David Gauke
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Living Standards
David Gauke Excerpts(12 years, 8 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
After all the sound and fury that we have just heard, perhaps I may provide a little context for the benefit of the Opposition. When this Government came to power, we had the highest borrowing in our peacetime history. We were borrowing one in every four pounds that we were spending. It was clear then, and it has since become clearer, that countries that lack fiscal credibility pay the price in higher market interest rates, at a cost to mortgage holders and businesses throughout the country.
In order to reduce a structural deficit—that is, one that will not go away with growth—it is necessary to cut spending or raise taxes, or a combination of the two. Cutting spending and raising taxes will, unfortunately, have an impact on people’s living standards. We do not want that to happen—we did not go into politics to do that—but the impact on living standards is the inevitable consequence of the dire state of the public finances left by Labour and the recognition by the coalition parties that we could no longer continue to borrow in the same reckless way.
Sheila Gilmore (Edinburgh East) (Lab)
Does the Minister acknowledge that if some of the families that we are talking about give up their employment and claim other benefits—including, in some cases, help with their mortgages, to which they would then become entitled—the savings that he is trying to achieve would simply not be made?
Mr Gauke
I shall speak in greater detail about the reforms to the working tax credit in a moment, but there is a question that we all have to answer. As the hon. Lady knows, there is a threshold for claiming the credit. For lone parents, it is 16 hours a week. We think it entirely reasonable that the joint target for couples should be not 16 hours a week but 24; we believe that that incentive will be helpful. The principle of a threshold has been in the tax credit system since it was put in place.
Mr Gauke
Let me just make a little more progress.
We heard the hon. Member for Leeds West (Rachel Reeves) set out the challenges and pressures on living standards, but it takes some cheek for Labour Members to complain about the consequences of their own irresponsibility in power. Their position today in this motion relating to living standards is the equivalent of that of a man who sets his house on fire, then complains, after the fire brigade has extinguished the fire, that it has damaged his carpets. We accept that difficult decisions have to be taken, and we have taken them, but the British public know that we have had take them now because Labour failed to take them when it was in power.
Ian Lucas (Wrexham) (Lab)
The Minister is peddling the persistent Tory untruth that this economic situation existed only in Britain. Will he now accept that there was a worldwide banking crisis in 2008, and that the action that was taken to reflate the economy had contributed to the size of the deficit by 2010?
Priti Patel (Witham) (Con)
This debate is about living standards, and central to good living standards in our country are job creation and economic growth. Does my hon. Friend agree that the role of the private sector is central to creating jobs, to make up for Labour’s failure to rebalance the economy and provide job creation?
Helen Jones
Given that the Chartered Institute of Personnel and Development says that one in five firms are cutting hours, rather than increasing them or creating new jobs, how are people who work 16 hours a week going to find the extra hours to qualify for working tax credit? Where are those hours going to come from?
Mr Gauke
The figures for the last quarter for which figures are available show that there were more than 1.1 million jobs—[Interruption.] That is not a net number; it is the gross number of people moving into employment. We are not going to do anything for employment in this country if we undermine credibility, or if we see our interest rates driven up because we lack credibility because our policies do not hang together. That is what Labour is advocating, but it would be bad news for private and public sector employees.
Hugh Bayley
Does the Minister not recall that, at the time the coalition came to power, interest rates were extremely low and had been for a long time? Our policy at the time of the banking crisis did not therefore create high interest rates. Will he also remind us what the national debt was at the time of the election? I think that it was between £700 billion and £800 billion, whereas it is now more than £1 trillion for the first time in our history, and that is because of this Government’s poor economic growth.
Mr Gauke
There is so much wrong with that that I do not know where to start. Perhaps I will begin by pointing out that, at the last general election, our interest rates were at more or less the same level as those of Italy and Spain, yet there is now an enormous difference between us. I am afraid that the hon. Gentleman is wrong.
Mr Gauke
I am going to make a little progress.
We know, given the constraints that we face in the public finances, alongside high commodity prices and international uncertainty, that these are tough times for many families. That is why we have taken substantial steps to protect living standards, and to ensure that we support our poorest and most vulnerable families. Even as we cut the deficit, fairness has been at the very core of our spending plans. We will not let our poorest and most vulnerable families bear the consequences of the previous Government’s failures. That is why we have secured the largest ever cash rise in the basic state pension, and why we have uprated working-age benefits by 5.2% to protect the real incomes of the poorest.
Mr Gauke
I want to make a bit more progress.
That is also why we increased the child tax credit by £135, in line with inflation, which means that, by this April, it will have increased by £390 since May 2010. It is telling that the Opposition motion makes no mention of this Government’s plans to increase the personal allowance, no doubt because their last contribution to the debate on income tax for the low paid was the 10p debacle.
Glenda Jackson
Will the Minister tell us how his Government are helping the poorest in our society? Hundreds of families in my constituency are going to lose working family tax credit and will not be able to increase their hours. They are facing the possibility of losing their homes because of the cap on housing benefit, and of losing services because of the cuts to local authorities. The people who are most dependent on such services are inevitably the poorest in our society, yet his Government seem quite deliberately to be attacking them, perhaps because they believe that there are no votes in that part of the country.
Mr Gauke
We believe there are a lot of votes in the hon. Lady’s constituency.
I was going through the things we have done to help the poor, but let me continue. What we have done with the personal allowance is a big step—helping working people, ensuring that work pays and lifting living standards for those on low incomes. That is why this Government have made increasing the personal allowance one of our key priorities in supporting low and middle-income families across the UK. In April 2012, we will make a £630 increase in the personal allowance, taking it £8,105, which, taken with the £1,000 increase in April 2011, will benefit 25 million taxpayers, taking 1.1 million low-income individuals out of income tax altogether. We note that the shadow Chief Secretary to the Treasury expressed her opposition to that policy just a few minutes ago.
Anas Sarwar
Will the Minister explain how living standards are increasing for families in Glasgow when 2,000 couples and 4,000 children will lose up to £4,000 in working tax credits at the same time as VAT is going up, inflation is high and the cost of living is going up? How is that improving living standards for poor families in Glasgow?
Elizabeth Truss (South West Norfolk) (Con)
When the previous Government introduced so much regulation into the child care market, did not the number of child minders fall from 100,000 to 50,000 placements while the cost of child care doubled? Was that not a shameful increase in the cost of living for some of the poorest families in our country?
Mr Gauke
My hon. Friend makes a good point. If we are to find practical ways of improving living standards, the work that she is undertaking is exactly what we need to be doing. We need to ensure that we have an effective environment in which parents can work and child care costs are manageable.
Ian Austin
Will the Minister point me to the bit of the Conservative manifesto that promised hard-working families that they would lose their tax credits and be better off out of work, and to the bit that promised other families that if they had a pay rise that took them into the 40p band they would lose their child benefit and be much worse off, too? Will not people who voted Conservative at the election feel utterly betrayed by the introduction of these anti-work and anti-aspiration policies?
Mr Gauke
The people who voted Conservative at the election, and indeed others, recognise that this Government are prepared to take difficult decisions to get the public finances on track to provide the long-term credibility that our public finances need and to ensure that our economy can grow strongly once again. By sticking its head in the sand and opposing every step taken to get the deficit under control, the Labour party does itself no favours.
Chris Williamson (Derby North) (Lab)
The Minister talks about putting the public finances in a sound state, yet are not the Government’s policies singularly failing because the Government are having to borrow an additional £158 billion? Surely that should tell the Minister that he is getting it wrong, that he needs to think again and put people back in employment to give them the opportunity to pay tax and contribute to society rather than wasting taxpayers’ money on keeping people idle on unemployment benefit.
Heather Wheeler (South Derbyshire) (Con)
Does my hon. Friend agree that if the Opposition really believed in looking after low-paid people, they would have voted for the welfare cap and not voted against it? My constituents do not understand why they did that.
Mr Gauke
Let me make a little more progress.
We want to target support where it is needed most. Tackling the deficit fairly requires us to ensure that tax credits are targeted at our poorest and most vulnerable families. We simply could not continue on the path that the previous Government took. From 2003-04 to 2010-11, spending on tax credits increased from £18 billion to an estimated £30 billion, with nine out of 10 families with children eligible for tax credits. In total, the previous Government had spent more than £150 billion on tax credits since 2003—a staggering sum, poorly targeted and an unsustainable level of spending. It is absolutely right and fair to reform the system to support those who need it most.
Huw Irranca-Davies (Ogmore) (Lab)
At Work and Pensions questions earlier, the Secretary of State made it clear that because of the support of Jobcentre Plus and other agencies, he did not expect anybody to opt out of work as a result of the changes. Does the Minister stand by that? If so, let me give him this challenge. If any family comes into my constituency office to tell me that it is no longer worth them going to work because of these changes, will he personally respond to their financial queries, which I will put in front of him? I suspect that other Members will be doing exactly the same to explain to their constituents why this Government have now made it no longer worth going to work. This seems to be a complete aberration and against his own policy—
Madam Deputy Speaker (Dawn Primarolo)
Order. Interventions need to be brief.
Mr Gauke
Given that we ask lone parents to work 16 hours a week before they are entitled to working tax credits, I would say that it is not right to have the same threshold for a couple. Asking and incentivising them to work 24 hours a week is perfectly reasonable. Under the universal credit that we are going to introduce shortly, every hour extra worked will be worth while, as there will not be the same threshold. Essentially, we are working within the system that we inherited from the previous Government.
Yasmin Qureshi (Bolton South East) (Lab)
The hon. Gentleman talks about the extra hours, but with more than 2 million people unemployed, where are those extra hours going to come from?
Madam Deputy Speaker
Order. Members know that they should not stand and point at the Minister; they should ask him to give way. If he declines to give way, it means that they have to sit down and try again later.
Mr Gauke
Thank you, Madam Deputy Speaker.
Increasing the working hour requirements for a couple is entirely fair. It is absolutely right that a couple with children should put in more hours than a lone parent before receiving working tax credits. This also creates a clear work incentive signal to potential second earners who could benefit from working tax credits if they moved into work or increased their hours.
Toby Perkins
The Minister referred to universal credit. Is not one of the most foolish parts of this policy the fact that it will be out of date within 18 months or so in any case? This will potentially mean a lot of people deciding to get out of work, but it will be superseded by the policy on universal credit. Why not just wait until universal credit comes in?
Mr Gauke
I come back to the point I made previously. With the difficult financial situation we inherited, we needed to take steps, and one of them was to increase the threshold for a couple from 16 to 24 hours. That seems perfectly reasonable and fair in the context of a 16-hour requirement for lone parents.
Mr Gauke
I want to make a bit of progress, because I know that many other Members wish to speak.
We are also right to reform child benefit to target the families who need it most. I fully understand that child benefit provides a vital boost in parental income for millions of families throughout the country, but it represents a substantial cost to the Exchequer. It makes up about 7% of total social security and tax credit spending each year, including child benefit payments of over £2 billion per year to higher-rate taxpayers. When we face such tight constraints on the public purse, it is right for us to refocus resources where we need them most.
Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
The Minister mentioned the administrative cost of child benefit to the Exchequer. Can he tell us what is the estimated cost of all the extra form-filling that the change will require?
Mr Gauke
I was actually talking about the overall cost. We will give details of the cost of administering child benefit when we announce the details of the policy, which, as the hon. Lady will know, we will do shortly. However, as the Chancellor has said:
“We simply cannot ask those earning just £15,000 or £30,000 to go on paying the child benefit of those earning £50,000 or £100,000.”
It is simply not fair for working parents on low incomes to subsidise millionaires. If members of the Labour party believe in that, they can add it to their election literature along with their opposition to the benefit cap. By making these changes, we can continue to direct child benefit to where it is needed most, supporting millions of families and millions of children from birth until they leave full-time education at the age of 18 or even 19.
Ed Balls
Can the Minister explain to Members on both sides of the House why he thinks it fair for a family with a joint income of £84,000 to keep all their child benefit, while a one-earner family will lose all their child benefit if the husband or wife stays at home and their income is just £43,000?
Mr Gauke
Let me explain the challenge that we face. Basing child benefit on household income means a full means-testing regime with all the complexities that that involves: all the form-filling, and all the administration problems. I do not know whether that is what the shadow Chancellor wants, or whether he supports the position taken by the shadow Chief Secretary, who would not touch child benefit at all; but if we do not pursue the policy that we have announced, we will incur an additional £2.5 billion of borrowing every year. That is what the Labour party is committing itself to.
Ed Balls
The Minister is right: the policy is very complicated. It is a pity that the Government did not work that out before they announced it 18 months ago. The Secretary of State for Justice wants to keep it, the Deputy Prime Minister wants to drop it, the Prime Minister also wants to drop it, and the Chancellor is confused. My advice to the Minister is this: sit down, finish the speech and let us see what happens in the Budget, because this is doing his career no good at all.
Mr Gauke
Treasury Ministers have taken advice from the right hon. Gentleman in the past, and it did not end well. In that context, I will continue my speech.
At the same time as refocusing child benefit, we are investing £7.2 billion in the fairness premium, including £2.5 billion in the pupil premium, to support the poorest in their early years and at every stage of their education. There are substantial reforms and tough decisions to make, but we have not shirked our responsibility to do so. We will not burden future generations with unsustainable debts that would mean higher taxes and diminished public services. We cannot keep building debt to fund spending on today’s generation at the expense of tomorrow’s.
Mr Gauke
I am going to make a little more progress.
We cannot ask our poorest and our most vulnerable to carry the burden; it is right and fair for those with the broadest shoulders to carry the heaviest burdens. Those who say that we are not asking the wealthy to pay their fair share are the very same people who are jumping up to oppose reform of child benefit, which will do exactly that.
Under the previous system, about nine out of 10 families with children were eligible to receive tax credits. Under our reforms, the proportion will fall to six out of 10. As is shown by our distributional analysis of the impact of the autumn statement and previous fiscal events, the top 20% of households will make the greatest contribution to reducing the deficit as a percentage of their incomes and benefits in kind from public services.
Helen Goodman
Strictly speaking, what the Minister has said is accurate, but he knows as well as we do that the only reason for the positive distributional effect is the measures taken by my right hon. Friend the Member for Edinburgh South West (Mr Darling) before the last general election. Surely the Minister can acknowledge that the measures taken by the coalition Government are massively regressive.
Rachel Reeves
Can the Minister tell us whether the measures introduced by his party are progressive or regressive?
Mr Gauke
All the measures that will be put in place in 2012-13 are being implemented by this Government. That is the point. It is impossible to disaggregate those measures. They are all going to be put in place, and we are responsible for all of them. If we had wanted to reverse some of them, we could have done so, but we did not.
Of course, none of what we are doing ignores the fact that this will be a tough year for households across the board. We know that that is the case, and it is our reason for going even further to support families and businesses throughout the country.
Mr Gauke
I want to make some progress.
We are limiting the increase to Transport for London and regulated rail fares, funding South West Water to enable it to cut bills by £50 per year for households that currently face the highest water bills in the country, setting aside an extra £675 million for local authorities in England to freeze or reduce council tax in 2012-13, and providing real help for households that are feeling the squeeze. We are deferring the fuel duty increase that was due to take effect on 1 January to August this year, while also cancelling the further increase in August. As a result, tax on petrol will be a full 10p lower than it would have been, and families will have saved £144 on the cost of filling up the average family car by the end of next year.
Mr Gauke
No, I am going to make a bit more progress. I have already given way to the hon. Gentleman once, and I think that that was enough for all of us.
It is because of our decisions that we have secured record gilt yields, feeding through to record low and stable interest rates that make a real difference to families paying their mortgages and businesses refinancing loans throughout the country. If we are going to discuss a squeeze on living standards, let us discuss what an increase in market interest rates would mean for families throughout the United Kingdom. It would force taxpayers to find an extra £21 billion in debt interest payments, increase the cost of business loans by £7 billion, and add £10 billion to mortgage bills every year, an extra £1,000 for the average family—and that is just a 1% rise. Let me remind the House that when the Government came to office, our rates were tracking those of the likes of Spain and Italy, and that they are now close to those of Germany. It is because of the tough decisions that we have made to cut the deficit that the UK has broken ranks. In the last year alone, its rates have fallen by about 1.5%, whereas those of Italy and Spain have risen by almost 3%.
I know the shadow Chancellor considers that low interest rates are a sign of trouble, and that he would prefer higher interest rates, a bigger squeeze on families, and an even bigger fall in living standards, but the simple truth is that the Opposition have no credible response to the economic challenges that the country faces.
Sheila Gilmore
I am wondering whether the Minister has been out of the country for the past few days, and therefore has not noticed that several banks are increasing their mortgage rates.
Mr Gauke
If we had pursued the policy advocated by the Opposition, our market rates and gilt yields would be going up and we would be facing a very significant problem. We have record low interest rates at present. That does not necessarily mean mortgage rates will remain at their current levels for ever across the board, but the fact is that the tough steps we have taken have ensured that interest rates are much lower than they would otherwise be, which is to the advantage of both mortgage holders and businesses looking for finance.
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)
We have debated this question before, and it was clear that quantitative easing is what has led to the reduction in interest rates. The recent £50 billion of quantitative easing has, in effect, been an attack on pension funds; it has wiped out almost a quarter of private pension funds compared with the situation before the last general election. Will the Minister confirm that further credit easing will also affect private pension funds?
Mr Gauke
Credit easing will benefit businesses. I should also point out that the current low interest-rate trend was in place before the additional quantitative easing undertaken by the Bank of England.
The simple truth is that the Opposition have no credible response to the economic challenges we face. It took the coalition Government five days to come together in the national interest to forge a joint commitment and approach to tackle the deficit, yet 18 months later the Opposition remain confused and conflicted. Every now and again a member of the shadow Cabinet—even the shadow Chief Secretary—crops up to say they will be fiscally credible but, in practice, they oppose welfare reform, for instance, and say it affects the poorest, even when a household receives more than £26,000 a year. They also oppose reforming universal benefits, even though that protects the richest, and they oppose anything that affects the squeezed middle. Clearly, their economic plan involves more spending, more borrowing and more debt.
However many Opposition days they have, and however many economic policy relaunches they make, it is clear that Labour was irresponsible in government and is irrelevant in opposition. We are fixing the failures of the past and are repairing our economy. This Government are committed to supporting families across the country through difficult economic times.
It is, of course, a tough challenge to secure our economic stability and lay the foundations for sustainable growth, but we are determined to restore the UK’s prosperity, and we will put fairness at the heart of our recovery by protecting living standards for our poorest and most vulnerable families, by lifting millions out of tax, by taking steps to reduce the cost of living and by refocusing welfare on those who need it most. Yes, that means that those on the highest incomes will bear the heaviest burden as we pull together to tackle the deficit, but it is absolutely right that those who can contribute the most do so.
A fair and sustainable recovery demands leadership, and that is exactly what this Government are providing. It is this coalition Government alone who are determined to face up to today’s economic challenges, and to build tomorrow’s fair, prosperous and sustainable economy.