Tax Credits

Debate between Damian Hinds and Huw Irranca-Davies

Thursday 29th October 2015 Commons Chamber

[The Exchequer Secretary to the Treasury (Damian Hinds)]

I am grateful for the opportunity to respond to this debate on behalf of the Government.

I must start by thanking most sincerely the Chair of the Select Committee, the right hon. Member for Birkenhead (Frank Field), for his continued work in this area. His expertise and commitment are well known and respected by all. I also welcome the hon. Member for Salford and Eccles (Rebecca Long Bailey) to her post. I, too, look forward to many opportunities to debate across the Dispatch Box.

I am grateful to all 32 right hon. and hon. Members, from both sides of the House, who participated in the debate. The Government are listening and this debate forms an important part of that process. I have heard the arguments put forward by hon. Members today. We are all united in wanting to implement policies to deliver the best possible settlement for our constituents now, in the near future and for the generations to come.

The Government’s belief, which underpins every aspect of our policies, is that without a solid basis of economic stability, the long-term security of the nation’s citizens cannot be protected. When economic stability is lost, the entire system falls apart. As a rule, those who end up losing most are those who started with the least.

I acknowledge, as does my right hon. Friend the Chancellor, the concerns expressed today and those expressed elsewhere and earlier by Members of this House. The Chancellor has said he has listened to concerns from colleagues and will make proposals in the autumn statement to achieve the goal of reforming tax credits, saving the money needed to secure our economy while at the same time helping in the transition to these changes. In that context, I fear that today I am not telling the House too much that is new, but I respect the reasons that hon. Members have wished to hold this debate. I and others have spoken at length about how spending on tax credits was allowed to get out of control; about how the costs trebled in real terms to 2010 and ended up costing £30 billion; and about how the level of in-work poverty rose over the same period.

Reforming welfare is part of the new settlement we are offering working Britain. Fundamentally, we have a choice about how people should be paid: through low wages topped up by high state benefits, or through higher wages, taking home a greater part of those wages, topped up by less in state benefits. We believe in rebalancing the economy so that employers provide decent wages for their employees. By 2020, when it will be worth more than £9 an hour, the national living wage will mean over £5,000 more gross full-time pay for someone on today’s minimum wage. With record employment, low inflation, rising wages and a rising standard of living, this is the time to be making structural reform.

Our record on helping working people stretches far beyond this. Since 2010, our mission in government has been to get wages up, tax down and welfare under control. The best route out of poverty is work, so we have created the conditions for 1,000 new jobs to be created every day—2 million since 2010—and have plans for 3 million more apprenticeships. We have increased the tax-free personal allowance radically. We are doubling our childcare offer to working families with three and four-year-olds. We have frozen fuel duty and council tax and protected spending on our schools and national health service.

As the Prime Minister said yesterday, we remain committed to the vision of a high pay, low tax, lower welfare society. We believe that the route to ensuring everyone is better off is to balance the finances, keep growing the economy, keep creating jobs, keep inflation low, keep cutting people’s taxes and introduce the national living wage. Hon. Members have asked about the distributional analysis and the effect of Government policies on different income groups. Considering all measures together, the burden of deficit reduction is spread evenly across income groups, albeit with a proportionate increase in the tax burden at the top of the distribution.

The right hon. Member for Birkenhead asked specifically about the data made available or what could be made available. The Government have provided an analysis by quintile of the overall distributional effect of Government measures since 2010, but—to answer his question—it does not include the effect of the national minimum wage because that is not a fiscal measure. He also asked about the interaction with the income tax personal allowance. As the Prime Minister said the other day, with the improving labour market, additional childcare support and the introduction of the national living wage, more people will come into income tax and so will benefit from those raised thresholds.

The right hon. Gentleman rightly asked, as did my right hon. Friend the Member for Haltemprice and Howden (Mr Davis), about the key subject of marginal rates of withdrawal—or, as the hon. Member for Nottingham North (Mr Allen) might prefer, the rate at which money is taken away. I agree with them on the importance of these rates and their effect on work incentives, and I acknowledge that the proposals did imply a high peak marginal withdrawal rate for people earning above the personal allowance while also on the tax credits and housing benefits tapers. It is important to remember, however, that this compares with a top rate today that is only 2 percentage points different. I am afraid that high marginal withdrawal rates have long been a feature of the UK benefits system—and, indeed, of most welfare systems in developed nations.

As hon. Members will know, the key reform in this area is universal credit, which will simplify the system by merging six benefits into one, lower the marginal withdrawal rate and move the hours thresholds—the various spikes—to 16, 24 and 30 hours.

[Huw Irranca-Davies]

I genuinely welcome the broad tone of the Minister’s contribution and the fact that he says the Government are in listening mode, but he makes it seem as if there will be no impact from these changes. According to House of Commons Library statistics—this goes to the heart of the debate—a family with two children on £20,420, after all the other changes he has talked about, will lose £1,233.60 from these changes. Does he not believe there will be impacts on those families?

[Damian Hinds]

None of the third-party analyses takes into account all the different changes and elements of support that are coming in. Of course, depending on exactly how many earners there are in the family, the age of the children and so forth, any proposals will impact differently. My point, as discussed in the debate, is that the Government are in listening mode and the Chancellor has said that he will come back and say more at the autumn statement.

The question of childcare came up more than once, including in the summing up of the hon. Member for Salford and Eccles. A review is taking place on the cost reimbursement for childcare providers, and it is important that the model is sustainable.

Questions about the devolved Administrations were raised by the hon. Member for East Antrim (Sammy Wilson) and, indirectly, by the hon. Member for Arfon (Hywel Williams). The 30-hour offer is an England offer, but there are Barnett consequentials—I hope I have the terminology right—that go with it, and it is up to the devolved Administrations to proceed in the way they think right. I am happy to be corrected by SNP Members, but I believe that the Scottish Government have committed to bringing forward 30 hours from 2020. I wonder whether they might think about doing that sooner.

Further questions were raised, although they were batted away quite effectively at the time, about the ability of the Scottish Government to pursue their own course on overall tax and benefits. Let me make it clear that from as early as 2017 the Scottish Government will be able to set rates and bands for income tax on earnings. That is clear in the Scotland Bill, which is also very clear that the Scottish Government can top up benefits and make discretionary payments to claimants. The Secretary of State for Work and Pensions cannot reasonably withhold consent for that.