Tax Credits (Working Families)

Matthew Pennycook Excerpts

Tuesday 7th July 2015 Commons Chamber

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

I welcome this important debate, which I am sure, given the volume of correspondence that I and other hon. Members have received on the subject, is being watched closely by a great number of my constituents.

As other hon. Members have said, we do not know the precise details of what the Chancellor will unveil in his Budget tomorrow, but if the assault on tax credits is anything like what has been trailed in the press over recent days, many thousands of families in my constituency should be bracing themselves this evening for a big hit to their household budgets.

I will briefly examine the implications for my constituents of the potential proposal that has received the most attention over recent days: a reduction in the value of the child element of child tax credit back to its 2003-04 level in real terms. That entitlement is paid to approximately 9,300 families in my constituency and benefits 17,500 children. More than two thirds of those families are in work and the annual value of the child element for each is £2,780. Scaling it back to its 2003-04 level would constitute a reduction in support of 30%, costing those families a staggering £845 a child. A reduction in a family budget of that scale would be deeply damaging. By its very nature, the impact would be felt disproportionately by women, ethnic minorities and single-parent households like the one that I grew up in.

The Chancellor is likely to defend taking the axe to tax credits by pointing to the much-vaunted pledge to lift low-income households out of tax altogether or, in the Prime Minister’s words, to end the “merry-go-round” of people paying tax while receiving state support. They are both tilting at straw men. As my hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood) mentioned, more than half the families who claim tax credits already pay no tax at all. For those who do pay tax, the likely options of bringing forward a rise in the personal allowance threshold or a rise in the national insurance threshold, while easing the strain, will nowhere near compensate them for the likely scale of reductions in in-work support.

Few, if any, now believe that the growth in tax credit support that occurred over the past 17 years can be repeated, but let us be clear: tax credits are necessary and they will continue to be so, not just to incentivise employment and reduce child poverty, but to address the underlying flaws in a low-pay, low-skill, low-productivity economic model that requires significant amounts of in-work support. For all their flaws, tax credits have provided a lifeline for those on low and middle incomes, and they will still be necessary in some form, even if the UK becomes a living wage economy overnight.

Of course we must be open minded about the need to simplify what is a fiendishly complex system, and we should question rigorously the sustainability of the underlying economic model that has made tax credits necessary. While doing so, let us not delude ourselves that another, deeper, round of cuts to tax credits will do anything other than cause untold hardship for thousands of families in my constituency and across the country who rely on state support to make the most of their lives.