Tax Credits

Lord Evans of Rainow Excerpts

Tuesday 20th October 2015 Commons Chamber

[Mr Alan Mak (Havant) (Con)]

rose—

[Graham Evans (Weaver Vale) (Con)]

rose—

[Seema Malhotra]

I will give way in a moment.

A family with one earner on the minimum wage will be more than £1,500 worse off next year and almost £7,000 worse off over the Parliament.

The claim that we have heard most is that working families should not be concerned because the minimum wage will see significant increases in the next few years. As the Institute for Fiscal Studies has made abundantly clear, the claim that those increases will close the gap is arithmetically impossible. Paul Johnson, the director of the IFS, summed it up:

“The key fact is that the increase in the minimum wage simply cannot provide full compensation for the majority of losses that will be experienced by tax credit recipients”.

He said:

“Unequivocally, tax credit recipients in work will be made worse off by the measures in the budget on average.”

--- Later in debate ---

[Damian Hinds]

I must make some progress.

The tax credit reforms are an important part of fiscal rebalancing, but they are only one part. On the same day that the tax credits lower threshold and higher taper rate take effect, we are reforming dividend tax and pensions relief for those on high incomes, and initiating a further clampdown on tax avoidance. Those are three measures among a set that also includes: the end of permanent non-dom status, restrictions on landlords’ tax relief and the continuation of a top rate of tax that is higher than it was in 4,718 of the 4,753 days the Labour party was in office. If we look at how the burden of deficit reduction is spread through society, the simple fact is this: the distribution of spending among income groups is constant between 2010 and 2017, while the burden of tax has shifted towards the best-off.

[Graham Evans]

Does my hon. Friend agree with the former Labour Chancellor of the Exchequer, Alistair Darling, who said that subsidising lower wages in the way that tax credits do was never, ever the intention?

[Damian Hinds]

My hon. Friend brings me on, quite handily, to my very next point. When tax credits first came in, their aim was entirely noble, but they quickly soared out of control. The total cost more than trebled between 1999 and 2010, ending up costing £30 billion in 2010. Scandalously, while spending spiralled under the previous Government, in-work poverty actually rose by 20%. Now, we can kick a problem down the road or we can do something about it. We chose to do something about it. Our reforms do not abolish tax credit or anything close.

--- Later in debate ---

[Graham Evans (Weaver Vale) (Con)]

I am grateful to you, Madam Deputy Speaker, for calling me to speak in this important debate.

Britain is home to 1% of the world’s population and accounts for 4% of the world’s gross domestic product and 7% of the world’s welfare spending. Tax credit expenditure more than trebled in real terms in the decade between 2000 and 2010. In fact, Britain has the highest expenditure on family cash benefits in the world. In 2011, we were spending twice as much as the OECD average. Without sound public finances, there can be no economic security for working families, and the country cannot pay for the hospitals and schools that people rely on.

Those who suffer most when the Government run unsustainable deficits are not the richest, but the very poorest. As the Prime Minister made clear in a speech at Ormiston Bolingbroke in Weaver Vale, there is nothing progressive about burdening our children or paying more in debt interest than we spend on schools. There is nothing progressive about debt.

[George Kerevan (East Lothian) (SNP)]

Surely the hon. Gentleman is aware that a central portion of the national debt is owned by the Treasury and that we pay a substantial part of the interest payments to ourselves.

[Graham Evans]

I am grateful to the hon. Gentleman for his intervention, but I have to say that I have a vested interest as I have three young children. Is he saying that we should increase our debt? Should the debt of £1.3 trillion be £2 trillion, £3 trillion or £4 trillion? How much more debt does he think this country should leave to our children to pay back?

[George Kerevan]

rose—

[Graham Evans]

Or should it be £5 trillion, £6 trillion or £7 trillion? I will give way again to the hon. Gentleman so he can tell me.

[George Kerevan]

The SNP is more than willing and happy to reduce the national debt year by year and annual borrowing year by year, but I say again that something over a third of the national debt is actually owned by the Treasury, so he cannot go on saying that interest payments go to somebody else; they go to ourselves to fund hospitals, for example.

[Graham Evans]

The hon. Gentleman is saying that the Scottish National party is happy to increase the national debt. That is the message: the national debt is going to go up. That is what socialism does and what socialists say. They are not concerned about the national debt, which is currently £1.4 trillion and getting higher. We can hear the message coming through loud and clear from the SNP.

Tax credits cost £l billion in their first full year, but have since risen to an estimated £30 billion over the last year, yet over the same period in-work poverty rose by 20%. The status quo on tax credits is clearly not working. Indeed, the former Labour Chancellor of the Exchequer, Alistair Darling, said that tax credits were

“subsiding low wages in a way that was never intended.”

It is vital to address the root causes of low pay rather than simply continuing endlessly to subsidise low pay through the benefit system. Reforming tax credits is crucial to achieving a sustainable welfare system that is fair both to the most vulnerable in society and to hard-working taxpayers who have to pay for it.

These reforms do not stand in isolation, but are part of a joined-up, wider offer to working people by this Government. With the announcement of the introduction of a new living wage by my right hon. Friend the Chancellor during his summer Budget, and the strides taken to raise the personal allowance, people will not only earn more but keep more of what they earn. It always pays to work.

On top of that, we doubled the number of free childcare hours of which parents can take advantage to 30, introduced tax-free childcare and froze fuel duty, saving a family £10 every time they fill up their tank.

[Melanie Onn (Great Grimsby) (Lab)]

The hon. Gentleman is talking about how people working on low pay should be grateful for the so-called living wage. Let me make the point again that this is not a living wage: it is not £7.85; it is not enough for people to live on. Let me provide an example. On the basis of changes to the tax credit threshold and the taper, a medical secretary with two children earning £22,236 a year can be expected to be £2,109 a year, or £40 a week, worse off in 2016 than in 2015. Will the hon. Gentleman comment on that?

[Graham Evans]

What I will say is that employers must step up to the plate. They must pay higher rises—rising salaries. The living wage will rise to £9 during the term of the present Parliament, and because the Government have increased the personal allowance, people will earn £12,500 before paying any tax whatsoever.

The combination of those changes will make eight out of 10 working families better off. A typical family in which someone is working full time on the minimum wage will be £2,400 a year better off by the end of this Parliament. By 2020, the annual income of a single parent with one child working 35 hours a week and receiving the current national minimum wage will have increased by more than £1,500.

Poverty can be left behind only through work. The reforms of tax credits focus support on the families on the lowest incomes, while favouring support for working families through the tax system and earnings growth rather than through benefits. They will move Britain from a high welfare, high tax, low wage economy to a lower welfare, lower tax and higher wage economy.