Universal Credit and Working Tax Credits

James Cartlidge Excerpts

Wednesday 15th September 2021 Commons Chamber

[Jonathan Reynolds]

My hon. Friend is exactly right. The reduction of £20 a week for 6 million low-income families will be the single biggest overnight cut in the history of the welfare state—bigger even than the cut to unemployment benefit in 1931 that caused the Government of the day to collapse. The scope of the cut, affecting one in 14 British workers, is also unprecedented. For those reasons alone, it is right that we are having this debate and that our constituents know where we stand.

[James Cartlidge (South Suffolk) (Con)]

The hon. Member is courteous in giving way, but his proposal would cost £6 billion. Which tax would he raise to pay for that?

[Jonathan Reynolds]

Will the hon. Member tell me how many households in his constituency are in receipt of universal credit? I am giving him a chance to put on the record how many of his constituents are affected. There is a whole section of my speech in which I will tell him how the Government can afford to pay for this.

I did not know that the hon. Member did not know the figure for his constituency—I promise that I was not trying to catch him out. I was simply trying to make the point that the recovery of his local economy would be adversely affected by taking that spending power away, as my hon. Friend the Member for Wallasey (Dame Angela Eagle) made clear for her constituency.

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[Jonathan Reynolds]

In the right hon. Member’s constituency, 4,000 households are in receipt of universal credit. I want to ensure that, at the beginning of the debate, we knock down the argument, which we have also heard from the Prime Minister, that a focus on jobs will somehow mean that we do not need to keep universal credit at its current level. Of course we should get people back into jobs, but it is simply false to say that the choice is between keeping the uplift and doing that.

Let me remind the House again that universal credit is an in-work benefit. Almost half of the incomes that Government Members wish to cut are of people in work. Either the Prime Minister, the Cabinet and several Conservative MPs do not know how universal credit works or they are being wilfully misleading. I do not know which is worse. Let us have a real debate rather than this ignorant rhetoric about work or welfare, because—this is the crucial point—if as a country we could get the people affected into better-paying jobs, the cost of keeping universal credit at its current level would go down automatically. That is exactly how the system is designed to work. Anyone saying that the cut needs to happen to get people back into work, or to get them working more hours, does not know what they are talking about.

[James Cartlidge]

rose—

[Jonathan Reynolds]

I will give way to the hon. Member one more time.

[James Cartlidge]

The hon. Member is kind. I hope he will answer my intervention rather than re-intervene on me; I found that very odd earlier. Is it better in principle that people receive £20 through the benefits system or through going into longer hours, with more progress in work and building up a career where there is no limit on what they achieve?

[Jonathan Reynolds]

Of course it is better that people are in work, but the whole point of reform in this area over the last decade and a half has been to try to create a system that integrates with the world of work. I cannot see how the hon. Member does not understand that. I cannot see the logic in his argument that a cliff edge is necessary for the outcome that he wishes to see.

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[Jonathan Reynolds]

I have dealt with this intervention before—being involved in so many Finance Bills does give that experience—and that is false; a quick Google search will put the record straight for the hon. Gentleman.

The great Labour Government after the second world war who created the welfare state, built 1 million council houses and created the national parks while having to deal with demobilisation after the war are not hugely relevant to people who want to cut £20 a week from 6 million families today. But I will always defend the post-war Labour Government, the greatest Government in the history of this country.

[James Cartlidge]

Will the hon. Gentleman give way?

[Jonathan Reynolds]

No, we have had enough history and the hon. Gentleman has intervened twice; we can look forward to his speech.

In relation to the tax rises announced last week, the combination of this cut and the rise in national insurance is absolutely outrageous. As many as 2.5 million families will lose £1,300 a year. This Government are already a high tax Government, and due to that and the decision to freeze personal allowances and hike council tax combined with the much lower than expected Government borrowing costs, projections are already coming in for the October spending review suggesting that there is far more room for manoeuvre than anyone previously thought.

The Resolution Foundation, the most respected analyst of the labour market and welfare state in the country, said last week that the Chancellor

“will be significantly boosted by the good news the Office for Budget Responsibility (OBR) will deliver within its updated forecasts on 27 October. Borrowing this year is likely to come in several tens of billions lower than expected, having already borrowed £26 billion less than previously forecast in the first four months of 2021-22. More importantly, if the OBR moves its forecast for the long-term scarring effect of the pandemic on the British economy (currently 3 per cent of GDP) into line with the more optimistic consensus (the Bank of England now expects scarring of just 1 per cent) he will have a windfall that lasts, possibly to the tune of around £25 billion a year.”

I believe the final forecast might be slightly less generous than that, but the point remains that a decision to keep UC and working tax credit at the current levels could be made within the fiscal headroom the Chancellor already has when the spending review takes place.

As the Resolution Foundation made clear,

“To govern is to choose”,

and the question for hon. Members today is do they really believe that those on the lowest incomes, in some of the hardest jobs in the country, who got us through the pandemic, should take a disproportionate share of the burden going forward? Is that fair, is that a recipe for national success and is that ensuring our country is as resilient as it needs to be to meet future challenges? No, no, and no again.

Looking to the future, I want to replace UC with a better system because I recognise that the argument we are having today over the core amount is not the only problem: the five-week wait is a huge issue for people; the level the taper rate is set at is wholly wrong; and people should be able to keep more of the money they earn. Fundamentally, the Treasury caused a huge problem by causing UC to be associated for many of our constituents with austerity, cuts and sanctions, but that is an argument for another day. The choice we have to make right now is whether to proceed with this cut and, whichever way we look at it, we should not. I hear there are rumours that a reshuffle is under way. As Members will know, if a Cabinet Minister were to lose their job today and return to the Back Benches, they would receive a pay-off of £15,000. Will anyone in this debate say that that is unaffordable? It always seems to be a different rule for the people we are talking about than for everyone else in the country.

I implore Members to think about the wide-ranging effects of their decision in this place today. Charities say that the cut will cut a lifeline to millions. Economists say it will suck spending from our local high streets. Even the Government’s own internal analysis makes it clear that it will be catastrophic. No one in this House can say they did not know. No one will be able to say they were not warned. The effects of this cut are clear as day. It is wrong for our constituents, wrong for the British economy; quite simply, it is wrong for Britain. Conservative Members have a choice to make. I, and the millions this cut will hit, implore them to see sense, back the families who sent them here, and cancel the cut.

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[Sir Desmond Swayne]

rose—

[James Cartlidge]

rose—

[Dr Coffey]

I give way to my honourable neighbour from Suffolk.

[James Cartlidge]

I am grateful to my right hon. Friend and neighbour, who is making an excellent speech. She is right to highlight the resilience of the universal credit system, but on the point that is made about taking money out of local economies, is that not an insult to John Maynard Keynes? Is it not a fact that if individuals get more hours and better-paid work, there will be more money going into their economies, and on a more sustainable basis?

[Dr Coffey]

I would not normally rely on John Maynard Keynes to help the cause, but undoubtedly, there is an element of investment; we are seeing plenty of investment by the Government in our economies and in businesses in support of that, not least the £650 billion programme announced by my right hon. Friends the Prime Minister and the Chancellor earlier this week, which we estimate will generate an extra 425,000 jobs just in the next few years. We want people to have more take-home pay. That is why we have pursued increases to the national living wage, which is now at 60% of median earnings. The intention is that it will reach 66% of median earnings before the end of this Parliament—and that is just the minimum. We want people to have high-skilled, high-paid jobs, and that is why our plan for jobs is all about helping people take advantage of the support that is there.

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[James Cartlidge (South Suffolk) (Con)]

It is a pleasure to follow the hon. Member for Halifax (Holly Lynch).

This is not a decision anybody or any Government take lightly. Members in all parts of the House are right to raise the real-life cases to which they refer; these are our constituents and the people we are sent here to represent. I have the greatest respect for the former Secretary of State, my right hon. Friend the Member for Preseli Pembrokeshire (Stephen Crabb), and for my hon. Friend the Member for Carlisle (John Stevenson), who I know feels strongly on this subject. He talked about the need to level up through raising real wages. I totally agree with him on that, and I will be coming back to that point.

However, I wish to start by focusing on the opening remarks of the hon. Member for Stalybridge and Hyde (Jonathan Reynolds). I have a lot of time for him. He puts his case in a very reasonable tone, and I am sure he feels as passionately about his views as I do about mine. His argument was, in essence, that Conservative Members do not understand the benefits system and the fact that some people in work receive these benefits. That is very far from the truth. Let me share with him my real-world experience. I have put this point on the record several times in these debates, because it is incredibly important to understand this.

Before becoming an MP, I ran a small business. We decided to award pay rises, and I was shocked when three members of staff declined: one declined the actual pay rise and the other two would not work more than 16 hours. I admit that at that point I did not know about the tax credits system—I had never claimed on it myself and I had not employed people on it—but I then discovered the hard reality of its cliff edges. When two skilled members of staff said to me, “James, I’m sorry but I just can’t do more than 16 hours because of this cliff edge,” I realised the insanity of that—of the state spending billions to put a ceiling on people’s working life and ambitions and on the limits to what they can achieve.

We should never have any ceiling on ambition; we should always seek to enable people to make the most of the natural talents with which everyone is born. That is a fundamental view that I hold, so although this issue is very difficult—I accept that people will be affected, including in my constituency—the Government are, fundamentally, doing the right thing.

We have to consider three key points, the first of which is the impact on individuals, which is the hardest part. It is a question of the extent to which one has faith that individuals can work the extra hours, and that in a vibrant economy with 1.2 million vacancies they can recover that income—and far more, over time—either by working more hours if they are in work or, if they do not have a job, by moving into work.

[David Linden]

Just short of two hours ago, the shadow Secretary of State, the hon. Member for Stalybridge and Hyde (Jonathan Reynolds), asked the hon. Gentleman how many households in his constituency will be affected by this cut; has he been able to work that out in the past two hours? If he does not know that figure, it would be reckless for him to go through the Lobby today and vote for this cut to his constituents.

[James Cartlidge]

That was quite an odd moment because, as the hon. Gentleman will have noticed, I intervened on the shadow Secretary of State and, slightly cheekily, he then intervened on me, in a completely novel form of Commons procedure. No, I do not know that figure off the top of my head. I represent those households in this House and I know some of them, and we all know that this change will cause issues. This is not an easy decision, and, as I said at the beginning of my speech, it is not taken lightly, but I have faith in our economy. There are 1.2 million vacancies and the owners of small and medium-sized enterprises—such as me—and the owners of big businesses are crying out for labour. They are desperate for staff.

On 5 August, the Governor of the Bank of England, Andrew Bailey, said something incredibly important:

“The challenge of avoiding a steep rise in unemployment has been replaced by that of ensuring a flow of labour into jobs.”

What a position to be in. At the start of the pandemic, we were all fearful that we would see a huge rise in unemployment—probably one of the biggest in generations. The peak was predicted to be 2 million higher; that is an entire recession’s worth of unemployment. I am proud of what we have achieved in keeping unemployment far lower than that, because it is so damaging.

On the impact on individuals, therefore, we must look to the economy and the extent to which people can work the extra hours to make up the lost income, which I am confident people can. The second key point is the impact on the public finances. It would be extraordinary for us, who are charged with being in Parliament to hold the Executive to account for the moneys they raise, not to consider that impact. The hon. Member for Stalybridge and Hyde said from the Labour Front Bench that we could use the headroom to fund the £6 billion, which basically means borrowing the money. But this commitment will be permanent. The hon. Gentleman wants to use what is potentially a short-term position in the public finances to fund a permanent increase in the welfare state.

Here is the context. Labour has said that, one way or the other, it will keep the triple lock—perhaps not the exact scheme, but it would cost several billion pounds more than the cost of the decision we have made. Labour has also said that it would keep the overseas development spend at 0.7%. Those commitments amount to more than £10 billion, and possibly to £15 billion. It is not good enough simply to say, “Use the headroom.” We know what happened when we had a Labour Government who were irresponsible with public money: we had the great recession and all that that meant for people’s livelihoods and for the poorest in society in particular.

The third key point is the impact on the wider economy. As the Governor of the Bank of England said in the quote that I read out, the issue that we now have is not mass unemployment, as we all feared, but a lack of workers. In many ways, that brings its own headaches. Going back to the point made by my hon. Friend the Member for Carlisle, the upside is that we could be moving into a new era in which those on lower wages see much higher real-terms pay growth than they would otherwise have had. That is an incredibly important development. The focus of Government policy should be to improve real wages, bring unemployment down even further, manage the public finances responsibly and drive the economic recovery forward. That is the correct thing to do.