Tax Credits

Huw Irranca-Davies Excerpts

Thursday 29th October 2015 Commons Chamber

[Frank Field]

There is indeed. That leads me neatly on to what the proposals for reform might be. I wish briefly to touch on four.

First, I make a plea to the Government to recognise just how quickly this whole debate is changing and to take advantage of that. Tax credit payments are here for the long run. When we began this debate back in 2010, there was enthusiastic talk about, in almost no time, a new benefit—universal credit—that would sweep away means tests and deliver a seamless service to our constituents. To be truthful but gentle about universal credit, its progress is very modest. I do not disagree with the Secretary of State in looking back at previous instances of trying to smash reform through whatever the costs, but at some stage somebody in Government has to look at how slow the progress of roll-out has been and question whether a full flowering will ever see the light of day. This raises questions about how tax credits might be reshaped, given that universal credit is not for the chop and is here for the longer term. It will not, in the lifetime of this Parliament or even the next, make tax credits redundant.

We have begun to have debates about this with the public. When I recorded a programme this morning, every time I said a word that people thought the public would not understand, we had to stop and start filming again. I could not say how long it took to film. We have our own language, which is a shorthand that is not understood by people outside.

[Huw Irranca-Davies (Ogmore) (Lab)]

My right hon. Friend speaks with great authority and experience on these matters. One of the very straightforward concepts that all my constituents understand is that there is a right-minded intention to get rid of taxpayer-subsidised poverty pay. In doing so, however, we cannot say to people on low pay, “We’re going to impoverish you on that journey.” The simple concept is yes, let us talk about the instruments for doing that, but remember that it is about getting rid of poverty pay and lifting people up, so that at some future date we do not have to rely on subsidy to make it worth while to go to work.

[Frank Field]

I could not agree more, in that we have not had a Chancellor who has decided that it is misplaced for taxpayers to play the role in the welfare system that wages should play in our economy. That leads welfare reform into new areas about how to raise productivity, particularly among those who are lowest paid. We should not simply accept and welcome the Chancellor’s proposals for a national living wage but think about how we take it on from there. My hon. Friend is absolutely right.

My first suggestion to those on the Treasury Bench stems from the fact of the Government’s introducing a national living wage. When the people who designed tax credits got to work, nobody thought that any Government would bring forward that proposal. They therefore incorporated two aspects into the tax credits system. The first was about how to subsidise, and make up to a more decent level, poverty wages. The second was that given the life cycle and where life’s journey takes us, there are periods when people have children and their budget is stretched, and the tax credits system should play a role in that. I ask those on the Treasury Bench, when they are thinking about what they do in only a few weeks’ time in the autumn statement, to consider whether we should now grow up and accept that we are going to have a national living wage, and that the tax credits system should not only subsidise low wages but take some of the responsibility for the costs of children. I think there would be a great deal more support in the country if tax credits were about supporting children rather than the need to subsidise poverty wages.

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[Huw Irranca-Davies (Ogmore) (Lab)]

It is very rewarding and refreshing to follow the right hon. Member for Haltemprice and Howden (Mr Davis), and other speakers as well.

If Ministers take anything from what has been said today, it should be a call for them to pause for a moment, to deliberate on the impact that the proposed changes will have on many working families in our communities, and then to work with Parliament and Select Committees on the ideas being presented. I do not have all the solutions today, but the appeal made by the right hon. Gentleman was, in effect, a political version of the Hippocratic oath: we should try to do good for our constituents, or at least do no harm, before proceeding with this policy. The evidence for that is very clear.

I thank my right hon. Friend the Member for Birkenhead (Frank Field) for initiating the debate, and for setting out so eloquently not just some of the basis of the problem that confronts the Government, but some of the possible solutions. They may not be binding solutions, but they are possible. It is as clear as day, and has been made clear by Members on both sides of the House, that the Minister needs to speak to Cabinet colleagues and other Ministers and rethink this policy. There has been talk today about lost sheep wanting to return to the flock. I suggest that those lost sheep are in some ways on the sunlit uplands. They are saying, “Come and join us up here.” They are not lost; they can see the way forward. We need to make sure we do no harm to our constituents.

I am sure the Minister is very aware of the impact of this, but let me explain the impact in my constituency. The number of working families currently claiming tax credits is in excess of 4,000. The number of working families with children claiming tax credits is nearly 3,500. The number of children in those families—low-paid families—is nearly 6,000. That is why my mailbag at the moment and my emails every night are full of letters from people who are terrified, for good reason, of what is coming down the track. It is not because of scaremongering; it is not because of unreal expectations of what might happen. They know; they are seeing daily the analysis of the situation for them and their families. They have read the analysis in Conservative-supporting papers, not in my newsletters or briefs submitted by the Joseph Rowntree Foundation, the Children’s Society or others.

Mention has been made of the impact on different communities, and it certainly does have a differential effect, but let me lay out the effect in Wales. The number of working families in Wales claiming tax credits who will be potentially affected by this directly in their pockets is over 167,000, and over 250,000 children will be affected. We cannot do this; a quarter of a million children in Wales will be affected by what we are doing to their families and what we are taking away from them directly. It is as clear as day that we have to change our way on this policy.

Let me look at one particular aspect where this hits really hard. We know that on average a fifth of women’s income is made up of welfare payments and tax credits, compared with around a tenth for men. Benefits make up twice as much of women’s income as they do of men’s. Women are disproportionately represented in many of those low-paid sectors we have talked about already, including hospitality and retail. When we go out and enjoy ourselves and have that coffee on our shopping excursion, we are typically served by women, not men. Other such sectors include care and domiciliary care and similar professions. Women are also more likely to be working part time. Nearly 80% of employees in those sectors where we so often say we respect the people who work in them, such as health and social care, are women.

You can see where this is going, Minister: we are hitting directly those who are most unable to go out and find another job, another few hours, or some other means of support for them, their family and their children. We are going right at the most vulnerable in our communities—and in huge numbers. Analysis by the Resolution Foundation suggests 1 million single parents in work will be left £1,000 a year worse off.

All of this has to shout out that Ministers going forward at such a rate of knots has created an almighty, cataclysmic mess. I ask the Government to slow down a little, listen to what has been said today, and work with parliamentarians and outside agencies who operate on the frontline with some of the people who will be affected. I ask them to work as well with the Select Committees. This issue is too difficult for the Government to address on their own.

The aim is to make work pay, and that is excellent, but it has to pay for everybody, not just some. At the moment, the crude impact of this on our communities will be devastating. It will wash right through not only individual families but the wider communities and will have a regressive, knock-on effect on spending power in those communities.

I ask the Minister to consider the options put forward today and to look at what other options there might be. There is no way on earth it is saleable politically to do this and, more importantly, there is the basic human issue of, “Do no harm to your constituents.” I cannot go and sell what is being proposed on the doorstep in my constituency. I will not do it. I want to tell these people, “It is worth going out to work, go and get a job if you can, go and upskill if you can, and we will make it worth your while.” That is our job here.

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[Mr Graham Allen (Nottingham North) (Lab)]

This has been a strange debate. It is as if we have managed to collect in the Chamber all the sensible people from all the parties, and to have a serious debate on some of these issues. It is unnerving to step out of the comfort zone of yelling at each other, and instead to hear sensible contributions from across the House, including the speech by the hon. Member for Waveney (Peter Aldous) that we have just heard.

Perhaps the lesson for us all is that this is how we should have done it in the first place, before the Chancellor made his announcement. He could have set out broad principles, as he is entitled to do, and said: “We need to reduce the welfare budget because we made a commitment in our manifesto. We would like to consider these issues. We need to find £12 billion, so how might we best do that?” By using the wit of Members from across the Chamber—including those who are appointed to Select Committees and work incredibly hard on our behalf—I am sure we could have come up with something less painful, crude and crass, while also saving the Chancellor some grief. However, we did not do things that way; we are doing it the other way round, so let us hope that we can reach a sensible result by listening to Parliament.

I also hope that we will listen to people out there. This is a classic debate, and we must listen to those who will be impacted on and influenced by these changes. Often, those people are not necessarily very articulate or in touch with their Member of Parliament, but I want to speak up for them, particularly those in my constituency. Dinner ladies, check-out and administrative staff, nursing and teaching assistants and manual workers all need us—whatever our political persuasion—to stick up for them right now.

We should all be in it together, but it often feels that we are not. I looked for the number of people in my constituency who will benefit from changes to inheritance tax, and after a lot of searching I came up with a large zero. Unfortunately, it did not take long to find the number of people in my constituency who will not be benefiting from the changes to tax credit, because 12,300 children will be affected. That is important because I am the Member of Parliament for the second most deprived area in the United Kingdom in terms of child poverty in low-income families, which is a matter of great concern. We are not “all in it together”, because those kids are not in it with those whose families have higher incomes and should be shouldering a fair share— nothing more—of the tax burden in our country. Colleagues who know their food banks will unfortunately know that this measure is a food bank recruitment scheme on behalf of the Government, and we must be careful about how we tread forward with it.

No one was ready for this change. Some of us believed the Prime Minister when he was on television before the general election and said that there would be no changes to the tax credit system. It is the same Prime Minister who, sadly, was in this House a week ago and said he was “delighted” that the cuts had been voted through the previous evening. That indicates a contempt for institutions other than government—I know I labour this point, but listening to Parliament and to people outside does not mean that someone gets diverted from their principles; it means that they can better enable those principles by listening to those who might be able to help in a slightly better way.

These cuts will have a broader impact on families. Four out of five families in my constituency receive tax credits because of the low-income nature of my area—my constituency is among the 20 most deprived—and we can do a job for them. We will not necessarily overturn what the Chancellor thinks, but Members of the House can do what my right hon. Friend the Member for Birkenhead (Frank Field) has done and consider tapers, thresholds, transitions, and the time needed to allow people to adjust to a massive change in their life. We must look consistently at that family element, and review and analyse the impact of the changes in future years, so that we can mitigate the worst cases.

I am delighted that we have not heard the word “scroungers” in this debate, or heard people being described as having a free ride on the state or the system. As it happens, two-thirds of people in my constituency who are in receipt of tax credits are at work. They are being subsidised by the rest of us to be at work, and low-paying employers are being subsidised.

[Huw Irranca-Davies]

Perhaps one reason the debate has not been disfigured by such terms is that the people my hon. Friend is talking about are the friends, families and neighbours we stand alongside in supermarket queues and on the side of the rugby pitch on a Sunday morning. These are people we know. This is not a matter of “them and us”. They are us and that is why, as we stand alongside them at the rugby and in supermarkets, we must stand alongside them here, too. They need us.

[Mr Allen]

My hon. Friend is absolutely right.

We, and some of the media, think this is a big issue right now, but you would be amazed how many people do not know that this is going to hit them, and they will not know until that letter drops and it actually happens. A wise old bird—Joe Ashton, who used to be the MP for Bassetlaw—taught me this lesson: passing a Bill will not influence anybody’s real life until whenever—in this case, I believe, next April—it takes effect. Then there will be a shock. Then there will be a tidal wave of people saying, “My god, what are you doing to us? Why did you allow this to happen? We don’t care which way you voted, why are you allowing it to happen?” That is why between now and then we have to bend our backs to ensure that we mitigate the worst consequences.

The national living wage is a bit like English votes for English laws: it is such a smart slogan that one could perhaps run an election on it. Does the reality, however, have the substance and the detail that people need in their lives? Saying that we are going to have a national living wage sounds fantastic, but if it does not actually mean that incomes will be at least as good as they were before, it is a fraud.

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[The Exchequer Secretary to the Treasury (Damian Hinds)]

I am grateful for the opportunity to respond to this debate on behalf of the Government.

I must start by thanking most sincerely the Chair of the Select Committee, the right hon. Member for Birkenhead (Frank Field), for his continued work in this area. His expertise and commitment are well known and respected by all. I also welcome the hon. Member for Salford and Eccles (Rebecca Long Bailey) to her post. I, too, look forward to many opportunities to debate across the Dispatch Box.

I am grateful to all 32 right hon. and hon. Members, from both sides of the House, who participated in the debate. The Government are listening and this debate forms an important part of that process. I have heard the arguments put forward by hon. Members today. We are all united in wanting to implement policies to deliver the best possible settlement for our constituents now, in the near future and for the generations to come.

The Government’s belief, which underpins every aspect of our policies, is that without a solid basis of economic stability, the long-term security of the nation’s citizens cannot be protected. When economic stability is lost, the entire system falls apart. As a rule, those who end up losing most are those who started with the least.

I acknowledge, as does my right hon. Friend the Chancellor, the concerns expressed today and those expressed elsewhere and earlier by Members of this House. The Chancellor has said he has listened to concerns from colleagues and will make proposals in the autumn statement to achieve the goal of reforming tax credits, saving the money needed to secure our economy while at the same time helping in the transition to these changes. In that context, I fear that today I am not telling the House too much that is new, but I respect the reasons that hon. Members have wished to hold this debate. I and others have spoken at length about how spending on tax credits was allowed to get out of control; about how the costs trebled in real terms to 2010 and ended up costing £30 billion; and about how the level of in-work poverty rose over the same period.

Reforming welfare is part of the new settlement we are offering working Britain. Fundamentally, we have a choice about how people should be paid: through low wages topped up by high state benefits, or through higher wages, taking home a greater part of those wages, topped up by less in state benefits. We believe in rebalancing the economy so that employers provide decent wages for their employees. By 2020, when it will be worth more than £9 an hour, the national living wage will mean over £5,000 more gross full-time pay for someone on today’s minimum wage. With record employment, low inflation, rising wages and a rising standard of living, this is the time to be making structural reform.

Our record on helping working people stretches far beyond this. Since 2010, our mission in government has been to get wages up, tax down and welfare under control. The best route out of poverty is work, so we have created the conditions for 1,000 new jobs to be created every day—2 million since 2010—and have plans for 3 million more apprenticeships. We have increased the tax-free personal allowance radically. We are doubling our childcare offer to working families with three and four-year-olds. We have frozen fuel duty and council tax and protected spending on our schools and national health service.

As the Prime Minister said yesterday, we remain committed to the vision of a high pay, low tax, lower welfare society. We believe that the route to ensuring everyone is better off is to balance the finances, keep growing the economy, keep creating jobs, keep inflation low, keep cutting people’s taxes and introduce the national living wage. Hon. Members have asked about the distributional analysis and the effect of Government policies on different income groups. Considering all measures together, the burden of deficit reduction is spread evenly across income groups, albeit with a proportionate increase in the tax burden at the top of the distribution.

The right hon. Member for Birkenhead asked specifically about the data made available or what could be made available. The Government have provided an analysis by quintile of the overall distributional effect of Government measures since 2010, but—to answer his question—it does not include the effect of the national minimum wage because that is not a fiscal measure. He also asked about the interaction with the income tax personal allowance. As the Prime Minister said the other day, with the improving labour market, additional childcare support and the introduction of the national living wage, more people will come into income tax and so will benefit from those raised thresholds.

The right hon. Gentleman rightly asked, as did my right hon. Friend the Member for Haltemprice and Howden (Mr Davis), about the key subject of marginal rates of withdrawal—or, as the hon. Member for Nottingham North (Mr Allen) might prefer, the rate at which money is taken away. I agree with them on the importance of these rates and their effect on work incentives, and I acknowledge that the proposals did imply a high peak marginal withdrawal rate for people earning above the personal allowance while also on the tax credits and housing benefits tapers. It is important to remember, however, that this compares with a top rate today that is only 2 percentage points different. I am afraid that high marginal withdrawal rates have long been a feature of the UK benefits system—and, indeed, of most welfare systems in developed nations.

As hon. Members will know, the key reform in this area is universal credit, which will simplify the system by merging six benefits into one, lower the marginal withdrawal rate and move the hours thresholds—the various spikes—to 16, 24 and 30 hours.

[Huw Irranca-Davies]

I genuinely welcome the broad tone of the Minister’s contribution and the fact that he says the Government are in listening mode, but he makes it seem as if there will be no impact from these changes. According to House of Commons Library statistics—this goes to the heart of the debate—a family with two children on £20,420, after all the other changes he has talked about, will lose £1,233.60 from these changes. Does he not believe there will be impacts on those families?

[Damian Hinds]

None of the third-party analyses takes into account all the different changes and elements of support that are coming in. Of course, depending on exactly how many earners there are in the family, the age of the children and so forth, any proposals will impact differently. My point, as discussed in the debate, is that the Government are in listening mode and the Chancellor has said that he will come back and say more at the autumn statement.

The question of childcare came up more than once, including in the summing up of the hon. Member for Salford and Eccles. A review is taking place on the cost reimbursement for childcare providers, and it is important that the model is sustainable.

Questions about the devolved Administrations were raised by the hon. Member for East Antrim (Sammy Wilson) and, indirectly, by the hon. Member for Arfon (Hywel Williams). The 30-hour offer is an England offer, but there are Barnett consequentials—I hope I have the terminology right—that go with it, and it is up to the devolved Administrations to proceed in the way they think right. I am happy to be corrected by SNP Members, but I believe that the Scottish Government have committed to bringing forward 30 hours from 2020. I wonder whether they might think about doing that sooner.

Further questions were raised, although they were batted away quite effectively at the time, about the ability of the Scottish Government to pursue their own course on overall tax and benefits. Let me make it clear that from as early as 2017 the Scottish Government will be able to set rates and bands for income tax on earnings. That is clear in the Scotland Bill, which is also very clear that the Scottish Government can top up benefits and make discretionary payments to claimants. The Secretary of State for Work and Pensions cannot reasonably withhold consent for that.