Tax Credits

Helen Goodman Excerpts

Tuesday 15th September 2015 Commons Chamber

[Damian Hinds]

If Opposition Members will allow, I will take some time to set out the regulations.

The regulations make three changes to the tax credit system. First, they reduce the working tax credit threshold from £6,420 to £3,850 and the child tax credit threshold from £16,105 to £12,125. Secondly, they increase the taper rate from 41% to 48%, meaning that when a claimant’s earnings reach the new tax credit income threshold, their award will be gradually removed by 48p in the pound, rather than the current 41p, ensuring that state taxpayer help is focused on those who need it most. For recipients of housing benefit, the interaction between the two systems of support means the overall change in the withdrawal rate will be 2p, not 7p.

Thirdly, the regulations reduce the income rise disregard from £5,000 to £2,500, taking it back to its level between 2003 and 2006 and matching the rate of the income fall disregard. Following the introduction of real-time information, Her Majesty’s Revenue and Customs has much more up-to-date information on claimants’ earnings, so there is no good reason to have such a high disregard figure. These three changes form part of a wider set of welfare reforms, most of which are currently under consideration in the Welfare Reform and Work Bill.

[Helen Goodman (Bishop Auckland) (Lab)]

The Institute for Fiscal Studies, following a request from the Treasury Select Committee, sent us a new analysis showing that lone parents earning less than £20,000 will have marginal deduction rates of either over 90%, if they are on the old legacy system, or 75%, if they are on universal credit. How does the Minister square that with his claims at the Dispatch Box?

[Damian Hinds]

I am afraid that high marginal deduction rates have long been a feature of the social security and welfare system. As many Opposition Members know, universal credit will change that by making a substantive change in the withdrawal rates.

--- Later in debate ---

[Mark Garnier]

I am not sure I recognise the figure of £2,000 on a £17,000 income, and I do not accept that this Government are punishing hard-working people. I see a Government who are doing an enormous amount by reducing the threshold tax rates and by helping small businesses. We have seen more people come into work than there have ever been before. This Government have had a huge number of successes, so I do not recognise what the hon. Gentleman is describing.

There are two particular reasons why I support this measure, the first of which was highlighted by my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke), the former Chancellor, and my hon. Friend the Member for Croydon South (Chris Philp) in talking about the effect that tax credits have on employers. We do not know exactly the extent to which this has been the case, but without a shadow of a doubt some employers will have been not paying the right salary or pay, given that the Government are subsidising not necessarily those people on low incomes but the employers employing people on low incomes. We also know that if that did happen early on, it is much more difficult to unravel it now, which is why it is very important that we have the new national minimum living wage. It is there to ensure that wages do start going up, although I concede that this does not necessarily cover it all.

[Helen Goodman]

How can employers take account of the tax credits, given that the tax credits are paid according to family circumstance and the wage is not?

[Mark Garnier]

Because employees will work for a wage that they can afford to work at, and if the Government are subsiding those household incomes the employers can take advantage of that. It is difficult—I completely concede that—to unravel this.