Tax Credits

Eilidh Whiteford Excerpts

Tuesday 15th September 2015 Commons Chamber

[Dr Eilidh Whiteford (Banff and Buchan) (SNP)]

Let there be no mistake: this statutory instrument will mean drastic cuts in the incomes of families with parents in low-paid work. Across the UK, about 7.5 million children live in about 4 million families that are in receipt of tax credits, and the vast majority of those families are in work. The key impact of the measure will be to reduce the incomes of more than 3 million working families by an average of more than £1,000 a year. We have a very short time today to debate a statutory instrument that will, at a stroke, make dramatic cuts to the incomes and life chances of millions of our citizens, and it deserves a lot more scrutiny then we are giving it today.

The Government have tried to argue this afternoon that their changes to benefits and tax credits are part of a plan to encourage people into work, but this measure overwhelmingly affects people who are already in work. Far from providing incentives for parents to enter the workforce, it actively reduces work incentives and makes it harder than ever for parents in low-paid work to support their families.

This is a hugely regressive measure. Our poorest working families are set to lose a dramatic proportion of their income. If we pass the regulations today, tax credits will start to be withdrawn from any family earning more than £3,850 a year rather than from those earning more than £6,420 a year, as is currently the case. More than half a million families earning less than £6,420 a year will lose out disproportionately because of these cuts to work allowances. That is a massive reduction in the amount that families can earn before tax credits start be withdrawn. Combined with the lower level at which universal credit will be withdrawn it means that, for example, a single parent earning £6,410 a year—roughly 20 hours’ work a week on the minimum wage—will lose 48p in tax credits for every pound they earn above the new threshold, which will leave them about £1,200 worse off a year.

One hundred pounds a month probably does not sound like a lot to Conservative Members—[Interruption.] It might not be a lot to them, but for those on low incomes a drop in income of that magnitude will almost certainly mean very difficult choices about very basic things, such as the quality and quantity of the food they eat and how to heat their home. Many poorer families already struggle with heating costs in winter, especially in my part of the world, but it is not only people’s health that is affected by living in cold and damp conditions. This is also about whether children have an adequately heated place to study and do their homework and the long-term consequences if they do not.

I recognise that disadvantage takes many forms, and we have heard a lot of rhetoric lately about social mobility, but the harsh fact is that income poverty is the single biggest driver of long-term disparities in children’s outcomes. Children who grow up in income-poor households are likely to have poorer health throughout their lives. They attain fewer qualifications at school, end up in lower-paid jobs and die younger than their peer group.

[Maria Caulfield (Lewes) (Con)]

The hon. Lady says that income-poor families have much poorer physical and mental health as well as educational attainment, but is that the case? The fact is that someone on benefits or welfare has poorer outcomes, so the route out is by gaining work and earning a decent wage.

[Dr Whiteford]

The hon. Lady is making a ridiculous argument and once again trying to pretend that there are people on welfare and people in work whereas in reality—as illustrated by the tax credit system—many thousands and millions of working people are dependent on benefits because of low pay. That is the key issue in this debate. The Government are attacking low-paid workers, just as they have over the last Parliament, while giving tax breaks to the wealthiest people in our society. The deep cuts to the incomes of the poorest families that the Government are trying to enact today will only exacerbate the inequalities we already have in our society and push opportunities even further out of the reach of those who already lag behind.

The most bizarre claim that has been made for the Government’s austerity measures is that they will encourage people to work harder. I think that we should reject the rather insidious implication that people in low-paid jobs somehow do not work as hard as people in better paid jobs, because that is simply not the case. We must remember that those low-paid jobs are often far more physically demanding, and many people who are set to see their incomes cut under this measure are already working very long hours in exhausting and often pretty unrewarding roles.

[Hywel Williams (Arfon) (PC)]

Does the hon. Lady also reject the glib answer from those on the Government Benches that low-paid workers can somehow just take more hours, because clearly those hours are not available?

[Dr Whiteford]

In various parts of the country unemployment is still unacceptably high. Whether someone can easily pick up extra hours depends on which part of the country they live in, which sector of the economy they work in and what caring commitments they might have, whether for children or other family members. It is not so straightforward when lots of parents are chasing part-time work between the hours of 9 am and 2.30 pm, when their children are at school. A lot of part-time work needs to be done outwith those hours, when parents have real difficulties accessing childcare.

The charity Gingerbread has today pointed out that some lone parents working full time on the minimum wage with one child will, by 2020, be no better off than non-working lone parents were in 2010. By 2020 many parents working full time will have fallen even further below the minimum income standard than they are at present, but essentially they will be no better off working full time than they would have been had they been out of work five years ago. Where is the work incentive in that? If we really want to incentivise work, we should be increasing work allowances, as my party proposed in the run-up to the general election, not cutting them. That would incentivise work and cut child poverty.

Once again, we have been told today that increases in the minimum wage will compensate for those losses, but the numbers simply do not stack up. Even if the Government proposed raising the minimum wage to the level of the current living wage, which is already £7.85 an hour—well above the Government’s proposed ceiling—the calculation of the living wage is based on not only the cost of living but the assumption that low-paid families are already receiving their full entitlement to tax credits at the current rate.

The Institute for Fiscal Studies, the Resolution Foundation, trade unions and others have all pointed out that the proposed increases in the minimum wage, and indeed the increases in the personal tax allowance, will not make up for the loss of tax credits. The crucial point is that if we cut tax credits in the way the Government are proposing today, the minimum wage would have to rise substantially further, to around £11 an hour, just to keep incomes standing still in real terms.

[Catherine West (Hornsey and Wood Green) (Lab)]

Has the hon. Lady considered the impact of the proposed changes on the housing benefit bill, particularly in the private rented sector?

--- Later in debate ---

[Dr Whiteford]

The hon. Lady makes a good point, because the cumulative impact of a range of benefit measures is hitting the same people again and again. She makes a valid point, and one that I hope to come to in just a moment.

The bottom line is set out clearly in the OBR’s estimates, which indicate that the higher minimum wage is likely to increase earnings by around £4 billion in total by 2020, compared with social security cuts of £12 billion in the same period, a large portion of which will come out of tax credits. The figures just do not add up. No matter how they repackage their minimum wage and tax changes, the Government are giving a little with one hand but taking a whole lot more with the other.

At the same time as the Government are slashing the incomes of the lowest paid families, the wealthiest families are set to benefit from huge inheritance tax breaks on properties worth over £1 million. For me, that exposes their perverse priorities on families. It is not so much robbing Peter to pay Paul as robbing Peter to pay Rupert and Sebastian.

My colleagues and I were elected on a commitment to fight the austerity agenda being recklessly pursued by this Tory Government. Almost half of all families in Scotland will lose out as a result of these measures, pushing into reverse much of the progress we have made in recent years to reduce child poverty. Around 346,000 children in Scotland will be impacted by these cuts, and the Child Poverty Action Group estimates that 100,000 more children in Scotland will be living in poverty by 2020 as a direct result of the UK Government’s changes to tax and benefits.

The Scottish Government are attempting to mitigate the worst excesses of austerity, providing over £300 million between last year and next, but we need to remember that the people affected by cuts to tax credits are in many cases the same people already disproportionately affected by the freeze in child benefit, the freeze in housing benefit, as the hon. Member for Hornsey and Wood Green (Catherine West) noted, pay freezes and other austerity measures. Once again, other public services and the voluntary sector will be picking up the pieces from the collateral damage of the UK Government’s ideological crusade.

Finally, I want to address the removal of child tax credits for a third or subsequent child. This is just a further blow to poor families already struggling. This measure, along with the introduction of the two-child policy in the Welfare Reform and Work Bill, will push more families with children into poverty, pushing them further behind in health and education, potentially for the rest of their lives. Only about one in six of the families receiving tax credits in Scotland has more than two children. Larger families are a rarity nowadays. By contrast, the majority—more than half the poorest families in Scotland—have only one child. In Scotland, it is in the more affluent areas that people tend to have more children, but across every income group our birth rate is unsustainably low. We need to be supporting family life and encouraging people to have more children if we are to dodge the demographic problems coming up on the inside lane. We should not be putting barriers in the way of those prepared to contribute to our society by doing the essential job of raising the next generation.

This Government have got it very badly wrong. Cutting the incomes of working families will only make it harder to tackle the embedded inequalities that already blight the life chances of too many children. Work should be a route out of poverty for families, but here in the UK it really is not. This statutory instrument pushes that aspiration even further out of reach. That is why my colleagues and I will oppose it and continue to press for the power to make these decisions in Scotland, for Scotland, in the interests of our people and in line with our commitment to building a fairer society.