Tax Credits

Liz McInnes Excerpts

Thursday 29th October 2015 Commons Chamber

[Liz McInnes (Heywood and Middleton) (Lab)]

I thank my right hon. Friend the Member for Birkenhead (Frank Field) for bringing this debate to the House.

A wiser Chancellor would not have cut tax credits to some of the poorest families in Britain in the first place, but I believe that the right hon. Gentleman now has some wriggle room and that he can put right the mess he has created for Britain’s families. The Child Poverty Action Group believes that the proposed changes to tax credits will damage work incentives and increase child poverty. I think we have got the message loud and clear that the cuts will mean that work pays less.

The changes affect recipients of working tax credit, who by definition are in work. Analysis by the House of Commons Library finds that 3.2 million people will lose an average of £1,350 next year, and although doubt has been cast on that figure by the hon. Member for Morecambe and Lunesdale (David Morris), I find that, generally, Library staff are fairly thorough and reliable. The same Library analysis finds that more than 750,000 families earning between £10,000 and £20,000 a year will lose up to £2,184 next year. More than 580,000 families—Britain’s poorest working families, earning between £3,850 and £6,420 a year—face being taxed for the first time. They will lose 48p in tax credits for each pound they earn. Some low-income families will keep just 3p in every extra pound they earn after the changes are made. Child poverty will increase as £4.4 billion is taken from low-paid families.

The cuts are not compensated for by other changes, such as the so-called national living wage, the rising income tax threshold or the free childcare offer. Importantly, the impacts of the cuts have not been thoroughly assessed. Some working families now face an effective 97% tax rate on each extra pound they earn: they will lose 32p in income tax and national insurance payments, 17p from entitlements to other benefits, and 48p in tax credit entitlements, leaving them with just 3p in the pound.

At his last party conference speech before becoming Prime Minister, the right hon. Member for Witney (Mr Cameron) argued against high effective tax rates on low-income families, saying,

“if you’re a single mother with two kids earning £150 a week, the withdrawal of benefits and the additional taxes mean that for every extra pound you earn, you keep just 4p. What kind of incentive is that?”

What has changed? Two thirds of poor children live in a family where somebody works, and it is inevitable that taking £4.4 billion away from low-income working families will force more children into poverty. Child poverty is rising: independent projections from the Institute for Fiscal Studies show clearly that the falls in child poverty rates seen at the beginning of this century are at risk of being reversed. In my constituency of Heywood and Middleton, the number of working families with children claiming tax credits is 5,500 and the number of children living in working families receiving tax credits is 9,700. In the neighbouring constituency of Rochdale, the figure is 14,900. Nearly 25,000 children across the borough of Rochdale will be affected by the changes.

My constituent Emma Divine emailed me to say:

“I’m dreading going back to work. I’m a single mother of three children and I know I’m going to go back soon, but I’m scared how we will survive—I’m already struggling as it is.”

Another constituent—a public sector worker—wrote to me to say that she provides essential public services and that tax credits are an important part of her household income. She said that although she would gain from the £80 increase in personal tax allowance, overall she would be much worse off, especially, as she said, if we

“take into account the fact that the government only wants me to get a 1% pay increase over the next few years.”

Those women and many more like them speak to the reality of life for the working poor—something that some in this House are comfortably insulated from. Indeed, when I worked for the NHS, child tax credits helped me. They helped me to remain in full-time employment because I was able to afford a childminder for my school-age son.

Of course we welcome the higher minimum wage and the increase in free childcare provision, but, as many hon. Members have pointed out, that only goes so far. We need to get work incentives right. That is critical to tackling in-work poverty. What we need to do first is push employers to pay the living wage—the real living wage, not the Government’s new national minimum wage, which is lower and does not apply to workers under 25. We need to tackle the causes of low pay before we start to cut tax credits.

I agree with my hon. Friend the Member for Darlington (Jenny Chapman) that the vote on Monday may have done the Chancellor a favour, giving him breathing space and a chance to put this situation right by supporting working families instead of penalising them for doing the right thing. Although the right hon. Gentleman may have only just discovered that the House of Lords is unelected, I hope that he will take this opportunity to reverse the tax credit cuts.

--- Later in debate ---

[Mr Allen]

My hon. Friend is absolutely right.

We, and some of the media, think this is a big issue right now, but you would be amazed how many people do not know that this is going to hit them, and they will not know until that letter drops and it actually happens. A wise old bird—Joe Ashton, who used to be the MP for Bassetlaw—taught me this lesson: passing a Bill will not influence anybody’s real life until whenever—in this case, I believe, next April—it takes effect. Then there will be a shock. Then there will be a tidal wave of people saying, “My god, what are you doing to us? Why did you allow this to happen? We don’t care which way you voted, why are you allowing it to happen?” That is why between now and then we have to bend our backs to ensure that we mitigate the worst consequences.

The national living wage is a bit like English votes for English laws: it is such a smart slogan that one could perhaps run an election on it. Does the reality, however, have the substance and the detail that people need in their lives? Saying that we are going to have a national living wage sounds fantastic, but if it does not actually mean that incomes will be at least as good as they were before, it is a fraud.

[Liz McInnes]

Does my hon. Friend agree that the Government’s national living wage is not the actual living wage, which is set by the Living Wage Foundation? The actual living wage is far higher than the Government’s national living wage. To call it a living wage is a misnomer.

[Mr Allen]

I totally agree with my hon. Friend. The Living Wage Foundation has already blown that myth straight out of the water and said it is not actually what everybody else seems to think of as being the living wage. Indeed, the Institute for Fiscal Studies and our own House of Commons Library have both said that the so-called national living wage does not make good what people will lose. Both those highly authoritative, independent organisations say it will only cover about a quarter of the loss that families will incur. On top of that are a lot of other factors. Difficulties relating to the introduction of universal credit are compounding the situation for people on low incomes.

For my constituency, all this shows that society is not addressing deprivation in the way it should. In the past five years, the indices of deprivation have indicated that in my constituency 5.9% more people are in the category of being deprived than they were five years ago. I ask the Chancellor to try to understand that it is not always about Tatton or Witney. The 20 most deprived constituencies—such as Nottingham North, Liverpool Walton, Birmingham Hodge Hill, Manchester Central and so on—are where our people live. That is where people need their representatives to stick up for them. That is where the free market politically does not work. Inviting people over for a weekend of shooting, riding or whatever—that is not where I live, and it is not the way our people will get the message over and have their voices heard. It is by sensible people, from all parties, putting the case forward.