Tax Credits

Jeremy Lefroy Excerpts

Thursday 29th October 2015 Commons Chamber

[Jeremy Lefroy (Stafford) (Con)]

It is a great honour to follow the hon. Member for Dumfries and Galloway (Richard Arkless). Indeed, I am one of those who have visited his constituency on holiday, and I remember one evening being bitten alive by midges on Clatteringshaws loch. We had to escape into our car and smoke cigars to keep them away—of course nobody under the age of 18 was in the car at the time, I hasten to add.

One noticeable thing that happened earlier this month, and which may not have come to everybody’s attention, was that the International Monetary Fund—not an organisation I have always had a lot of sympathy for, particularly when I was living in Tanzania in the 1990s—made a remarkable statement under its excellent managing director Christine Lagarde: excessive inequality damages growth and the economy. It is amazing and very welcome that the IMF has come to that conclusion. It has come to that conclusion not just in respect of developing countries, but in respect of any country.

In my opinion tax credits have been a means of reducing inequality and particularly excessive inequality in this country. That is why when I spoke in the Opposition-led debate last week I urged the Government to look again at the policy, especially its timing. I am very glad the Chancellor has said he will do that and will bring forward measures. I pay particular tribute to my hon. Friend the Exchequer Secretary because he has always been listening and is a great credit to his position, as indeed is the Chancellor’s Parliamentary Private Secretary sitting behind him, my hon. Friend the Member for Kingswood (Chris Skidmore).

I mentioned two other things last week, one of which was predictability. Income is about predictability; it is not just about levels of income, and if we cannot predict our income it is a great driver into relative poverty. We see that all over the world. The proposals originally before us would lead to cuts of perhaps 10% or 15% in people’s income without their knowing what is going to happen, as the hon. Member for Nottingham North (Mr Allen) and others have said. They would be getting a letter in December or January for something starting in a couple of months and would not have an opportunity to correct that.

I also mentioned the problem of scarcity. For those with a low income things are more expensive. The inflation rate is much higher for people on low incomes than for people on higher incomes. They are not buying electronic equipment, which comes down in price every year, or flying with Easyjet on holiday, both of which have brought the inflation rate down. We need to bear that in mind. The inflation rate may be 0% at the moment, but it is certainly not 0% for people on the lowest incomes.

[Stephen McPartland]

Does my hon. Friend agree that the real poverty in this country is poverty of education, of opportunity and of aspiration and that the people on the lowest incomes are trying to work their way out of that poverty?

[Jeremy Lefroy]

Absolutely; if we see everything in terms of income we are a poorer society, as John F. Kennedy once so magnificently said.

Members have also talked about the fallacy of trickle-down economics—and it is a fallacy. It was supposed to be the way in which the poor would get richer, but, as I have seen around the world, that is rubbish. What we need is surge-up economics, because those on lower incomes spend their money locally, and it goes into taxes and VAT. Of the £4.4 billion, probably several hundred million pounds will be spent on VAT and will come straight back into the Treasury. So we have to remember the consequences and effects on the local economy of the loss of this spending power, as the hon. Member for Dumfries and Galloway said. If one thing is to be reduced, we must see the other sources of income increase simultaneously.

There is also the impact on those on fixed incomes such as carers, which I mentioned last week and other Members have mentioned. Full-time carers who will not see rises in their income often have no opportunity to go out and work more hours. There is also the impact on the self-employed, and indeed on farmers in my constituency who have seen their milk prices, their only source of income, fall. They are reliant on tax credits as much as anyone else. Sometimes, people see them as asset-rich because of their farmland, but they are the ones providing our milk, wheat and other things on which we rely, week in and week out. Their incomes are low, and they, too, rely on tax credits.

I want to look to the future. Other hon. Members have mentioned areas in which we could raise the extra income to offset the cost of delaying the tax credit reductions. I mentioned a couple last week and I shall not repeat them. I want to make a couple of points about the future, however. The first is about national insurance. There has been talk in the past about merging national insurance and income tax, but I think that would be a big mistake. It is incredibly important to have a progressive national social insurance system to which people contribute—even those on low incomes, perhaps at a very low rate—in which they feel they have a stake and from which they are entitled to receive benefits if the need arises. I urge the Government to look closely at how we can improve the national insurance system, rather than getting rid of it. Perhaps we should consider adopting something like the German system, to which we would contribute more but which would provide guaranteed benefits for when people were sick or out of work and for when they eventually retired.

Secondly, we need to look at our savings. We do not save enough; that is a fact. If we look at other countries around Europe, such as Italy, we see that they are far better at saving than we are. The Japanese are excellent at saving. We have one of the lowest savings rates. When my colleagues and I produced a report on social stability last year, we emphasised the importance of introducing a lifetime savings account, which could perhaps be supported through tax-free contributions over the course of a person’s lifetime. People would be able to draw down funds from such an account at difficult times in their lives, perhaps if they became seriously ill or were out of work. Such an account could eventually be converted to become part of their pension. That would encourage people to put aside money, supported by the state, to top up any benefits they might need to claim. Those benefits are always likely to be fairly basic, because they are paid out of the state system, but it is to be hoped that people would still be able to live on them.

I welcome the Chancellor’s statement this week, but I encourage him to look at all the incredibly important points that have been made by Members on both sides of the House in a spirit of co-operation. Above all, I thank the right hon. Member for Birkenhead (Frank Field) for his initiative and his sagacity in bringing forward this debate.