Budget Resolutions and Economic Situation

Clive Betts Excerpts

Thursday 9th July 2015 Commons Chamber

[Mr Duncan Smith]

Indeed. I shall shortly come to how these imbalances created disparities for people in work and trapped on low income.

We are sticking to two of our most important manifesto promises on personal tax. We are starting the journey to raise the tax-free personal allowance to £12,500 from next year. Once £12,500 is reached, as my right hon. Friend the Chancellor said, we will legislate so that the personal allowance always rises in line with the minimum wage—a great move to protect working people. We are keeping our commitment to raise the threshold at which people pay the higher 40p rate of tax to £50,000, starting with an increase to £43,000 from next year.

I consider one measure from yesterday’s Budget to be more significant than all the others—indeed, it is perhaps the most significant measure in all the Budgets that I have listened to during my many years in this House. The Government believe that if people work hard, they should be rewarded. In our growing economy, people should be able to expect a decent wage if they move into work and increase their hours. That is why, starting from April 2016, the Government have announced that we will move to a national living wage—set initially at £7.20, but rising to £9 by 2020. We will ask the Low Pay Commission to recommend future increases to the national living wage that achieve the Government’s objective of reaching 60% of median earnings by 2020. I believe that that is groundbreaking, and I hope that all Members of the House, instead of cavilling about it, will come to support it.

[Mr Clive Betts (Sheffield South East) (Lab)]

One of the lowest-paid sectors is the care sector, and it is right that it should get a pay increase. The Local Government Association has calculated that to pay the current living wage to all care workers who are directly employed by local authorities, and those employed by private firms that provide services to local authorities, would cost £0.75 billion. By 2020 that will rise to about £1.5 billion, or more. Will that be regarded as a new burden on local authorities for which the Treasury stands the cost, or will it be a further £1.5 billion cut to local authority services?

[Mr Duncan Smith]

We have the spending review to address such issues. In my Department here in London I took on contractors about paying the London living wage, and I faced exactly the same debates and arguments about how it was not feasible and how they would face high costs. I insisted that they went away and looked at their productivity. My Department in London instituted the London living wage. Not one job was lost and productivity has improved. I would consider the matter carefully before we take those official statements as the reality.

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[Pauline Latham]

My hon. Friend makes a very good point, and that is exactly what the Government are trying to escape from. They are trying to raise the tax threshold, so that more people keep more of the money that they have earned. That must be a good thing to do. We need to grow the economy and get the finances under control, with the national debt falling.

[Mr Clive]

(Sheffield South East) (Lab): The hon. Lady rightly talks about the need for honesty in politics. Obviously, she believes profoundly in what the Chancellor has proposed in his Budget. Why, then, was that not set out for the electorate to take a view on before the election? Why was it hidden away until after people voted?

[Pauline Latham]

As the hon. Gentleman knows, we did not know what the result of the election would be. We did not even know that we would be in government; we thought that we might be in a coalition. It might have been the Labour party in a coalition. We have now had a Budget that sets out extremely clearly for the electorate exactly what we will do over the next five years. We want to invest in business. We want to help businesses, so that they can employ more people. That has certainly happened in my constituency, as it will have done in his constituency and those of every hon. Member, because business has created so many jobs. The climate is right for business. Britain is open for business, and we need to get more people working hard.

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[Graham Evans (Weaver Vale) (Con)]

It is a great privilege to follow the hon. Member for Bradford South (Judith Cummins)—a fine constituency and a fine city. I am sure that she will do an excellent job as the constituency’s new MP. I also pay tribute to my hon. Friend the Member for North Warwickshire (Craig Tracey), an outstanding individual who will, I am sure, do a great job for his constituents. I also pay tribute to his good lady wife for her service to Queen and country.

At a time of uncertainty abroad—be it in Greece, Russia or the middle east—the Chancellor delivered a Budget that prized economic stability at home. It was a one nation Budget that will provide security for working people in Weaver Vale, greater Cheshire and the north-west as a whole. Despite the chaos in the eurozone, Britain is still growing faster than any other major advanced economy in the world—faster than America and Germany. Our economy grew by 3% last year, a figure revised upwards from the 2.6% we expected in March. Our long-term economic plan is working. Indeed, before the election, the US President commented that the UK must be doing something right on its economy.

British businesses, backed by the Government through tax cuts and the removal of red tape, have created 2 million new jobs since 2010. I know that businesses across Weaver Vale welcomed the announcements made by the Chancellor yesterday about the extension of the employment allowance to £3,000 and the news that corporation tax will fall to 18% in 2020—from the 28% we inherited five years ago.

Earlier, the shadow Chancellor said that science and technology were not mentioned in the Budget, but the Chancellor has a fine record on such investment, including in Sci-Tech at Daresbury. The previous Labour Government took investment away from Daresbury, and when I became MP for the area in 2010 I was advised by the then Chairman of the Science and Technology Committee—he is no longer a Member, but he was a fine Chairman and I pay tribute to him—to watch like a hawk to ensure that the new Government did not take away investment from Daresbury as the previous Government had done. Instead, the Chancellor invested £150 million recently in big data, and I was proud that, just before the election, IBM signed a £130 million partnership with the Science and Technology Facilities Council that will secure high growth and high-tech, well-paid jobs for my constituents in the long term. That is good for my constituency and for the country, as we become an international hub for science and technology and big data.

The OBR has predicted that a further 1 million jobs will be created over the next five years, but we are the party of ambition and we want to go further. We are working towards a target of full employment—a job for everyone who wants one and a country that is open for business. In the past five years, Government-backed schemes such as the right to buy have helped 200,000 people on to the property ladder. That is vital, because home ownership is central to the aspirational country that we are building. Owning their own home means so much more to families. I was born in a council house, the youngest of four children. My family lived there for 20 years and, in 1972, Ted Heath’s Conservative Government offered us the opportunity to purchase the property, so my parents did so. My father died when I was a teenager and my mother had security in old age and retirement because they had invested in that house. The right to buy is central to the Conservative party’s philosophy that everyone should have a home of their own.

Yesterday, my right hon. Friend the Chancellor gave Britain a pay rise. Over the course of the Parliament, the introduction of the national living wage could be worth more than £5,000 to someone working full time for the minimum wage. I need not tell the House how much that extra income will mean to hard-working families trying to get on. Not only will working people earn more, they will keep more of what they earn. Typical taxpayers will pay £905 less tax than in 2010, thanks to the increases in the personal allowance over the last five years.

[Mr Betts]

I do not know whether the hon. Gentleman has seen the analysis from the Institute for Fiscal Studies today, but it says that the minimum wage announcement will not go anywhere near compensating for welfare cuts in cash terms. People currently on tax credits will be significantly worse off and the reform could cost 3 million families an average of £5,000 a year. That is the IFS’s calculation.

[Graham Evans]

I have to confess that I have not seen those figures, but the Government’s overall mantra is “A higher wage, lower tax, lower welfare economy”, which will benefit all of our constituents. That is in contrast to the Labour party, which had a high-tax, low-wage, high-benefit culture. That is the debate we are having today: the Conservatives want high wages and low benefits and I believe that the Budget will move Britain in that direction. That will be good for the country, for my children and for our country’s future. We are a beacon in Europe, as its second biggest economy, and if we continue down the same road, in 10 to 15 years we will become the biggest economy in Europe. The whole world is watching this great country, and we are the beacon for how things can be done in difficult economic circumstances.

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[Mr Clive Betts (Sheffield South East) (Lab)]

I pay tribute to those who have made maiden speeches. The hon. Member for Caithness, Sutherland and Easter Ross (Dr Monaghan) spoke passionately about inequality and the disadvantaged. I think many of us will share those sentiments. I have been to his constituency and it is very beautiful. I am pleased that I can still go there on holiday without having to go abroad. The hon. Gentleman was generous to his predecessor. John Thurso chaired the Finance and Services Committee in this House and did an excellent job of putting the internal finances of this House into good shape. He should be congratulated on that. My hon. Friend the Member for Bradford South (Judith Cummins) mentioned her predecessor, Gerry Sutcliffe. I would have to say, with a bit of tongue-in-cheek, that Gerry has certainly left a big hole in the defence of the parliamentary football team, but I will move on.

The Budget has certainly received big headlines, but I will try to focus on one or two details that probably do not make quite such good reading for Government Members. The Chancellor is coming back in the autumn with his forecast for cuts to departmental spending. Local authorities in the previous Parliament had £10 billion of the £27 billion of Government grant cut—nearly 40%. That has disproportionately affected poorer authorities in the north. The forecast is for another £9.5 billion of cuts in this Parliament on top of that. Local authorities have done very well to be as efficient and effective as possible with the spending they are left with. They simply cannot carry on delivering the services that our constituents want from them if those £9.5 billion cuts follow on from the cuts in the previous Parliament. Why has local government been disproportionately singled out for cuts compared with other services? That is the question the Government have to answer.

There are two areas where I think there is a particular problem. I support the principle of the Government’s devolution proposals if they are not simply a mechanism for passing on more cuts for local authorities to deliver. We have to have some concerns about that. I would say, however, that, given that they are primarily about trying to rebalance the economy and with the talk of the northern powerhouse, we should look at what has happened to local authority spending on planning and economic activity. Local Government Association figures show a massive 55.4% cut in spending on planning and economic development in high-cut authorities in the last five years, and even in medium-cut authorities that figure is 47%. Those sorts of figures will not support the economic regeneration and development in the north that the Government and everybody else want, which is a matter of particular concern.

We have a real problem in social care. The NHS has had some protection, but 300,000 fewer elderly people are getting social care from local authorities now than in 2010, because authorities now offer it only to those in the greatest need. Age UK says that more than 1 million people needing care are not getting it, which puts pressure on the NHS and accident and emergency units and results in beds being occupied by people who should be in their own homes being properly looked after; and this year, there will be a further cut of more than £1 billion to those services.

We cannot carry on like this. If we are going to have proper joined-up health and social care, social care needs some protection as well. I raised this point with the Secretary of State. Social care has some of the lowest paid employees of any sector in local government or any other service. If the living wage is applied at £9 per hour to everyone in the social care sector, it will cost local authorities about £1.5 billion by 2020. Local authorities cannot find that money on top of the cuts they have to make anyway. They simply cannot do it. This is an added burden that the Treasury must bear by giving that money back to local authorities. Instead of showing in the Red Book, as it does, a £1.5 billion saving in the welfare budget, the Treasury has to give this money back to local authorities to compensate them—and that does not include the cost of paying other workers in a similar way.

I hoped the Budget would boost house building in this country, but let us look at the hidden effects. The cap on local authority borrowing has not been lifted, but the rents that housing associations and local authorities can charge have been reduced from the commitment by the previous Housing Minister, the hon. Member for Hertford and Stortford (Mr Prisk), who promised rent increases of CPI plus 1% over 10 years, to a 1% reduction per year. The Chancellor said yesterday that it would come from efficiency savings. No, it will not. Housing associations and local authorities cannot cover 4% a year less in rents through efficiency savings. The LGA has said that it will reduce the ability of local authorities and housing associations to invest in new homes and improve existing ones, while the National Housing Federation said today that, on a conservative estimate, it would reduce the amount of money available for development by £3.9 billion and mean 27,000 fewer social homes being built. That did not appear in any of the Budget headlines. I repeat, some 27,000 fewer social houses will be built because of the Budget and there will be a £50 million loss to the housing account in my own city of Sheffield. Those are figures that the Chancellor did not crow about yesterday, but they are there in the bottom lines of the Red Book.

There are additional problems, particularly for housing associations and local authorities, arising from the impact of welfare reforms, rising rent arrears, extra collection costs and the uncertainty of the right to buy scheme. These are all issues that will affect the ability of associations to borrow more money. They have already borrowed on the strength of the forecast rent increases, and now those increases have been taken away from them. No one can run a business like that, with the Government constantly chopping and changing the forecast revenue streams.

There is this idea of extra rents for higher-paid social housing tenants. Outside London, I think it is £30,000 a year. That is not particularly high pay for a family. Why should families who have been social housing tenants for years and have suddenly started earning £30,000 be penalised? It does not happen to owner-occupiers. What sort of system will be set up to do this? Will local authorities and housing associations have to means-test their tenants to identify those who earn more than £30,000 a year? Otherwise, how are we going to do it? When someone starts to earn £30,000, will their rent suddenly jump up overnight, or will there be a system of tapers? It is just another system where, as people earn more, the state takes more back. How does that make work pay? How is it consistent with the rest of the Budget? There are some questions that the Government simply have to answer.

Does the rent increase apply to supported housing with care? Housing association and local authority arrangements mean that wages form about 80% of the cost of those packages and it is not possible to get out of them. If the rent revenue to fund them suddenly drops, those care supported packages and that particular sort of specialist accommodation will no longer be viable. Have the Government thought that through or will they exempt rents in care and supported-package housing?

Finally, I want to address the issue of 18 to 21-year-olds not having an automatic entitlement to housing benefit. A lot of these people are very vulnerable indeed. The Albert Kennedy Trust told me the other day that 24% of people who go to Crisis and Centrepoint are from the lesbian, gay, bisexual, and transgender community. They are often very frightened and very worried. They have probably just come out to their parents and are frightened to go home because they are not welcome there. Are they now going to be excluded from entitlement to housing benefit? What will the exceptions be? How will the Government set them down, and will they consult on them so that they are actually meaningful?

A lot of the detail in the Budget did not come out in yesterday’s headlines. I am really worried about the effect of the impact of cuts on local authorities—will the Government fund the living wage?—and about the impact on the development of badly needed social housing, which will be drastically cut by the Budget.

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[The Economic Secretary to the Treasury (Harriett Baldwin)]

This has been a lively debate on a summer Budget that puts the country’s security first—economic security, national security and financial security for the record numbers of people in this country who are now working, including the 2 million who have joined the workforce since 2010. It is a Budget that continues to carry Britain toward a secure, prosperous future by backing the aspirations of working people at every stage of their lives.

For too long, we have been a low-wage, high-tax, high-welfare society—one that took money away from the poorest in taxes, then gave it back to them in the form of tax credits and welfare. In this Budget, we are changing that around. We are setting out to build a high-wage, low-tax, low-welfare economy: an economy in which work always pays and working more always pays more; an economy in which working households are supported through higher wages and lower taxes, not subsidised through a tax credits system that even Labour Members have described as simply not sustainable; an economy that gives 2.5 million people—those on the lowest pay today—a 10% direct pay rise and establishes a living wage that could, at this Parliament’s end, exceed £9 an hour.

[Mr Betts]

How does the hon. Lady deal with the comments from the IFS? Does she dismiss them, or is she saying that the IFS is absolutely wrong to say that, as a result of a small increase in their wages but a bigger cut in their tax credits, 3 million people will be £5,000 a year worse off? Does she disagree with that figure or, if she accepts it, how does she justify it?

[Harriett Baldwin]

The IFS figures do not include, for example, the full impact of the increased offer of free childcare. According to the Treasury figures, eight out of 10 working households will be better off as a result of the changes, acting in combination, by 2017.

As a country, we have 1% of the world’s population, we produce 4% of global GDP, and we are responsible for 7% of the world’s welfare payments. That is not right, it is not sustainable and it needs to be reformed. In introducing the reforms, we have set out four principles. The first is protecting the most vulnerable—that is fundamental. It is why we will honour our commitments to uprate the state pension according to the triple lock; we will neither means-test nor tax disability benefits—in fact, all disability benefits are exempt from the four-year freeze of working-age benefits—and we will increase funding for domestic abuse victims and for women’s refuge centres.

The second principle is to expect those who can work to look for work and to take work when it is offered, because work is the best route out of poverty. The third principle is to place the entire welfare system on an affordable and sustainable footing, fulfilling our commitment to run a budget surplus, because that is the best route to long-term economic security.