Taxation: Families

Baroness Sherlock Excerpts

Thursday 17th January 2013 Lords Chamber

[Baroness Sherlock]

My Lords, what a wonderful place to start. I would certainly not want to go back to when my noble friend Lord Graham or the children of today would have no boots, but maybe a place where Wayne Rooney got £7 a week would be a country I would think about living in.

Like other noble Lords, I am most grateful to my noble friend Lady Hollis for introducing this debate so powerfully. If I were the Minister I would be getting anxious already about how I would respond to that rather forensic opening statement. I congratulate her, too, on choosing the topic and expressing it in a way that has drawn so many powerful speeches from around the House. In a debate such as this, I am proud to be a Member of this House. I have learnt something from every speaker and having the opportunity to come into the debate at the end is really a privilege.

It is clear that there is widespread concern about the impact of tax and benefit changes on families. Given the rather forensic opening assault by my noble friend Lady Hollis, the Minister has some rather big questions to address. I was impressed that my noble friend had done so much spade work in trying to dig out the cumulative impact on families of successive tax and benefit changes since 2010. She mentioned a whole number of cuts that have been made but there are more. As well as those changes she mentioned, the Government have abolished the health in pregnancy grant and the baby element of child tax credit; they have cancelled the planned toddler element of child tax credit; the government contribution to the child trust fund has gone; the Sure Start maternity grant is not there for second and subsequent children; and the Government are introducing hefty charges for using the Child Support Agency.

All of that makes me worry about the extent of the burden being borne by women and children. This was highlighted very well by my noble friend Lady Massey of Darwen. If I were a mum of young kids, out there on a modest income, I would be starting to wonder what David Cameron thought about me and why so much of this burden seems to be borne by people like me. This is before we discuss the move to uprate benefits by just 1% for the next three years. Would the Minister like to comment on Tuesday’s admission by the Government in another place that that 1% change would increase child poverty by 200,000 more than would have been the case if benefits were uprated by CPI?

What is the Government’s strategy on tax and benefits for families? The Chancellor of the Exchequer, Mr Osborne, explained this very well. Introducing the Autumn Statement in another place on 5 December, he said:

“Those with the most should contribute the most, and they will, but fairness is also about being fair to the person who leaves home every morning to go out to work and sees that their neighbour is still asleep, living a life on benefits. As well as a tax system where the richest pay their fair share, we have to have a welfare system that is fair to the working people who pay for it”.—[Official Report, Commons, 5/12/12; col. 877.]

Let us test the Government’s record against that statement. First, will those who have the most contribute the most? The Government decided to reduce the top rate of income tax from 50% to 45%, a move that will give a major tax break to high earners including, as the noble Lord, Lord Alton, explained very clearly, giving 8,000 people an average tax cut of £2,000 a week. This is at the same time as introducing a Bill that would give someone on jobseeker’s allowance an increase of just 71p a week for three years.

What, then, of the personal tax allowance increase that was advocated so ably by the noble Lord, Lord German? Does that help the poor? Sadly, it does not. The nature of tax allowances is that everybody who pays tax benefits from them and the poorest do not, a point clearly made by the right reverend Prelate the Bishop of Exeter and the noble Baroness, Lady Jenkin. The Child Poverty Action Group calculated that a working family eligible for both housing and council tax benefits will gain just 13p a week from the extended personal allowances. The much quoted Institute for Fiscal Studies noted that households towards the bottom of the income distribution,

“benefit relatively little from the increase in the income tax personal allowance, as many individuals in these households would have had a personal income below the allowance (i.e. they would have paid no income tax)”.

The IFS continued,

“Households in the middle and upper-middle of the income distribution benefit the most as a percentage of income from the increase in the personal allowance”.

So, that is not so good on those with the most paying the most.

What, then, of the opportunity to consider how the Government make sure that the system is,

“fair to the working people who pay for it”?

Tax credits, and all those payments I listed at the beginning of my speech, are or were available to working parents. The Minister may argue that surely the Welfare Benefits Up-rating Bill will rebalance things by giving people on benefits only a 1% increase. Again, no. As the noble Lord, Lord Alton, noticed, although it is true that some 2.5 million workless households will find their entitlements reduced by an average of £215 a year, 7 million households, about half of those with somebody in work, will lose an average of £165 a year. As a number of noble Lords have commented, I am sure we have all seen the report from the Children’s Society which describes the kind of losses that occur. A second lieutenant loses £552 a year; a nurse or a primary school teacher lone parent loses £424. These people are not sleeping off a life on benefits but they will really pay the price.

As we heard from my noble friend Lady Hollis, in the case she cited of a Daily Telegraph reader, tax credits have made a real difference, in particular to enable people with children to move into low-paid work. Not only do they help those who cannot work full-time, they have also helped households where only one member of a couple is in work—the groups of concern to the right reverend Prelate the Bishop of Exeter and to the noble Baroness, Lady Jenkin. The Government have taken the decision to move across to universal credit, to replace all these benefits. I see the noble Lord, Lord German, has confidence that all will be well in those days and I very much hope so, although I confess that I am getting worried about the repeated reports of delays and the constant snipping away at the support within universal credit—not as worried as the Minister, perhaps, but he can tell us more of that later.

If the Government are confident and want to invest in universal credit because it will help people to move between welfare and work, why are they doing so much to undermine work incentives and cut the payments to low-income families in work? How can that make sense? When Ministers say, as they often do, that social security spending is unsustainably high but fail to be honest about the drivers for that spending, not only is that bad politics but it will cause them to make the wrong policy choices, which is even worse. One reason spending on out-of-work benefits is higher than the Government want it to be is that unemployment is higher than the Government predicted, and pursuing economic policies that make the recession worse or longer and do not promote growth are likely to make that situation worse.

The Government have made some decisions about their work programmes. They abolished Labour’s successful Future Jobs Fund and their own Work Programme has been shown to be worse than doing nothing. I regret to say that I read in the Guardian this week that the Government’s much vaunted unemployment figures include some 20% of people who are in fact on job training schemes, most of them still claiming jobseeker’s allowance. The Government need a strategy other than simply blaming people for the fact they have lost their jobs. As a country, we need a strategy to go out there to pursue growth and create jobs, as was so well described by my noble friend Lady Prosser. We also need measures to support those who are long-term unemployed. There are currently more than 130,000 adults over the age of 25 who have been out of work for two years or more. I share the view of the noble Lord, Lord Bates, that people who can work should work. Labour had said that if it was in government now, it would introduce a two-year compulsory programme; when someone had been on jobseeker’s allowance for two years, they would be in a compulsory job. That would have tackled the question of long-term youth unemployment.

I have focused on working families not because I want to demonise or marginalise those who are not in work, but to try to point out that the tendency to imply that the entire social security bill is spent on a bunch of idle layabouts and is paid for by hard-working people is at best disingenuous and at worst playing politics with the lives of struggling families who are already finding it very hard to make ends meet. My noble friends Lady Prosser and Lady Donaghy have explained how tough life can be for struggling, low-income workers, either in employment or self-employment. The last thing these people need at the moment is for the state to take away from them some of the bit of help they have which is just about helping them to make that transition.

Statements such as that from the Chancellor fail to acknowledge that when unemployment is high there are people claiming benefits who, before they were made redundant, were paying tax to fund them and will do so again. It also fails to acknowledge the disabled people who will clearly struggle, a point made very well by my noble friends Lord Touhig and Lady Pitkeathley and by the noble Lord, Lord Alton. I would be grateful if the Minister could confirm what will happen to disabled people who, even if they receive protected benefits, often get 70% of their income from benefits which will be hit by the 1% limit.

I finish where this debate started. The analysis of my noble friend Lady Hollis was very powerful. I urge the Minister to tell the House today whether he accepts her figures for the impact of the Government’s changes to tax and benefits. If he does not, will he tell us when the Government will publish their own analysis of all they have done to families in Britain? In Britain today it seems that we can afford tax breaks for millionaires but a food bank is opening every three days and a million people have resorted to a payday loan just to pay their rent or mortgage. I invite the Minister to explain those priorities to the House.