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

Earl Howe Excerpts

Monday 26th October 2015 Lords Chamber

[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—

[Baroness Meacher]

The analysis of the Institute for Fiscal Studies is very clear in incorporating the effects not only of the tax credit changes but of the rise in the minimum wage, the move to the national living wage and the increase in the income tax and higher-rate tax thresholds. It makes very clear the redistributional effects of all these things from the poor to the rich.

[Earl Howe]

I do not dispute that the Institute for Fiscal Studies has looked at these things, but the figure of £1,300 that has been quoted is one that does not take into account the positives that I mentioned. Importantly for families with children, the doubling of free childcare should not be overlooked. For many people, although not for all, that will make it possible to work longer hours. Those are just some of the counterbalances. The noble Baroness, Lady Manzoor, chose not to mention them.

I cannot pretend that these have been easy decisions. However, I put it to the House that the measures that we are taking are the right thing for us to be doing—right not only for individual working families but for the nation. We are still, as a nation, living grossly beyond our means. Even so, eight out of 10 working households will be better off by 2017-18 than they are now because of the combined effect of the measures that we are taking.

[Baroness Manzoor]

Will the noble Earl say where the evidence is to support that assertion about eight out of 10 households? That is partly the problem, because those sorts of impact assessments have not been done.

[Earl Howe]

The evidence was in the Budget analysis, which I am sure the noble Baroness has read—the distributional analysis that came out at the time of the Budget.

[Lord McKenzie of Luton (Lab)]

My Lords, is the Minister saying that eight out of 10 people currently on tax credits and subject to these cuts are similarly to be better off?

--- Later in debate ---

[Earl Howe]

What I said was that eight out of 10 working families, whether or not on tax credits—

[Noble Lords]

Oh!

[Earl Howe]

Well, it is an important point to factor in because the creation of and rises in the national living wage will affect not just those on tax credits, but many millions of others paid above that level, in the so-called ripple effect that has been widely discussed.

[Baroness Kramer]

My Lords, for clarification, will the Minister focus on the two out of 10 whom he says are losers and tell us how many people those are? How many children are in those families and what is their loss likely to be? We are talking about something close on 1 million people, largely families with children. I think that he will be able to confirm that they are in the lowest deciles of the population in terms of poverty.

[Earl Howe]

Let me address that. It has been said by some noble Lords, and the noble Baroness’s question implies it, that the brunt of these savings will be borne by those on tax credits who are relatively worse off. That is not the case. The 10% of tax credit claimants on the highest incomes—incidentally, those on £42,000 on average—contribute nearly four times as much to the savings that we are proposing as the poorest claimants. That is an important point to factor in. The problem with talking about those at the lower end of the scale is that everyone’s circumstances are different. Some people have children and some do not. Some have a disability and some do not. Some work shorter hours, some work longer hours. It is very difficult to particularise.

I can say that the cut in public spending that we propose through this regulation is one that will take us back not to some far-distant point in the past, but to the levels of spending seen in 2007-08 before the financial crash. I am talking of course about the spending position in its totality. One cannot particularise, as I said, to an individual case because people’s circumstances will be different.

[Lord Purvis of Tweed]

The Deputy Leader is giving a defence of the Government’s position that does not give much of an indication that the Government are prepared to think again, as some Members on the opposite Benches have indicated. Before he came to the House today, I wonder if he had spoken to the leader of his party in Scotland, Ruth Davidson. She said over the weekend:

“If we’re not the party of getting people into work and making it easier for them to get up the tree, then what are we there for? It’s not acceptable. The aim is sound, but we can’t have people suffering on the way. The idea that there’s a cliff edge in April before the uptake in wages comes in is a real practical human problem and the Government needs to look again at it”.

Will they?

[Earl Howe]

The trouble with comments like that is that they fail to take account, very often, of the things that I mentioned such as the national living wage.

[Lord Purvis of Tweed]

Maybe I was not entirely clear. That was the leader of the noble Earl’s party in Scotland.

--- Later in debate ---

[Earl Howe]

Look, I cannot take those comments in any sort of context, having not read them. Of course, I accept what the noble Lord has reported about the leader of the Conservative Party in Scotland, but I am not aware of the general context in which she was speaking and I hope he will understand that.

[Lord Spicer (Con)]

Will the noble Earl say how these figures compare with the budget for the nation’s entire defence spending, which he deals with in his day job?

[Earl Howe]

The regulations before us account for £4.4 billion of public expenditure in the next financial year. That is a large slice of the defence budget, but it is not the total defence budget. It will however mean that the Chancellor has more money at his disposal to spend on schools, hospitals and those with disabilities. Incidentally, I say to the most reverend Primate the Archbishop of York that the national living wage is possible only because the economy of this country is strengthening, and it is strengthening because there is a high degree of confidence in the Government’s economic programme and their ability to deliver economic stability by, among other things, reducing the deficit. One has to look at the totality of what the Chancellor’s programme consists of.

[The Archbishop of York]

The Living Wage Commission, which I chair, was working in conditions when the economic climate was not very good. We were very clear that those companies that can afford to pay should pay a living wage. The noble Earl will be interested to know that, even before the economy started improving, a lot of companies acted out of an ethical conviction about their workers. As Churchill said here 100 years ago, the greatest evil is that some of Her Majesty’s people are not being paid a living wage. Those companies actually took on the need to pay a living wage and were doing so even when the economic climate was very poor. Of course, I agree that the economy has improved, but if it has improved, why are we not helping the poorest who need us most?

[Earl Howe]

We are doing so. We are doing so through the national living wage. We should welcome the fact that these companies are already paying the national living wage. There are 200 major companies already doing so. That is a very good thing. I congratulate the most reverend Primate on the work that he has done in this area. I do not think there is anything much between us on this, as a matter of fact.

[The Archbishop of York]

Sorry—this is about the impression that was being given. I am suggesting that the Chancellor of Exchequer actually may meet the £4.2 billion that he wants to cut in tax credits through the living wage, because the report actually shows that if the 5 million are being paid a living wage, it is more likely that less tax credit would have to be taken off. My worry relates to the people who are going to suffer. That is what my speech was all about.

[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—

[Lord Grocott]

I am really quite surprised at the noble Earl, given all his experience and the respect in which he is held in this House. He seems to be suggesting that there is no significant difference between a fatal amendment and a non-fatal amendment. In the time I have been here, which is less than his, there has always been a clear distinction between the two—“binary” is the word he used in another context. Indeed, the Leader of the House seemed to be unclear in her opening remarks about the distinction between the Lib Dem amendment and the Labour amendment, but the difference is surely fundamental. If he does not accept my proposition, could he at least enlighten the House as to the professional advice from clerks to him and the Conservative Front Bench about which of these amendments are fatal and which are not.

[Earl Howe]

There is a clear difference in the wording—that is unarguable—but the effect is exactly the same. That is the point I am making.

[Baroness Symons of Vernham Dean]

I beg the noble Earl’s pardon. I have the greatest respect for him, but in her speech my noble friend Lady Hollis said explicitly that she had drafted her amendment with the help of the Clerk of the Parliaments, and the Clerk of the Parliaments said that it is not a fatal amendment. Is the noble Earl challenging that?

[Earl Howe]

I cannot gainsay the Clerk of the Parliaments; heaven forbid if I did that. Perhaps what was meant was that the wording of the amendment in the name of the noble Baroness, Lady Hollis, is not of a kind that one associates with a fatal amendment. Nevertheless—

[Noble Lords]

Oh!

[Earl Howe]

—the traditionally worded fatal amendment is that in the name of the noble Baroness, Lady Manzoor. I am sure that the noble Baroness, Lady Hollis, got good advice—the best advice there is—but what we are looking at is what would happen if her amendment were carried. I am saying that it would frustrate the Government’s intent.

[Baroness O’Loan]

Does the Minister think that it would be impossible, if either of these two amendments were passed, for the Government to bring back regulations in the form of a statutory instrument to this House?

--- Later in debate ---

[Earl Howe]

The problem is that the amendment in the name of the noble Baroness, Lady Hollis, holds the Government hostage. It holds them to ransom. We might be able to bring back some different regulations, but what if those were unacceptable to the House? Let us read the wording of the amendment. It puts us on a perpetual treadmill.

[Baroness Meacher]

There is a very important distinction between the amendment in the name of the noble Baroness, Lady Hollis, and my amendment. The crucial point about the amendment I have tabled, which is also not a fatal amendment, is that all it asks for is some time and some information. That is a very different thing from asking the Government to spend money on transitional arrangements. I have put down the amendment for only one reason, and that is because the House of Commons has a cross-party Motion on Thursday which they wish to and will debate. It has on it the names of eight Conservative MPs, including those of former Cabinet Ministers. Does the Minister accept that to give the Government time to listen to the Commons is an entirely appropriate duty for this House to perform?

[Earl Howe]

I understand what the noble Baroness is seeking to achieve here, but the fact is that the House of Commons has looked at this three times and has not overturned the proposals. In fact, it has approved them. I would simply say to the noble Baroness that if we are talking about the advice given by the Clerk of the Parliaments, there is a crucial difference between an amendment that it is procedurally permissible to bring before the House, and one which it is constitutionally proper for the House to approve. I do not take issue with the noble Baroness, Lady Meacher, or the noble Baroness, Lady Hollis, bringing forward their amendments. What I do take issue with is the idea that we should vote in favour of either of them, or indeed in favour of the amendment in the name of the noble Baroness, Lady Manzoor.

I need to conclude. For the House to withhold its consent to the regulations today would, in my submission, mean overruling the House of Commons on an issue which that House has already expressed its view on three times. In other words, it would mean doing what this House has not done for more than 100 years, which is to seek to override the primacy of the House of Commons on a financial matter. So I say respectfully to the noble Baronesses, Lady Manzoor, Lady Hollis and Lady Meacher, that there is a right way and a wrong way to challenge government policy on a matter of this kind. This is the wrong way. The right way is to table an amendment such as the one in the name of the right reverend Prelate—not that I support it, but that is the proper way of doing it—or at a suitable opportunity to table an amendment to primary legislation. Indeed, a Bill is coming to us shortly, the Welfare Reform and Work Bill, which would enable noble Lords to do exactly that, should they so choose.

My contention is this. The measures in these regulations form a central plank of the programme on which the Government were elected to office in May. It is a programme that has been in the public domain for a long time. However, even if it was not and even if these were policies dreamt up by the Chancellor overnight, I respectfully say to your Lordships that this House, under its conventions, should not reject statutory instruments or seek to overturn the primacy of the other place on a matter of very sizeable public expenditure. I therefore invite the sponsors of each of the amendments to withdraw them, and I urge the House to allow the regulations to pass. Moreover, I simply remind the House that in order to support the amendment in the name of the right reverend Prelate, the preceding three amendments need either to be withdrawn or defeated.

[Baroness Manzoor]

My Lords, I thank everyone who has contributed to this debate. Noble Lords will be relieved to hear that I do not intend to summarise the excellent contributions that have been made from all sides of the House. As your Lordships know, I am a relatively new Member, and for me it is a privilege to serve as a Member of this House. But with that privilege comes responsibility.

Tabling this Motion was not something I did lightly. I do not discount the strength of feeling on the role of the House and I do not believe that this is a situation in which the House should find itself regularly. However, ultimately this is about the House making a decision on whether we think it is acceptable for the Government to cut off vital support for 3 million families which they claim to support. It is about whether we think it is acceptable for the Prime Minister to make these changes not via primary legislation, but by a procedural instrument—in direct contradiction of what he said to people during the general election. It is about whether we think it is acceptable for this House to relinquish its responsibilities to those affected.

I welcome the Leader of the House saying that the Chancellor will be listening to this debate—and I hope also to the country—very carefully. But I could not look myself in the eye tomorrow if I had not done all I could to stop this devastating measure going through. I know that many in my party feel the same, and while I hold no ill will against anyone who does not share our view, I hope that those who agree that the lives of the 4.9 million children who will be affected should be our primary concern will join us in the Division Lobby. Tax credit cuts for low-paid working families are short-sighted and deeply damaging, not only to the parents and children who will bear the cost, but to the Government’s own long-term goals. I urge the Government to rethink, and I hope the House will choose to reject the regulations as they stand. I wish to test the opinion of the House.