Living Standards

Chloe Smith Excerpts

Monday 5th March 2012 Commons Chamber

[The Economic Secretary to the Treasury (Miss Chloe Smith)]

I thank hon. Members for their contributions to what has, on the whole, been an insightful debate. We have heard from the hon. Member for Bristol West (Stephen Williams), my right hon. Friend the Member for Wokingham (Mr Redwood), my hon. Friends the Members for Witham (Priti Patel), for Mid Norfolk (George Freeman) and for Halesowen and Rowley Regis (James Morris), the hon. Member for East Antrim (Sammy Wilson) and, indeed, my fellow by-election winners, the hon. Members for Oldham East and Saddleworth (Debbie Abrahams) and for Inverclyde (Mr McKenzie), whom I very much welcome to this House.

I note that today’s motion is deficient, in that it gives the wrong date for the Budget—I wonder whether that reflects the Opposition’s grasp of detail when they want to spend and borrow an extra £12 billion. It is no surprise that they do not wish to talk about how to bring the deficit “down”, as mentioned in the third line of their motion. They also said nothing about lone parents. Do they not care about the single mums and dads? No, there was not a word for them and the fairness of their already having to work 16 hours a week.

As the House is well aware, we all face tough economic conditions as we recover from the disastrous economic legacy left to us by the previous Government.

[Karl Turner (Kingston upon Hull East) (Lab)]

Will the Minister give way?

[Miss Smith]

No, I shall not, because we have had plenty of time to hear from Labour Members. I must press on. We all know that, in these tough times, families across the UK are tightening their belts, managing pay freezes or worse, and coping with ongoing economic uncertainty. Many families are confronting falling living standards because of the dire economic situation we inherited. The Opposition want to keep on spending and keep piling on the debt, but we refuse to burden our children and mortgage the country’s future with their profligacy.

Tackling the deficit is the vital precondition for a sustainable recovery, underpinning private sector confidence to support growth and job creation. It is right and fair that we tackle the deficit now, as a foundation for prosperity. It is because of our decisiveness that we have secured record low gilt yields, which feeds through to record low and stable interest rates that make a real difference to families paying their mortgages and to refinancing business loans right across the country.

If we are going to discuss a squeeze on living standards, let us talk about what a rise in market interest rates would mean for families across the UK. It would force taxpayers to find an extra £21 billion in debt interest payments; it would increase the cost of business loans by £7 billion; and it would add £10 billion to mortgage bills every year, or an extra £1,000 for the average family—and that with just a 1% rise. Let me remind the House that when we took office, our rates were tracking those of the likes of Spain and Italy, but now they are close to those of Germany. That is because of the tough decisions we have taken.

[Karl Turner]

Will the Minister give way?

[Miss Smith]

No, I shall not, as I have already said.

According to the shadow Chancellor, who, as ever, cannot be quiet, low interest rates are a sign of trouble. He would rather have higher interest rates, a bigger squeeze on families and an even bigger fall in living standards.

The simple truth is that the Opposition have no credible response to the economic challenges that this country faces, which is why we must never return the keys to those who crashed the car. It is we who have the answers to tackling the deficit and securing our prosperity. I know that for many families, however, these are tough times. That is why we have taken substantial steps to protect living standards and to ensure we support our poorest and most vulnerable families. That is why we secured the largest ever cash rise in the basic pension and why we uprated working age benefits by 5.2%, protecting the real incomes of the poorest. We are taking the same approach as we reform our welfare system, targeting support where it is needed most.

Tackling the deficit in a fair way means that we have to ensure that tax credits are targeted at our poorest and most vulnerable families, unlike the path taken by the previous Government, who spent more than £150 billion on tax credits and let nine out of 10 families be eligible for them. That is a staggering, untargeted and unsustainable level of spending and it is right and fair that we should reform it.

Let me turn to the working tax credit. It is not fair that a couple with children can claim the credit if one partner works 16 hours, whereas a lone parent has to pull in the same time on their own. Increasing the working hour requirements for a couple is entirely fair. It is right that they should put in more hours than a lone parent before receiving the working tax credit. That also creates a clear work incentive signal, which many Members have sought in this debate, to potential second earners who could benefit from tax credits if they moved into work or increased their hours—and hours are available. Let me answer this one. In the quarter to January, there were 11,000 vacancies across the economy, meaning that 1 million people moved into work. That paves the way for the principles of universal credit because work must pay.[Official Report, 6 March 2012, Vol. 541, c. 9MC.]

At the same time, we are right to reform child benefit to target it towards those families who need it the most, rather than millionaires. I fully understand that it is a vital income boost, but it comes at a substantial cost to the Exchequer, including more than £2 billion a year in payments to higher rate taxpayers. It is right that we should refocus resources where we need them most, and that means taking the tough decision to withdraw child benefit from families with a higher rate taxpayer, because it is simply not fair that working parents on low incomes should subsidise child benefit for millionaires.

None of these points ignores the fact that across the board, we know that this will be a tough year for households. That is why we have gone even further to support families and businesses across the country, limiting the increases to Transport for London and regulated rail fares and funding South West Water to enable it to cut bills by £50 a year for households that face the highest water bills in the country. We are helping pensioners, setting aside an extra £675 million for local authorities in England that freeze or reduce their council tax, deferring the fuel duty increase that was due to take effect on 1 January to August this year and cancelling the further increase for August. As a result, tax on petrol will be a full 10p lower than it would have been under the shadow Chancellor’s plans, meaning families with the average family car will save £144.

As we fix the failures of the past and repair our economy, we are committed to supporting families across the country. It is a tough challenge to ensure and secure our economic stability and to lay the foundations for sustainable growth, but in our determination to do so and to restore the economic prosperity of this country, we will put fairness at the heart of our recovery. We are protecting living standards for the poorest and most vulnerable families by lifting millions out of tax, taking steps to reduce the cost of living and refocusing welfare on those who need it most. Yes, that means that those on the highest income will bear the heaviest burden as we pull together to tackle the deficit, but it is right that those who can contribute the most should do so. A fair and sustainable recovery demands leadership, and that is what this Government are providing.

Question put.