Finance (No. 2) Bill

Debate between Jim Hood and Nia Griffith

Thursday 18th April 2013 Commons Chamber

[The Temporary Chair (Mr Jim Hood)]

Order. Before I call the next speaker, I should say that I am mindful to call the Minister at 1.15 pm. Hon. Members should therefore bear that in mind when they make their contributions.

[Nia Griffith (Llanelli) (Lab)]

I rise to support the proposals in the names of my hon. Friends.

On the one hand, Government Members accuse Labour Members of always wanting to clobber the rich, but on the other they accuse us of not introducing the 50p rate early enough. We had a vibrant economy, but everything changed with the enormous banking crisis in 2008. In response, we had to introduce a deficit reduction plan, part of which was the perfectly logical introduction of the 50p tax rate.

I make no apology for Labour’s firm commitment to the redistribution of wealth through the taxation system. The majority of citizens in western European democracies share that view. The taxation system is not the only redistribution mechanism. Other mechanisms include the minimum wage, which the Labour Government introduced. I hope the Government retain the minimum wage and increase it year on year in line with inflation. It worries me that it is going up by only 1.9% this year, while inflation races ahead. It is important that we have such mechanisms, but taxation is an important mechanism in the redistribution of wealth. The vast majority of people in this country recognise the need for all to contribute to the many public services we enjoy, and the need for some redistribution through the taxation system.

The economic argument that my hon. Friend the Member for Wrexham (Ian Lucas) advanced about money going back into local economies is extremely strong. People on the lowest incomes tend to spend money immediately, so it goes immediately back into the local economy and helps the local high street. Local businesses are going bust because people simply do not have the money to spend. They are struggling. They are turning to food banks—they are unable to buy food, never mind Christmas presents, clothes and the rest of it.

Local economies are struggling enormously. We have heard from many wise sources that the Chancellor needs to get his act together on stimulating the economy, and putting the money in the pockets of people who have the lowest incomes, who will then use it immediately in the local economy, is one way of doing so. That is not happening, which is why the Opposition are so angry about the cut in tax from 50% to 45% when there is an enormous squeeze on those on lower incomes.

One of the most insidious changes is the change to tax credits. They are difficult to explain because they have been designed to suit each individual household, which makes it more difficult to speak about them in a more general sense. Nevertheless, let us look at the changes. First, there has been an increase in the tax credit clawback. The whole point of tax credits is that they are an incentive for people to work if they can find it. Many who are on low incomes cannot get more hours, and the maximum amount that many can be paid for the hours they work in a full-time week still qualifies them for tax credit. Any reduction in that tax credit is therefore counter-productive—it does not help people at all.

The child care tax credit has also been reduced. That is another seemingly mad policy. The money is desperately needed to help people to work. The family element of tax credit has been abolished, as has the 50-plus element, and the working tax credit has been frozen. Given current inflation, the proposed cap of 1% on increases in working tax credit and child tax credit is effectively another cut—it is a cut in what lower-income families can buy with the money they have, with the catastrophic effect that all hon. Members see in our local economies and high streets.

In Wales alone, the tax credit measures will suck some £794 million—much-needed money for lower-income families—out of the economy. The whole point of tax credits was that they were calculated on what it was reasonable for a family to live on, which helped those whose earnings did not meet that rate to keep going.