DRAFT Tax Credits (Income Thresholds and Determination of Rates) (Amendment) Regulations 2016

Eilidh Whiteford Excerpts

Thursday 3rd March 2016 General Committees

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

I want to put a few brief points to the Government about the reduction of the income rise disregard in the regulations.

As a constituency MP, I know—I am sure all of us know—just how distressing it is for parents in low-paid jobs to find out they have had an overpayment of tax credits, and the hardship and real anxiety that the recovery of those overpayments causes. These changes will make it harder for some families to budget and will create particular uncertainty for those in seasonal, temporary or otherwise insecure employment. As the hon. Member for Salford and Eccles pointed out, that is very likely to push some of those families into debt.

In 2013-14, there were 138,900 overpayments of tax credits in Scotland alone, which is more than 30% of the total number of awards. I take on board what the Government have said today about real-time information improving that situation for some families, but the new arrangements really will not help people with fluctuating or unpredictable incomes. Increasingly, so many people in low-paid jobs are not salaried; they are working on zero-hours contracts, on hourly rates, and their incomes can vary enormously from week to week. Even real-time information cannot predict the future; in areas such as mine, where many work in seasonal jobs, those people could be particularly vulnerable to the impact of these changes, which cannot predict the future and exaggerate the impact of very minimal changes on people’s incomes.

The reduction of the income rise disregard will make the existing problems more acute for people whose wages are variable. That brings us to what is, in my view, the biggest flaw in this measure: low-paid parents especially will be financially worse off if they take a better paid job, get a promotion, or work overtime. Once their income has increased by more than the disregard, a claimant will lose tax credits of 41p in the pound. That is a colossal rate of marginal taxation. It could also affect a claimant’s level of housing benefit or council tax reduction, leading to perverse incentives and anxiety and uncertainty for low-income families.

The impact assessment process and the inadequacy thereof has already been debated this morning, so I will not reiterate those arguments, but we are indebted to CPAG, which has modelled the impact of the changes on low-paid working families. It contends that a couple with one child, both working full time on minimum wage and with the mother returning from maternity leave, and £100 a week childcare costs—which is probably at the low end of realistic—will be more than £1,000 worse off next year than they would have been under the current arrangements. A lone parent with one child, but no childcare costs, who moves into work next month, doing 30 hours a week at minimum wage, will be nearly £950 worse off over the coming year. I do not think that the Government want to disincentivise work, but that will be the unintended consequence of what the Ministers proposes today. For all those reasons, my colleague and I intend to oppose the regulations today.