Budget Resolutions and Economic Situation

Eilidh Whiteford Excerpts

Thursday 17th March 2016 Commons Chamber

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

Yesterday, the Chancellor highlighted the huge uncertainties and risks facing the global economy, and he painted a fairly bleak picture of what might lie just around the corner. These have been very tough years for a lot of people, characterised by financial insecurity and drops in living standards, which have started to recover only in very recent times.

One response, as advocated by the IMF and the OECD, would be to boost public investment as a means of pushing up productivity and growth. Instead, yesterday’s Budget confirmed a decade of austerity—austerity of choice, not of necessity; austerity that is falling on the shoulders of those least able to carry the burden; and austerity that is harming our public services. There are £3.5 billion of new cuts in this Budget. Even if we exclude cuts to capital spending and social security, the Office for Budget Responsibility estimates that funding for day-to-day public services is forecast to fall by the equivalent of £1,000 per head over the course of this Parliament.

Yet all this pain has failed to deliver the economic benefits that we were promised. As the shadow Chancellor said earlier, the Government have failed to meet their own targets on debt, borrowing and bringing down the deficit. They have missed every key economic target they have set themselves. Another target that the Chancellor quickly glossed over yesterday was the fact that the Government are once again set to miss their own self-imposed limit on welfare spending. In fact, the OBR predicts that the Government will breach their welfare cap by £4.6 billion in the coming financial year, and will miss their own target in the next four years as well.

The quagmire that is the implementation of the new universal credit is right at the heart of the Chancellor’s problems. The difficulties with universal credit are not new. However, the OBR has said that universal credit is

“one of the largest sources of uncertainty”

in forecasting spending on social security, and that it has identified

“new sources of significant concern”

in trying to assess the impact of universal credit on spending. I think we all appreciate that predicting spend on universal credit presents some inherent challenges and that certain aspects of universal credit spend will be driven less by policy than by the economic cycle and the state of the labour market, but given the OECD and others’ sobering account of the turbulent global economic outlook, the problems with universal credit are likely to become much more acute.

In that context, I am not convinced that the Government’s arbitrary welfare cap is helpful. The reality is that the austerity cuts of recent years have fallen heavily on budgets for social protection. The £12 billion of cuts already identified in the autumn statement will largely come out of the pockets of low-income households with children and of those who need support to cope with illness or disability. The cuts to work allowances and other changes to the tax credit system, which are due to come into effect from April, will significantly reduce the support to parents working in low-paid jobs, some of whom are going to be thousands of pounds worse off, even when we take into account the increase to the minimum wage, the increase to the personal allowance and other changes confirmed or announced yesterday.

The research published in recent days by the Women’s Budget Group has shown how austerity cuts have fallen disproportionately on women—that point was well made earlier—and points out that women face “triple jeopardy” because they are more likely to be in low-paid work, more likely to work in the public sector and more likely to be in receipt of tax credits or other benefits subject to cuts or freezes. Its research suggests that as many as one in four women are earning less than the living wage.

I want to pick up that point about wage levels and say a wee bit about terminology. It is very important that we distinguish between the minimum wage, which is now being rebranded as the national living wage, and the real living wage, which is calculated on the basis of the actual cost of living and is significantly higher. I of course welcome the increase in the minimum wage to £7.20 an hour for those over 25, but let us not pretend that it is a living wage. Let us also not forget that those under 25 are not so fortunate. For the life of me, I can see no rationale for such a significant differential in pay as the one experienced by younger workers.

The real living wage is currently £8.25 an hour, although we should bear in mind that that calculation was based on the assumption that low-paid workers would be claiming their full entitlement to tax credits at the present rate, not the new reduced rates. In Scotland, we have a higher proportion of workers paid the real living wage than in any other part of the UK, and there are ambitious plans to increase further the number of accredited living wage employers. However, I think we all recognise that there is a long way to go if we are to tackle low pay.

One of the questions I want to ask Ministers today on the subject of the minimum wage is whether and when they plan to raise the carer’s allowance earnings threshold. They seem to be ficherin’ about with their papers, so I do not know whether they have even heard that question. There is no automatic link between the level of the national minimum wage and the carer’s allowance earnings limit. In the past, the limit has just been raised on a very ad hoc basis as something of an afterthought. The limit has huge implications for carers who might be working part time and receiving tax credits, so I hope Ministers will confirm that they plan to increase the carer’s allowance earnings limit in line with the increase in the minimum wage and to do so at the same time. I put it to Ministers that it might make more sense for this to be included in the annual benefits uprating order in future.

I want to return to the guddle of the Government’s social security spending and their cack-handed attempts to save money. The Chancellor confirmed yesterday that the Government intend to take a further £1.2 billion from sick and disabled people through changes to the assessment points awarded to sick and disabled claimants for personal independence payments on the basis of the aids and appliances that they need to carry out daily living activities. PIP is in the process of replacing disability living allowance. This is yet another transition process in the Department for Work and Pensions that has been fraught with problems and lengthy delays.

Jonathan Portes, principal research fellow at the National Institute of Economic and Social Research, has pointed out that

“delivery and implementation failures related to welfare changes, particularly related to disability benefits, continue to push up OBR forecasts of welfare spend”.

In his view, the £1.2 billion cut in support for aids and appliances within PIP is being done partly to offset such failures. Personal independence payments are, however, really important. They are the means through which those with very substantial disabilities and long-term health conditions receive extra support to help them to meet the extra costs they incur because of their disability. For many, DLA or PIP is what enables them to work and live independently, and what allows them to participate in their community.

These further cuts come hard on the heels of a raft of measures that have reduced the incomes of sick and disabled people since the start of the Government’s austerity drive. The Welfare Reform Act 2012 has already cut the budget for PIP by £1.5 billion and raised the bar on eligibility for the new benefit. The Government’s forecasting has consistently underestimated the cost of the policy, which is why—once again—disabled people are in the front line.

The transition from DLA to PIP has been blown far off course. By making it more difficult to qualify for PIP, the Government thought that they could save money, and they expected 20% fewer claimants to be eligible for the new benefit. However, they grossly underestimated how many, and how badly disabled, those claimants were. Making disability benefits harder to claim does not change the health or support needs of claimants. In practice, cuts in support have meant that many sick and disabled people have been pushed further into poverty, and some into destitution or worse.

Around 370,000 people in the UK are likely to be affected by this new cut, including around 40,000 in Scotland. That comes on the back of a string of austerity measures that adversely affect disabled people, from the bedroom tax—eight out of 10 households affected in Scotland were the home of a disabled adult—to cuts to the independent living fund, the loss of eligibility for Motability vehicles, and the most recent changes to ESA that we debated the other week, which will reduce support to some disabled people by £30 a week.

[Nigel Huddleston (Mid Worcestershire) (Con)]

I have heard what the hon. Lady is saying, but does she recognise and accept that disability spending is going up, and that there will be more than £1 billion of spending on disability? Is it not appropriate for welfare spending to go to those in most need?

[Dr Whiteford]

I am grateful to the hon. Gentleman for raising that issue because those figures deserve much greater scrutiny. The rise in the overall budget for disability spending to 2020 is easily explained by the fact that as the baby-boomer generation start to lose their health, and as life expectancy increases but healthy life expectancy does not increase at the same rate, there is more demand for disability support.

I accept that those with the most extreme disabilities need more support—that is definitely the case—but those who are losing out from PIP are probably those who are closest to the labour market, and their PIP, or DLA, enables them to participate in that market and support themselves. Those people have ongoing additional extra costs, whether for aids and adaptations, transport, or because they do not have sight and need support to get to and from their place of work. Such people need and deserve support, so why should they be put on the frontline when many other able-bodied people are not being asked to bear the same level and proportion of that burden? I hope I have addressed the hon. Gentleman’s point, and I am grateful for the opportunity to unpack those top-line figures that sound so generous to disabled people, but mask systematic cuts to the support that individuals who need help can expect to receive.

In response to the Budget yesterday, Citizens Advice Scotland said that

“the confirmation of changes to the Personal Independence Payment will mean that disabled people are set to lose entitlement of up to £3,000 per year to support them to live an independent life.”

Liz Sayce of Disability Rights UK said that the cuts to aids and appliances

“will impact on people’s ability to work, enjoy family life and take part in the communities they live in.”

Before I conclude, let me address the Chancellor’s announcements on savings. In the weeks leading up to the Budget, it was widely reported that he was planning to reform pension tax relief, to rebalance the pension system and make it fairer for basic rate taxpayers and other modest earners. That opportunity was missed yesterday, and instead we got measures that will further widen the gulf between the haves and have-nots, and which lay bare the stark priority that this Government seem to attach to maintaining, and even celebrating, the gross income inequalities that characterise modern British society.

There were some great wheezes for very high earners, not least the increase to the personal allowance. Although everyone can potentially benefit from that, those set to benefit the most are higher rate taxpayers like ourselves. The Resolution Foundation estimates that a third of the benefit of that change will accrue to the top 20% of earners. Meanwhile, a lot of low-paid and part-time workers—most of them women—will not even earn enough this year to take them over the threshold.

Similarly, raising the ISA limit to £20,000 will benefit only those who happen to have a spare twenty grand lying around. To take full advantage of that tax break, someone would need to save more than £1,666 pounds a month, which is a lot more than many people’s take-home pay. The same applies to the new lifetime ISA, because a young person would need to save £333 pounds a month to take full advantage of it. For a 20-year-old working full time on the minimum wage, that represents 38% of their gross salary. It is not realistic. Even among better paid young people, many of those eligible for the scheme are likely to struggle to pay grossly inflated rents in the private sector, and many will be servicing substantial student debts and be unable to take full advantage of the scheme.

[Mr Kevan Jones]

The hon. Lady raises an interesting point, because the assumption is that people have spare money sloshing around to put into a lifetime ISA. Does she agree that even if someone saved the maximum amount every year over the period allowed, they would not be allowed to buy a pension at the end of that, and in many cases—especially in London—they would not even be able to buy a house?

[Dr Whiteford]

The hon. Gentleman makes an important point and highlights the fact that young people’s housing problems are caused by undersupply of affordable housing. With the best will in the world, people on normal wages will never be able to buy a house in an urban area such as London, or in places such as Aberdeen and Edinburgh where the housing market is inflated.

[Michelle Donelan (Chippenham) (Con)]

Will the hon. Lady give way?

[Dr Whiteford]

I will make some progress.

The lifetime ISA is a nice little bung for trustafarians and others with munificent parents or grandparents. An 18-year-old whose wealthy parents put £4,000 into a lifetime ISA every year until he or she is 40 will get a tidy wee £22,000 handout from the Government. That stands in sharp contrast to the Help to Save scheme under which people on breadline incomes—if, by some miracle, they manage to save £600 pounds a year—will get £300 from the Government. In other words, they receive less than a third of the annual benefit available to those who are already wealthy and privileged.

[Michelle Donelan]

Will the hon. Lady give way?

[Dr Whiteford]

I will not give way at the moment. No wonder that the Chancellor did not have much to say about the Help to Save scheme yesterday. It is a sham opportunity that is being dangled in front of people who can never hope to insulate themselves properly against financial shocks, whose financial security is increasingly precarious, and who are most exposed to the risks of global economic instability. Some people have already started calling the lifetime ISA the LISA, but out of deference to my hon. Friend the Member for East Kilbride, Strathaven and Lesmahagow (Dr Lisa Cameron) I will resist that temptation. Instead, we might consider calling it the PIERS— for People Inherently Entitled to Rich Savings.

However, this is a serious point because we all recognise the need to encourage people to save more for later life, and for almost all of us the best way to do that will be through a workplace pension to which an employer can contribute. At best, the lifetime ISA is a fairly gimmicky sideshow, and at worst there is a danger that it could undermine auto-enrolment, which is the key vehicle for incentivising savings and promoting fairer universal pensions. We must shore-up confidence in auto-enrolment and not distract focus from it. The pensions industry and sector has suffered a real crisis of confidence over recent decades because people have not seen adequate rewards from the process and do not believe that that is the best way to protect themselves for the future.

This morning the Resolution Foundation published a graph that shows how the Government’s income tax cuts will benefit people across the income distribution. It shows that the lowest 20% of incomes will gain a miserly £10 on average, while the wealthiest 20% will gain an average of £225 each. For me, that encapsulates in a nutshell this Government’s warped priorities and the unfairness at the heart of this Budget. There is an alternative to austerity, and I am sorry that the Government have chosen not to take it.

[Several hon. Members rose—]