Tax Credits

Debate between Eilidh Whiteford and Chris Philp

Tuesday 20th October 2015 Commons Chamber

[Chris Philp (Croydon South) (Con)]

At the heart of this debate lie two different views of how we should combat poverty. The first is that the state should do so exclusively through the welfare system, and the second is that the real way out of poverty is through hard work for proper, honest, decent wages.

I agree with Alistair Darling, the former Chancellor of the Exchequer, who has said that the unintended consequence of tax credits has been to subsidise employers who do not pay their staff enough to live on. I hope that Members on both sides of the House can agree that employers and companies that do not pay their staff a decent wage and enough to live on are behaving in a deplorable and completely unfair way. I welcome the introduction of the living wage, which moves us towards a point where people can live on their wages.

As a corollary and consequence of the introduction of the national living wage, I think that productivity will increase as well, because employers who pay low wages have no incentive to invest in IT and machinery.

The proposal begins to move the balance away from a reliance on tax credits towards a reliance on fair wages. I understand the points that Members on both sides of the House have made about the effect of tax credit reductions on particular individuals, but while many of the analyses we have heard, including those by Unison and the IFS, take into account the national living wage and the tax threshold increase, they do not take into account extra childcare or the removal of the fuel duty escalator, which means it now costs £10 less every time we fill up the tank. Nor do they take into account the 1% reduction in social and council rents or the fact that wages are going up by 3% while inflation is zero.

The living wage will directly affect 3 million people and a further 3 million people on slightly higher wages will benefit from a ripple effect. In fact, 200 companies, including Morrisons and Lidl, have already adopted the national living wage.

Labour Members, particularly the shadow Chief Secretary, have completely failed to answer repeated questions about where the £4 billion would come from if not from this measure. The hon. Member for Feltham and Heston (Seema Malhotra) did not suggest a single idea. The SNP has not taken up the challenge, but it could increase income tax.

[Dr Whiteford]

I tabled amendments in this House to devolve universal credit, which is exactly where tax credits sit, and they were rejected by the hon. Gentleman and his colleagues.

[Chris Philp]

In a year or two the Scottish Government will assume powers to vary income tax and it will be entirely at their discretion to raise it to fund tax credits, so we will find out very shortly whether they really plan to use those powers.

I am conscious that time is short, so I shall conclude. The measures shift the engine of prosperity creation away from the state and towards work and pay. I welcome the proposals and will support them this evening.