Universal Credit and Working Tax Credits

Debate between Jonathan Reynolds and James Cartlidge

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.

--- Later in debate ---

[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.

Finance (No. 3) Bill

Debate between Jonathan Reynolds and James Cartlidge

Committee: 1st sitting: House of Commons
Monday 19th November 2018 Commons Chamber

[Jonathan Reynolds]

I am happy to take that point, which although a little outside the remit of the Bill is none the less interesting. For us, the relationship that we would seek with the EU would be based quite simply on a solid cost-benefit analysis of what is in the UK’s best interests. If we look at the various options on offer, given that half the world is already in a regional trading bloc or a customs union of some sort, it is absolutely clear that what we would risk losing by losing frictionless trade with the European Union would never be gained by external trade deals with the rest of the world. A customs union is therefore the right way to go forward. Were the UK to enter one, we clearly could not have a situation in which we were unilaterally exposed to the deals that the EU did with other countries without having a say, so it is a pretty logical position. That does not mean that those deals would always receive the backing of all parts of this House. Elements of those deals might be unacceptable.

The point about sovereignty, which comes from Brexiteers in the main, is so important, because people say, for instance, “Let’s not do a customs union, let’s do a deal with Donald Trump’s America,” but would our constituents really accept unilateral access to the NHS for American healthcare providers? Of course they would not. Would our constituents accept hormone-treated beef in the supermarkets? Personally, I do not think they would. The question is always about the balance between what is in the proposed economic relationship and the political oversight that should go with it. That position is fairly logical and straightforward.

[James Cartlidge (South Suffolk) (Con)]

The hon. Gentleman has just said that he would have a customs union and a say in those trade deals. How would we have a say if we were in a customs union run by the European Union yet not in it anymore? I do not understand that.

[Jonathan Reynolds]

We are not proposing to remain in the customs union but not be a member of the EU. We are discussing joining a new customs union that we would negotiate with the European Union. I will say to the hon. Gentleman—I do not think that I am revealing any secrets here—that for a large number of Conservative MPs and, indeed, perhaps for the Treasury itself, that is their preferred solution; they are just not in a position to negotiate that or to request that because of the parliamentary arithmetic of the Conservative party. It does also have the very substantial benefit of our being able to honour our commitments under the Good Friday agreement. That is something that should have been a much bigger part of the referendum negotiations, and it should certainly be a paramount concern for this House going forward. I will get back to the Finance Bill, but I hope that that allays the concerns of Conservative colleagues and makes it quite clear what we think the relationship should be going forward.

[James Cartlidge]

How would the hon. Gentleman have a say? This would be a customs union with the European Union which we would have left. How would he have a say in it? We would not have a vote anymore.

[Jonathan Reynolds]

That is what we are proposing that we would negotiate. That is the entire basis of the proposal. I have no doubt that such an arrangement was on offer and may still be on offer from the European Union. The hon. Gentleman is well-informed and I always look forward to his contributions in these debates. I am sure that he has contacts as we do in other European Parliaments or perhaps in the Commission itself. If he does some investigations, he will see that that was always a preferred option for many people and it is, without question, the right way of going forward for the national interest of this country.

Finance (No. 2) Bill

Debate between Jonathan Reynolds and James Cartlidge

Committee: 1st sitting: House of Commons
Monday 18th December 2017 Commons Chamber

[James Cartlidge]

The hon. Gentleman makes a very good point, and I will come back to that once I have set out the context of my remarks. The key point is this: there are some concerns, but in a growing economy, consumer debt will tend to rise, so we have to separate out that which is perfectly acceptable and that which may give cause for concern. I will come back to that point, but it is very fair.

In respect of proposed subsection (2)(b) of the Labour new clause, which talks about

“reflecting risks to the financial system”,

we conclude by reminding ourselves that it was the very explosion of the financial system that created the need for this bank levy. As I say, we have to debate the past—why we are here in the first place and where this all came from—and the fact that we are on a journey. The reason this tax is being tapered off is that the banking sector is once again becoming profitable, and we are allowing it to flourish again as a free enterprise-based banking system, but, of course, in the context of very strict regulation and a prudential regime.

Let me go back to the point about personal experience. It amazes me when members of the Labour party stand up and, like Pontius Pilate, wash their hands of the huge impact of that crash. At the time, many of us approached the regulator—the Financial Services Authority—which Gordon Brown launched early in the first Parliament after Labour won in 1997. He claimed that that would avoid future financial crises. We must remember that and have accountability.

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

Will the hon. Gentleman be reasonable or fair enough to acknowledge that while it is entirely possible to say that the system of regulation on the eve of the financial crisis was not adequate— no one is making the case that it was—surely it is illogical and ridiculous to suggest that the Conservatives would have been doing anything different. After all, the banks themselves were not aware of the level of risk they had undertaken, so it was no surprise that the regulator did not appreciate it. One cannot claim that the Conservatives advocated anything different from the overarching framework of regulation that existed at the time.

[James Cartlidge]

I entirely disagree. The absolute root cause of it all was not saving enough and having a bad culture of over-reliance on debt. I well remember that back in ’98 and ’99 when Francis Maude was the shadow Chancellor, he kept saying, with regard to the low savings ratio, “We are storing up problems for the future.” At every Budget, no matter how high Labour was in the polls, our shadow Chancellors and shadow spokesmen—people like Howard Flight—would say that the savings ratio was way too low and we were storing up problems for the future. We did warn, we did say it, and we were ignored.

Budget Resolutions and Economic Situation

Debate between Jonathan Reynolds and James Cartlidge

Tuesday 14th July 2015 Commons Chamber

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

The Budget we have just seen was a masterclass in presentation, but a poor one for facing up to the real problems of the British economy. Before we begin, it is worth recalling the recent history of these debates and the economic state of the nation. Both major political parties went into the 2008 financial crisis with identical spending plans, because this Chancellor had pledged to match the Labour Government’s spending plans of the time. The UK’s banking regulation comprehensively failed in 2008, but then so did the system of banking regulation in nearly every other country. Both parties then backed the bail-out of the banks, to protect the people from the banks’ mistakes.

The only other major point of difference between the parties was that on our side we favoured a stimulus, a decision replicated in most other countries at the time, and which I believe was correct, but which the present Chancellor and the Conservatives opposed. The Chancellor also made a serious error of judgment in opposing the nationalisation of Northern Rock.

It is worth saying all that because I believe that the standard of debate on the economy in the last Parliament was fairly poor, given that it was the major issue of that Parliament. The partisanship of Government Front Benchers and Back Benchers reached moronic levels at times, reducing serious questions about the prosperity of the UK to slogans with no real content. I hope that we will see a change in this Parliament.

This Budget has proved one thing above all—there really is no long-term economic plan for this country. Deficit elimination has been put back a further year, which is no surprise to any of us who were here in the last Parliament, because that is what happened every time the Chancellor gave us one of his set-piece presentations.

[James Cartlidge (South Suffolk) (Con)]

Will the hon. Gentleman give way?

[Jonathan Reynolds]

I will not give way, because of the direction from the Chair. I hope that the hon. Gentleman will forgive me.

It is surely worth noting that the Chancellor has now failed to match either the Darling plan or the original Balls plan for deficit reduction, mainly because his emergency Budget in the last Parliament damaged the economy so much. We are now debating an emergency Budget in this Parliament, and let me say that there are some good things in it: the apprenticeship levy; the super-tax on bank profits; the reforms to the non-dom rules, creating just one tax regime no matter how wealthy someone is; and of course the increase in the minimum wage. That is all good social-democratic stuff. I hope we will see those commitments maintained, and that we can soon implement the actual living wage, now that the intellectual argument for it has been so comprehensively won by those of us on the left. I also have no hesitation in welcoming the sustained fall in the unemployment rate in the last few years. Like most people, I am concerned about the relatively poor pay and conditions of some of those jobs—that is a very valid point—but work is a very good thing and the more people who are in it, the better.

However, I put it to the House that if we look seriously through the Chancellor’s presentation, we find some fundamental problems with the British economy that he does not seem eager to address. For instance, we are a country with a terrible current account deficit. We simply do not export enough, but even more worryingly we do not have many sectors of the economy that look as though they could substantially increase exports. There have been many warm words from the Government on this matter, but there has been little improvement over the past three to four years, and the sectors that could provide growth, such as the green economy, have been consistently undermined. We need a proper industrial strategy and a smart interventionist state, with the kind of policies pioneered by the Labour Government during the financial crisis, to address that.

We also have poor productivity, as has been fairly well documented, yet the Government are pausing key infrastructure upgrades, such as the electrification of the trans-Pennine rail line through Stalybridge and, even worse, are making it even more expensive for people to go to university and get a degree to improve their skills.

The replacement of university grants with loans is one of the changes that I absolutely abhor. Of course, students should make a contribution—that issue is now settled—but £50,000 of debt for a three-year degree is surely far too high. I do not feel that Government MPs really understand what that means. It is effectively a 3% rise in income tax for some young people for the first few decades of their working lives. At the same time, they face much higher pension contributions and housing costs than their parents’ generation. There are limits to how hard those people can be squeezed and choosing to squeeze young people simply because older people are more likely to vote is the height of short-term political cynicism.

Housing is surely the most dysfunctional part of our economy. Whether someone is on the right or the left of British politics, how can it make sense that buying a house as an asset will always be a better investment than starting a business or investing in their skills and training? Housing costs for British workers are absurd compared with those in other European countries and we must not only build more houses but start to tax assets more and income less.

That brings me to the part of the Budget that I completely oppose, which is the inheritance tax cut. To put it quite simply, if somebody has mediocre talents but wealthy parents, this is most certainly a Budget for them. In his speech, the Chancellor said that wanting to leave a house worth £1 million to one’s children was a thing that the left would never understand. My hon. Friend the Member for Blaydon (Mr Anderson) also made this point. What I say back to the Chancellor is that what the right needs to understand is the anger and resentment of hard-working and talented people from modest backgrounds who find their paths regularly blocked by the less able but more gilded sons and daughters of the very wealthy. I believe that even right-wingers should oppose inheritance tax cuts on grounds of meritocracy and instead support a society in which hard work and ability make a difference to one’s life, not inherited wealth.

We have had much talk of tax credits today. There is some evidence that in some sectors and with some employers, such as the big supermarkets, tax credits have subsidised employers, but the scale of what the Government are doing is extremely worrying. Families with two earners but a modest income and with two children face eye-watering reductions in their household budgets. I would certainly notice if someone took more than £2,000 a year from my household income and there needs to be some acknowledgement from the Government that this will cause real pain. In addition, and crucially, it could also cause a disincentive to go out to work. One of the most compelling reasons for the tax credit system in the first place was that it made work pay. Tax credits also served as an incentive to hire and there could be a negative affect on employment figures as a result of the changes.

One of the Government’s plans that I want to succeed is the northern powerhouse initiative. I must admit that the branding of the policy amuses me somewhat as when I was a teenager growing up in the north-east, the Northern Powerhouse was the name of the biggest gay club in Newcastle, although I am sure that the Chancellor did not mean to name his policy after it. The premise behind the policy is strong. As a country, we are far too geographically concentrated—much more so than comparative European nations—to the detriment of both north and south. The centralising of the British state has not just led to poor decision making but has, in my view, infantilised the great northern cities that were once the masters of their own destiny and the drivers of British prosperity. The Government must be aware that there is a great deal of cynicism in the north about this plan, which has been compounded by the recent pause in the rail electrification programme. If the Government want to show that they are serious about the policy, they need not just warm words but an announcement and some progress in the months ahead. I for one would be happy to work with them to make that happen.

We have a Chancellor whose political skills are largely unmatched but whose economic credentials for promoting the national interest are much more questionable. I hope that in this Parliament and in subsequent Budgets we will start to see a much more effective focus on the real economic problems our country faces, which I believe can be overcome. In all seriousness, I believe that in my lifetime the UK could become the biggest economy in Europe and in doing so could create a society in which wealth and opportunity are much more readily available and much more widely shared. The Budget did not contribute to that and in some ways made it even harder to achieve, and I hope that we will start to see better in the future.