Tax Credits (Working Families)

Kevin Hollinrake Excerpts

Tuesday 7th July 2015 Commons Chamber

[Shabana Mahmood]

I want to make some progress, but I will give way a little later.

A study of tax credits by the Resolution Foundation in 2012 found that the introduction of working families tax credit, which was the predecessor to working tax credit, provided a

“small but direct boost to employment”,

particularly for single parents. The economics editor of the Financial Times recently said:

“Britain’s financial support for low income working families is a key reason why we now have a high employment rate and…the Prime Minister must take care not to put at risk a 20 year success story”.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

The hon. Lady cites the Resolution Foundation report. Does she agree with the same foundation’s report which says tax credits have

“a predictably negative impact on work incentives”?

[Shabana Mahmood]

No, I do not agree, and there is a difference between eliminating support from working people in the Budget tomorrow and charting a course that would look more like long-term reform of working tax credits to deal with some of the issues relating to clustering at 16 hours, which Members have spoken about previously. However, that should not be done before tackling the underlying factors that are driving people into low-paid employment and keeping them stuck in that employment.

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[Mr Gauke]

We want to see growth in every part of the United Kingdom. Again, we have a Budget tomorrow. The record of the Chancellor shows a determination to ensure that there is growth in every part of the United Kingdom. I also make this point: it is a fundamental point of principle that taxpayers’ money must be spent wisely to make Government more efficient, effective and accountable. As a consequence, we need to target our spending so that we continue to support those who need supporting while helping millions of people achieve their fullest potential, which we refuse to believe is a life on benefits.

[Kevin Hollinrake]

Does my hon. Friend agree with this information from the House of Commons Library that says that tax credit changes in the previous Parliament were about focusing support on those on lower incomes? The Institute for Fiscal Studies said that, in terms of net incomes, the average household was £900 a year better off at the end of the previous Parliament than it was at the start.

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[Kevin Hollinrake (Thirsk and Malton) (Con)]

I congratulate the hon. Member for Bradford West (Naz Shah) on an excellent maiden speech, on an excellent election victory, and on the many excellent curry establishments in her constituency, which I have visited on a number of occasions.

Let me start by drawing the House’s attention to my entry in the Register of Members’ Financial Interests. I have been an employer for more than two decades.

This is a debate about dependency: the dependency of the worker. I cannot believe that any workers make their career choices thinking that they will bring up a family and will have to rely on state aid in order to do so; nor am I aware of any business people who embark on their business plan thinking that the state will subsidise their businesses. That, however, is exactly the situation in which we find ourselves. Subsidies are anathema to business people. They suppress innovation and deter investment. Someone earning £10,000 a year who has three children can receive as much as £12,000 in in-work benefits. That is not a sustainable position. The total benefit bill for working tax credit and child tax credit is £30 billion. We frequently talk about productivity in this House. To engender real productivity in our economy we need business people to invest, and not just in the cheapest labour.

The system is very complex. Adam Smith said that the first rule of the tax system is that it must be simple. This revolving door of people paying tax then collecting it back through tax benefits cannot be right. All of us in this House are charged with the responsibility of cutting the cost of government and the cost of this system of tax credit, which must cost hundreds of millions of pounds every year.

The tax credit changes under the last Government were, according to the House of Commons Library, focused on supporting those on the lowest incomes. The 2012 Resolution Foundation report said that tax credits have a negative impact on work incentives and in turn on productivity. That cannot be right. We need people to climb the ladder of success, not stand in the queue.

We need simplicity in order to deliver incentives to work. Universal credit has been introduced to do that. It also makes sure there is transitional protection so that nobody is worse off. I believe that we need to change the tax credit system to make work pay.

Work is paying for more people, however. There are 600,000 more people in work than there were in 2010, and 40,000 households who had never worked are now working. Can there be a finer example to the children in those households than to see somebody getting up and going to work? These are all parts of the change to the system that we need to make.

We need to make work pay by getting the employer to make work pay. The minimum wage is too low and we should move over time towards a living wage. We have a strong economy, and in a strong economy everybody deserves a decent standard of living.

We should reform the tax credit system, and ideally lose the tax credit system if everybody in work is earning a decent amount of money. We need to make these changes progressively and over time.

[Tommy Sheppard (Edinburgh East) (SNP)]

Does the hon. Gentleman therefore agree that wages should rise and tax credits fall accordingly as they rise, rather than take money away from families already living on the breadline and impoverish them still further?

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[Kevin Hollinrake]

Under the universal credit system there is transitional protection so no one is worse off, and I absolutely believe in that. If we increase the minimum wage by 5% a year, over 10 years it would reach the then current level of the living wage. This needs to be done sensitively—sensitively for business, as we do not want it to cost jobs. It therefore needs to be done progressively. I absolutely believe we need to reform the system, and that should be reflected in what employers pay, so that there is something in it for them.

What we need is higher wages, lower tax credits and lower tax for the employer.