(5 years, 11 months ago)
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It is a pleasure to serve under your chairmanship, Sir David. I start by congratulating my hon. Friends the Members for Stafford (Jeremy Lefroy) and for Congleton (Fiona Bruce) on securing this debate and on the way they have introduced the subject. I very much welcome the report by the Strengthening Families Manifesto group that was published today and which we are here to debate.
There is no doubt that families are right at the heart of social justice. It is clearly understood that helping families to stay together and thrive together is not only good for them as families, which is obviously very important and at the heart of the issue, but good for our society as a whole and for our economy. I think it is understood that the ability of Government to help families to stay together may be limited, but the least that we should expect is that the Government do not place barriers in the way of helping and encouraging families to stay together. That is the issue that we are debating today.
We should, through our tax and benefits system, provide every possible opportunity for families to improve their finances through hard work—through taking a job, increasing their income, increasing their hours or taking a pay rise. Sadly, the situation that we have at the moment negates that and actually acts as a disincentive to couples taking on extra work or extra hours, because of the effective marginal tax rate by which they are then penalised. That issue was well presented by the previous speakers, so I will not go into the detail of it—it is a well-established problem—but it is clearly there for all to see.
The introduction of universal credit was very welcome and a huge step in the right direction.
I was going to intervene earlier, but I was enjoying the flow of the hon. Gentleman’s speech, so I decided to rest in my place. He makes an incredibly important point, and I commend the hon. Member for Stafford (Jeremy Lefroy) and all his colleagues for their sterling work. I do not think that anyone has said that the disincentive that we have heard about this morning is an intentional outcome of the over-simplification of our tax system, but if it is not intentional, we should resolve to solve it. Does the hon. Gentleman agree?
I very much welcome that intervention: the hon. Gentleman makes a powerful point. I do not believe for a minute that the Government set out with the intention of ending up in this position, in which families face effective marginal tax rates of 75% or 80%. No one intended that to be the case, but the hon. Gentleman is right to say that that is the situation and that, if that was not the intention, surely it is time to look at it and see what steps we can take to reverse and undo it.
As I said, the introduction of universal credit was a huge step in the right direction and very welcome. It is not perfect; it is not without its challenges, but I very much welcome the Government’s approach to the roll-out of universal credit—to take their time, learn, and adjust and amend as necessary. Fundamentally, universal credit is the right change to make to our benefits system, and I very much welcome the way the Government are rolling it out.
One purpose of universal credit was to ensure that work paid and to reduce the disincentive for people to take on extra work and lose benefits. I saw that myself, before coming to this place, as an employer. I am thinking of the number of times that I approached my staff to offer extra hours of work and they just said to me, “There’s no point, Steve, because I will lose tax credits. There is no point in me working longer and harder to be no better off—all I will be doing is giving the extra money to the taxman.” Universal credit has been a big positive step, a step in the right direction, to remove that disincentive, and that is hugely welcome, but we need to recognise that there is still a disincentive in the system. It has been highlighted and now is the time to address it.
I also hugely welcome the Government’s policy of increasing the personal allowance. That has taken many of the lowest-paid people in our country out of the tax system—out of paying tax—altogether. That has also been the right thing to do and is very welcome, but as we are saying, it does not undo the situation that we now have. Under the current arrangements, there are those who are paying marginal tax rates of 75% if they are homeowners, and 80% if they are renting, and on universal credit. We cannot expect people to be incentivised to take extra work if they will get to keep only 20p or 25p in the pound for the extra work that they take on.
I therefore very much welcome the report that has been published today. I urge the Government to consider it carefully and look at what can be done to review the current situation. I very much welcome the suggestion from my hon. Friend the Member for Stafford that we need to set as a target bringing the UK in line with the OECD average. It seems crazy for the United Kingdom, which is renowned around the world for the effectiveness and competitiveness of its tax system, to be so out of step with the average for the other developed countries. We should set a target that, in an achievable but relatively short space of time, we will seek to reverse the situation and bring ourselves back in step with the OECD average.
We need to change the mindset that the only way to tackle the problem is through the taper rate for universal credit. That will get us so far, and I am sure that any amendments that can be made in that respect would be welcome, but really we need to bring our tax and benefits systems into line with each other.