life on benefits. Evidence from the Social Market Foundation suggests that someone earning the average wage for those living in social housing of £8.08 an hour will see the benefits of earning wiped out almost entirely. Because of the way the so-called taper rate interacts with taper rates applied to other benefits including local Council Tax benefit, the marginal deduction rate—the rate at which benefits are withdrawn—will be 93%. That means that for every pound a person earns by going out to work—by taking on extra hours in order to improve their lives—they will keep only 7p.

Liberal Democrats in the coalition Government fought for universal credit. We fought alongside the Conservatives for the “make work pay” agenda. The Government’s proposals run utterly counter to this philosophy. Such a fundamental change in the Government’s approach should be challenged every step of the way.

[Lord Cormack (Con)]

My Lords, 104 years ago, a Liberal Government decided that this House should not have jurisdiction in budgetary matters. The noble Baroness speaks for a party which has a disproportionate strength in this House. She and her party believe in proportion. They also believe in the supremacy of the House of Commons. How does she square the various points I have just made with the speech that she is making and the vote that she is seeking tonight?

[Baroness Manzoor]

I thank the noble Lord for that intervention. I will come to that point and address it in the best way that I can.

I will pick up briefly on the speech made in moving the Government’s Motion by the Leader of the House. I do not discount her views but the overwhelming evidence is that these measures will do real damage.

However, I want to express my disappointment that this debate is not being led by the noble Lord, Lord O’Neill. This set of regulations relates to measures brought forward by the Treasury. It is right that such regulations should be promoted and defended by the Minister from the department responsible, whenever possible. As I said at the start of my speech, while much has been made of the constitutional issues surrounding the Motion, it is ultimately about the impact of the measures on the families affected. The Leader of the House does an excellent job in representing this House outside the Chamber, and in defending the Government’s position on the role of the House inside it, but this Motion is not about those things. It is about tax credit changes and it is reasonable for the House to expect the Treasury Minister to answer its concerns.

Fatal Motions on regulations should be used incredibly sparingly. I wish that we were not in this position but I cannot think of a better reason for this House to use such an option than the lives of 4.9 million children and the parents who go out to work to support them. I have tabled this fatal Motion for a simple reason: when all is said and done, and when the constitutional debate about the role of this House is over, I want to be able to go home this evening knowing that I have done everything I could to stop this wrong-headed and ill-thought through legislation, which will have such a damaging and devastating impact on millions of people’s lives.

We have a duty in this House to consider our constitutional role but we also have a duty to consider those affected by the decisions we make and the votes we cast. Were there another way for this House to reject this proposal and send it back to the Commons to reconsider, I would be all for doing so. Some people have said to me that this is a budgetary measure—indeed, the Leader of the House said so, too—and therefore not within our competence. Were that true, the Government had an opportunity to put these changes into the Finance Bill rather than to use an affirmative statutory instrument, a measure that this House is explicitly asked to consider and approve by the primary legislation from which it stems.

I have been told by many that a fatal Motion is too blunt an instrument. If that were the case then the Government could have placed this measure in the Welfare Reform and Work Bill, which is coming to your Lordships’ House in due course, giving this House the opportunity to amend the proposal and suggest alternatives, but they have chosen not to pursue that course either. So we are left with a statutory instrument, a tool designed for minor changes to processes and administration, being used to implement a substantial change in policy that will affect millions of people’s livelihoods. That is not my decision but I hope that we will do everything we can to stop it.

I want to turn briefly to the other Motions in the names of the noble Baronesses, Lady Meacher and Lady Hollis, and the right reverend Prelate. I am sure that they will speak on their own Motions in detail, so I do not want to dwell on them. However, to be clear, I support all those proposals. It is right that the Government should delay these measures to properly respond to the serious challenges put by the IFS, as the noble Baroness, Lady Meacher, suggests. It is also right that the Government should not make these changes unless there is transitional protection, as the noble Baroness, Lady Hollis, proposes. Fundamentally, however, these are sticking plasters on the wound. Transitional protection will help many of those who will see an immediate cut to their tax credits next April but would do nothing for those who become eligible for tax credits this time next year. If the Government succeed in meeting their employment target then we will see more people in part-time work, which is a great thing, but these people will need tax credits. If they meet their noble and worthy aim of increasing the number of disabled people in employment, that is likely to mean more people in flexible working arrangements whose income may need to be supplemented by tax credits. These people would not be protected by transitional protection. That is why, although I support and will vote for the amendment in the name of the noble Baroness, Lady Hollis, I believe that we need to go further.

I have no doubt that this House could spend many hours debating our constitutional role. I and all those on these Benches—