Oral Answers to Questions

Debate between Jonathan Reynolds and Chloe Smith

Tuesday 6th March 2012 Commons Chamber

[Miss Smith]

I cannot comment on that particular set of circumstances, as the hon. Lady will appreciate, but the fact is that about 80% of households with children will see their tax credit awards rise. It was the previous Government who allowed nine out of 10 households with children to be eligible for tax credits. That was unsustainable and uncontrolled spending.

[Jonathan Reynolds]

The Minister will remember that in an Adjournment debate last November I warned her about the devastating impact that the cuts would have, particularly because the hours were simply not available for people to increase the number they worked to meet the eligibility criteria. This week, a coalition of charities has written to the Government begging them to postpone these devastating changes. May I ask her and the Chancellor to meet some of the families affected so that they can understand what the impact will be on them from April?

[Miss Smith]

Any elected MP will regularly meet constituents in their constituency and discuss a range of matters. I certainly do that, and when I have met those affected in my constituency—whether as a constituency MP or, most recently, as a Minister—I have explained the fairness of this measure, which is that it puts couples on a par with lone parents. Where is the Opposition’s concern for single mums and dads, who have always had to face that challenge?

Working Tax Credits

Debate between Jonathan Reynolds and Chloe Smith

Wednesday 30th November 2011 Westminster Hall

[Miss Smith]

Regrettably, I thought that the right hon. Gentleman wanted to respond to why higher earners would have received tax credits under the previous system, but I will come to his point in the bulk of my comments.

[Jonathan Reynolds]

May I bring the Minister back to the specific move from 16 to 24 hours? The figures I have from the Treasury estimate that this change will save £380 million a year. Yes, that is a substantial sum, but the context is one of a Government now borrowing £158 billion more over this Parliament than they said they would just a year ago. If a family’s income goes from £18,000 a year to £14,000, based on this change, will they not feel some angst at a statement that focuses only on higher earners having their tax credits taken away and the wider economic impact? To go from £18,000 to £14,000 is a very big change for a family in my constituency.

[Miss Smith]

Let me move on to the change that the hon. Gentleman highlighted, which is the move from 16 to 24 hours. As he explained, under the current system couples with children can claim working tax credit if one partner works 16 hours a week. The hon. Gentleman will know that at the moment lone parents must also work at least 16 hours to qualify for the working tax credit. As he said, however, under the 2010 spending review, from April next year couples with children will have to work 24 hours between them, with at least one partner working 16. In response to the interventions made, this change makes the system fairer by reducing that disparity between couples and lone parents. I would not like to stand here to defend why those two groups should be treated differently. I can see the hon. Member for Stalybridge and Hyde twitching but I must move on in order to tackle two of the points he specifically asked me to address.

There are exemptions where couples may have a limited capability to work. That means that couples with children will continue to qualify for working tax credit where one member works at least 16 hours a week and that person is eligible for the working tax credit disability element. In addition, there will be an exemption for some couples with children where only one member works at least 16 hours a week and the other adult does not work, for example where one adult is incapacitated. A couple with children will continue to qualify for working tax credit at 16 hours if one partner is in receipt of disability living allowance.

Moving on to how else we can increase support for lower and middle income earners and improve the rewards to work. On work incentives, which I said I would cover, universal credit has already been mentioned and it is in that area—

--- Later in debate ---

[Miss Smith]

We need to move in one direction in this economy, which is to tackle the deficit. I made that point very strongly up front. We must also look to major reforms such as the universal credit, and perhaps before that the Work programme in some cases. There are a number of examples that I look forward to the Government delivering. I have given some; let me give some more that will also answer the points made about what people might get in return.

The Government are investing a further £380 million by 2014-15 to extend the offer of 15 hours of free education and care a week for disadvantaged two-year-olds, which will cover an extra 130,000 children. That is only one element of what the Government will do to help working families. Support has been focused on those on out-of-work benefits—this is a key point that I have no doubt the right hon. Member for East Ham will appreciate. They need greater protection against rising prices than people on working tax credit who are, of course, not solely reliant on this income; they also have income from work, which is key. I do, though, take the points made regarding the difficulty of getting a job in the palm of one’s hand before asking for it.

The Government, however, remains committed to making work pay. As the Chancellor made clear yesterday, the best way to help working people is by taking them out of tax altogether. In April 2012 we will make a £630 increase in the income tax personal allowance, taking it to £8,105. This is in addition to the £1,000 increase in April this year. Together, these increases will benefit 25 million individuals and take 1.1 million low-income individuals out of tax from April 2012.

As I started to articulate, there is then the reform to which I look forward. Universal credit will unify the complex current system of means-tested out-of-work benefits, tax credits and support for housing into one single payment. The award will be withdrawn at a single rate, with the aim of offering a smooth transition into work and encouraging progression into work.

For parents currently on working tax credit, and in the future, the Government continue to provide support for 70% of child care costs—I am conscious that hon. Members have mentioned child care today. That goes up to a weekly limit of £175 for families with one child and £300 for two or more children. Under the universal credit this support will be extended to those working fewer than 16 hours, which will allow 80,000 additional families to receive help with child care costs. That will give second earners and lone parents, typically women, a stronger incentive to work, and I am proud of all those measures.

I shall deal briefly with child poverty and the way in which the Government see it before concluding. Poverty is about more than income; it is about a lack of opportunity, aspiration and stability. We are keen to tackle its root causes, and ensure that children born in low-income families realise their full potential. I have suggested measures that will help, both in the short and long term, but policy in this area has been distorted by a preoccupation with counting the number of children below a certain line, rather than moving families over a real line, as opposed to an imaginary one.

[Jonathan Reynolds]

Surely, that is the purpose of working tax credits. As has been said, with universal credit, the Government are going in the opposite direction from the policy that the Minister is pursuing; it disincentives people who wish to go out to work, which goes against what she said about the wider impact and causes of poverty. Incentivising people to go into the workplace is the best solution, but this policy moves in completely the opposite direction.

[Miss Smith]

Indeed, we need to incentivise people to go into the workplace. However, we have less money than we thought, and we have less money than any previous Government cared to highlight. We have to prioritise who we spend that money on. I would rather give it to people who have no other source of work—in other words, those on out-of-work benefits, rather than those on in-work benefits. That is a sensible principle.

To conclude, the Government have had to take urgent action to tackle what is unsustainable in broader economic terms as well as an unsustainable Welfare Reform Bill. Spending on tax credits has increased from £18 billion in 2003-04 to an estimated £30 billion last year, which is unsustainable and unfair, given the examples that I have mentioned. If we look at the cumulative impact on households of tax, tax credits and benefit reforms introduced both yesterday and before, the top income decile sees the largest reduction in income, both in cash terms and as a percentage of net income. I will take no lectures from the Opposition on believing in more spending, more borrowing and more debt, spent unsustainably and spent unfairly across the income range. I do not think that any working household will thank them for that.