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

Baroness Smith of Basildon Excerpts

Monday 26th October 2015 Lords Chamber

[Lord Lawson of Blaby (Con)]

I suspect that I am not the only one on this side of the House who feels torn on this issue. The constitutional position, which I will refer to first, has been set out admirably by the noble and learned Lord, Lord Mackay, and it is very clear: budgetary matters are the prerogative of the other place—of the elected Chamber—and this is undoubtedly a budgetary matter, however it is dressed up. What is the purpose of the measure? The purpose of it is to help reduce the budget deficit, and everybody is agreed that it should be—

[Baroness Smith of Basildon]

The noble Lord seems to imply that because this is a tax credits issue, as was said by the noble and learned Lord, Lord Mackay, for whom the House holds enormous respect, it would be subject to financial privilege. Is he aware that the legislation in 2002 was not subject to financial privilege? It is hard to argue, then, that a statutory instrument from that legislation should be.

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[Baroness Hayman]

I say to the noble Lord, Lord Butler, that the financial convention has not stayed absolutely the same for 300 years. The convention was that this House did nothing about the Finance Bill or, indeed, other economic measures. In 2000, we set up an Economic Affairs Committee. The House of Commons went into free-fall about encroachment on financial privilege. In fact, we were told that Gordon Brown, the Prime Minister at the time—I see the noble Lord, Lord Lisvane, nodding—was incandescent at the idea that there should be a sub-committee looking at the Finance Bill. However, those things happened and the world did not collapse. Financial privilege and the right of the Commons to have the final say was not impeded.

To my mind, this is a matter of very high and clear-cut politics, and of highly nuanced constitutional significance. Overall, I believe that the most important power of this House, while leaving the last word to the other place, is to ask it to think again, and I urge the House to use that power this evening.

[Baroness Smith of Basildon]

My Lords, this has been a quite extraordinary debate. It is unusual for your Lordships’ House to find itself at the centre of such a ferocious policy and constitutional debate as it does today. It is also extraordinary and unusual that, on a matter that affects the Department for Work and Pensions and the Treasury, we have no Treasury or DWP Minister addressing your Lordships’ House today. I can understand why: the Government feel more comfortable talking about constitutional issues in this regard than they do about the impact of this policy. We all understand that. Again, it was extraordinary that the noble Baroness the Leader of the House supported an amendment to her policy by supporting the right reverend Prelate’s amendment. So there have been some quite extraordinary scenes and what we are seeing today is unprecedented. It is good to see the noble Earl, Lord Howe—

[Baroness Stowell of Beeston]

I thank the noble Baroness for giving way. It is important that she does so because she has incorrectly interpreted what I said. I was very clear that the Government do not support any amendment to their Motion. I said that the right reverend Prelate had brought forward his concerns in a way that was consistent with the conventions and the proper role of this House.

[Baroness Smith of Basildon]

I think that that is a bit of an angels-on-pinheads defence, but I take the point that she makes.

I suspect that when the noble Earl, Lord Howe, took on the role of defence Minister, he did not think that his job would be defending all government policies across the House, as he is being asked to do today.

We have been asked to approve the Government’s tax credit order, and we are unable to do so. The reasons for that have been very carefully laid out. Our view is that these are pernicious regulations that do enormous damage. Overnight, at a sweep, they would dramatically cut the income of some of the poorest in society: those who are working hard and doing what the Government say is the “right thing”. About 3 million people will be affected by these cuts. Like many other noble Lords, I have had emails and letters from those who are likely to be affected: from nurses, teachers, cleaners and firefighters—people working hard, trying to raise a family. They are terrified by what lies before them; they do not know how they are going to cope. The noble Baroness, Lady Campbell, echoed some of the emails that I have received when she talked about those who have disabilities being moved into work and finding it so much better for them.

When my noble friend Lady Hollis spoke to her amendment, the House was silent. We could have heard a pin drop as we listened to what these cuts will really mean and the impact that they will have on people across this country. I think that the House was shocked and upset by the information that she provided today. However, she also provided a way through.

The noble Lord, Lord Lawson, said that tax credits have increased to £30 billion. They have; that is part of their success. In almost equal measure, we have seen income support reduce as people went into work. Therefore, they were no longer on income support but were receiving tax credits—that was the success of the measure. Income support went down as people moved into work and received tax credits to reflect their circumstances and help them to work. We have always been told that the way out of poverty is work, and that is what those people on tax credits have done; they have moved into work.

It may be that some people cannot imagine what it is like to lose £25 or £30 a week from their income. For a lot of people out there, the loss of that £25 or £30 a week—in some cases much more—would be devastating. It would mean not putting in the money for heating this winter when it gets colder; it would mean not getting the kids new school shoes; it would mean making the kinds of choices that we should never place on families.

This is a highly contentious area, but it is the policy that is important. Having said that, there are conventional and constitutional issues, which noble Lords have raised, that have given some concern. It would, as we have heard, normally be expected for a measure of this nature and magnitude to be introduced by primary legislation. Thus, a government Bill would go through all the stages that such a Bill goes through and there would be the opportunity to debate it, put amendments to it and vote on those amendments. There would be opportunity to make revisions and to listen to the concerns that were raised. One has to wonder why the Government did not take that route. They could have applied financial privilege, which would have stopped all this, but they have chosen to deal with this measure through a statutory instrument.

[Baroness Butler-Sloss (CB)]

I am sorry to interrupt the noble Baroness, but we did hear from the noble and learned Lord, Lord Mackay, that this came about as a result of the secondary legislation from the tax credits legislation introduced by her Government. As a result of which, this is a natural progression from that legislation. Therefore, perhaps the noble Baroness could explain why that was wrong.

[Baroness Smith of Basildon]

I can certainly help. In 2002, the legislation that went through that allowed for amendments to tax credits legislation to be made by statutory instruments or delegated legislation was so that normal uprating, for example, could be applied. It was for minor changes and normal uprating. However, major policy changes would not normally be made by these kinds of regulations. Furthermore, as I said earlier in my intervention on the noble Lord, Lord Lawson, the legislation in 2002 was not itself subject to financial privilege. But now we have a Government saying that the secondary legislation that follows on from that should be subject to financial privilege. I hope that that addresses the concerns that the noble and learned Baroness has raised. I give way to the noble Baroness yet again.

[Baroness Stowell of Beeston]

An important point for the House to understand is that the original Bill—the Tax Credits Act 2002—was not certified as a money Bill because it included changes to the administration of the welfare system. Had it just been about the financial measures that we are debating, it would probably have been certified as a money Bill. It was the addition of administration that caused it not to be certified as a money Bill.

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[Baroness Stowell of Beeston]

They would not, because certification of a Bill is done by the Speaker.

[Baroness Smith of Basildon]

In some ways, the Minister makes my point for me. Major issues and changes such as this are undertaken in primary legislation—a case she made for what happened in 2002. It is unusual to make such major changes in secondary legislation. But let us leave that to one side, if we may.

Anybody in the real world listening to us talk today would wonder what on earth we are on about—primary legislation, secondary legislation, delegated legislation, affirmatives and negatives. What really matters is the impact it has and applying a common-sense approach to what is before us today. We know, as parliamentarians, that SIs are more normally used for that specific detail of legislation that we have passed already or for issues following primary legislation where the principle has already been approved into law. As I have said, they can be very properly used for normal uprating in tax credits, and I made the point about 2002 to the noble and learned Lord, Lord Mackay.

The proposal before us today goes way beyond that normal kind of uprating. It is a major policy change that, in the first place, the Government promised not to do. The route that the Government have chosen is not illegal or the wrong route, but there are consequences of taking it. If the Government try to truncate the process, so as not to have that full consideration in the House of Lords, yet at the same time allow this House, through the normal constitutional procedures of your Lordships’ House, to debate and discuss the proposal and the kinds of amendments that we have before us today, it is quite clear that the amendment from my noble friend Lady Hollis is not a fatal amendment, whatever the Minister and her colleagues may think. She has had advice from the clerks and has made numerous references. It is no good the Leader shaking her head at me; the evidence is there and it is very clear cut.

If the Government had gone down the normal route, they would have claimed financial privilege and we would not be here today, and there would have been further debates in the House of Commons. MPs from across the House privately, and now publicly, admit that this goes too far, too quickly and causes too much harm.

The amendment in the name of my noble friend Lady Hollis is what I refer to as the common-sense, practical approach. It can really make a difference and is in line with what most people in this country are asking for: 60% of the population today are reported to want to see a U-turn or change in this policy. That is what my noble friend is seeking to do. Her amendment calls on the House to reject these proposals as they stand and for Ministers to come back with a proposed scheme to protect those already getting tax credits for at least three years—that is all of them.

If the amendment is passed, what happens next? The onus is then on the Government to take the proposals away and reconsider. The Government can bring forward new proposals for consideration. The policy would not, as the noble Lord, Lord Butler, intimated, disappear into the ether—that is a matter for the Government. If they are committed to doing something, the Government can bring new proposals to your Lordships’ House or choose to bring forward new primary legislation. However, if they failed to bring anything back at all, it would mean that they could not proceed with these cuts, would have to look for another route and would have to reconsider their policy. No Government ever have the wisdom such that they are right all the time. This House is right to ask the other place and the Government to reconsider, to pause and to try to get it right.

[Lord Butler of Brockwell]

But it is a blocking amendment. Nobody can compel the Government to do what the amendment says, and if the Government do not, the House of Lords would be refusing to consider this Motion indefinitely.

[Baroness Smith of Basildon]

The noble Lord, Lord Butler, seems to be under the impression that, contrary to what the Leader said, the Government want to do nothing. The Government would have us believe, from what they have hinted at, that they are happy to look at things again. Therefore, I do not accept his argument on that. What is clear, though, is that passing the amendment of my noble friend Lady Hollis would force the Government to look at this again. We would have a commitment, a promise: they would have to look at this issue again and say where they could make significant changes to protect those who are currently terrified of the letters they will get at Christmas outlining the cuts to expect in their income.

We have been very clear: this is not a fatal amendment; it does not totally block the Government’s plans; it allows them to reconsider. Although we do not have the right to pass a fatal amendment, we have a moral and constitutional duty to scrutinise, examine and challenge and, when a Government have clearly got it wrong, to ask them to think again. The noble Lord, Lord Cormack, and I were sparring partners at a distance on Radio 4 today, but even those voting with the Government tonight are saying, “But I’ve got great concerns about the policy; I want to see change”. The noble Baroness needs to know, if her troops follow her into the Lobby today, that they are doing so because she has tried to make a constitutional issue out of this, not because they agree with the tax credit cuts. We could give the Chancellor of the Exchequer tonight an opportunity to address the very deep concerns expressed by Peers and Members of Parliament of all parties, including very senior members of her own party and colleagues on the Benches behind her.

I want to explain why these Benches have not put forward a straightforward fatal Motion like the one tabled by the Liberal Democrats at the behest of their party leader, Tim Farron. In policy terms, there is little between us on this issue. It is significant that the fatal Motion was tabled only after the Government had threatened retaliation if your Lordships’ House voted against the cuts. That escalated the constitutional issues and let the Government off the hook a bit, because they were more willing to talk about constitutional issues than about the impact of these cuts. The really important task before us today is to look at how we can protect people from what the Government have proposed, and I regret that the fatal Motion has allowed the focus to go off the issue and on to the constitution. My further concern is that the Government, having won a vote in the Commons, would quickly return with new primary legislation with very little change, if any, to avoid consideration by your Lordships’ House.

We believe that our Motion is the only one that can lead to meaningful change. It gives Ministers the opportunity to take a step back and listen properly to the clamour of voices calling for them to think again. That is the right role for your Lordships’ House to take. Those voices are clamouring not just here in Parliament; it is also the Children’s Society, think tanks such as the IFS, the IEA and the Adam Smith Institute, and newspapers such as the Sun that would normally support this Government.

We have heard the arguments about whether this oversteps our constitutional authority. It does not.

[Lord Forsyth of Drumlean]

Can the noble Baroness tell us exactly how much the proposal of the noble Baroness, Lady Hollis, would cost?

[Baroness Smith of Basildon]

My noble friend Lady Hollis is very keen to tell the noble Lord.

[Baroness Hollis of Heigham]

Yes, my Lords. I had hoped that the noble Lord, Lord Forsyth, in his courteous way, would have heard my argument that the savings would come to the Government automatically; first, by the rise in the living wage, of which three-quarters of a billion pounds each and every year accrues back to the Government; secondly, by the fact that new claimants to tax credits are not covered by our amendment; and thirdly, because the National Audit Office says that, by 2019, more than 90% of those on tax credits will be on universal credit, where they will have their cuts. Over the entire Parliament, the Government will have matching savings that probably exceed the very cuts that they demand.

[Baroness Smith of Basildon]

My Lords, the point made by my noble friend is that this is a choice for the Government, not a necessity. What we have seen in the last week has enlightened all of us on the Government’s reluctance to accept challenge or proper scrutiny. There is no constitutional crisis looming at all. The Prime Minister has provoked a rather phoney constitutional crisis in this House rather than dealing with the very serious problems with his and the Chancellor’s tax credit policy. In the last Labour Government, we lost many dozens of votes here in the House of Lords on a range of issues, including one on 42 days’ detention, and one on the entire Second Reading of a Bill. Of course we did not like it, but we accepted it and moved on. At no point in this Session of Parliament have this Official Opposition not accepted the right of the Government to get their legislation through, but they have to do so properly, and they do not have a monopoly on getting things right all the time. In this case, we really believe that the Government have it wrong.

The threats that have been made to the House of Lords as an institution have been nothing less than parliamentary bullying.

[Noble Lords]

Hear, hear!

[Baroness Smith of Basildon]

Threats to suspend the House of Lords; to pack it with 150 new Tory Peers, or to “clip our wings” do nothing to address the issues that are before us and have given rise to concerns. There is a need for true reform of your Lordships’ House and Labour Peers have already suggested good measures, but those threats have nothing to do with reform and everything to do with the Government not wanting to be challenged and not being willing to think again.

This is a common-sense way to do things. This House looks at the issues; considers them and thinks the Government have got them wrong; so let us send them back to the Government and urge them to rethink and come back with something that is significantly better and does not really harm, and create enormous fear in, those people in work who are struggling to make ends meet and are terrified of the letters that are going to come through their letterboxes near Christmas. We will not exceed our authority, but neither will we be cowed into abdicating our responsibilities to hold the Government to account and act in the public interest.

[The Minister of State, Ministry of Defence (Earl Howe) (Con)]

My Lords, the privilege falls to me, as Deputy Leader, of winding up this debate, which has proved to be a remarkable one. In many ways, it has been a landmark in the proceedings of the House. We have been treated to some extremely powerful contributions, both for and against the draft regulations, and both for and against the amendments that have been tabled. I listened with care to them all. I suggest to your Lordships that there are, in essence, two aspects of the matter that we are here to consider: the content of the regulations themselves and the issues which, for want of a better term, I will call the constitutional questions that arise out of three of the amendments before us.

Turning first to the policy issues, without unnecessarily going over the ground already covered by my noble friend the Leader of the House, there is one central point to be made at the outset. I make this point given that a number of noble Lords have seen fit to criticise both the intent and the effect of what the Government are seeking to achieve. The Government want a new deal for working people: a deal whereby those who claim either tax credits or universal credit will always be better off in work and always be better off working more. The way in which we are doing this will mean that a typical family man or woman, working full-time on the national living wage, will be substantially better off by the end of this Parliament than at the beginning of it. That is the aim that we have set ourselves and it is an aim that runs parallel with our policy intent, which we have made expressly clear for nearly two years now: that a Conservative Government, if and when elected, would look to find welfare savings of around £12 billion in order to reduce the public sector deficit. I simply say to the noble Baroness, Lady Hollis, that the proposals that she has very constructively put forward are already built into the assumptions that we made. I am happy to look at her proposals in more detail but, from what she said, the Chancellor has already factored those points in.

Achieving those two policies simultaneously is possible only if a series of measures is taken—measures that will move us from a position in which working households are supported by low wages and high tax credits to one where there are higher wages and lower tax credits. The regulations that are before us today are about only the tax credit element of that overall picture. That is why it is unfair to pick up the report from the Institute of Fiscal Studies and point with alarm to large losses that a poorer working family might incur from cuts in tax credits without also taking into account other vitally important things that we are doing. The counterbalance to lower tax credits is a combination of positives—the national living wage, the rise in the income tax personal allowance and, importantly—

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[Earl Howe]

Interestingly, the Institute for Fiscal Studies said in terms in its report that the Chancellor made quite a big choice in the Budget to protect some of the poorest people on tax credits. That is self-evidently true. I would add in response to the noble Baroness, Lady Campbell of Surbiton, who I am sorry is not in her place—oh, she is, I beg her pardon—that the disabled and severely disabled elements of working tax credit will not be cut through these measures. They will be uprated by inflation. In fact, the Government are making savings in tax credits, so that they can protect disability benefits which have been protected from the benefits freeze and the welfare cap, including DLA and the support group component of ESA, as well as disability elements of the tax credits, as I have mentioned. I hope that that is of some reassurance to her.

Despite all that I have said about why what we are doing is both necessary and right, I recognise that there are noble Lords opposite who will remain unpersuaded. Let me therefore address the amendments. Other than in the rarest of circumstances, it is against the long-standing conventions of this House—and, therefore, I would suggest wrong—for us to vote down or block secondary legislation. Those rare circumstances, I would argue, do not include this situation, in which noble Lords are seeking to challenge the House of Commons on a matter of public spending and taxation, a point made very effectively by the noble Lord, Lord Butler. The sums involved are not trivial. The regulations before us, as I said, would account for welfare savings of £4.4 billion in 2016-17. We can argue—as I am actually quite interested in doing, but I do not think it would be profitable—about the technicality of whether these regulations are or are not financial, but in substance they are very definitely and very obviously financial. I therefore say to the noble Baroness, Lady Manzoor, that her fatally worded amendment should not be put to a vote.

On the amendments tabled by the noble Baronesses, Lady Meacher and Lady Hollis, the situation, I contend, is simple. There is a choice before this House to approve or not to approve these regulations. It is a binary choice. The noble Baronesses are inviting the House to withhold our approval. We can argue endlessly once again about the technicality of whether the wording of these amendments is or is not fatal in nature. But the reality is that if either amendment is passed, this House will not have approved these regulations. It is no good saying that this would merely amount to asking the House of Commons to think again. They can do that with Lords’ amendments to primary legislation, but with secondary legislation there is no mechanism for a dialogue between the Houses and no mechanism to allow the will of the Commons to prevail in respect of this instrument—

[Baroness Smith of Basildon]

I sense the noble Lord is coming to a conclusion. Does he accept that the amendment of the noble Baroness, Lady Hollis, does not ask the House of Commons to think again; it asks the Government to reconsider their proposals and think about new ones? It is asking the Government to reconsider.

[Earl Howe]

Of course, I do accept that. The amendment of the noble Baroness is expressly asking the Government to do something other than what is in the regulations. By definition, that means that if her amendment were carried, we could not bring back the same set of proposals. The implementation of these regulations would not be delayed, as the noble Baroness is suggesting; it would be thwarted entirely. So, she is asking the House to accept a false proposition. It is very interesting that the noble Baroness herself has recently given an interview which certainly implied that the amendment of the noble Baroness, Lady Hollis, is a fatal one. In the interview she gave to the Huffington Post, she said that if the amendment of the noble Baroness is carried, the Government cannot go ahead with the cuts. Well, that, to me, is very fatal indeed. Therefore—