Budget Resolutions and Economic Situation

Peter Bone Excerpts

Thursday 9th July 2015 Commons Chamber

[Mr Duncan Smith]

The answer to my hon. Friend’s question, which I wanted to come to, is that that is the perverse nature of tax credits. About 40% of those on tax credits had tax taken off them, which was recycled through the system with some of it being given back to them. That seems to be a rather bizarre and absurd system.

The tax credit system was the brainchild of the previous Prime Minister, Gordon Brown. The original tax credit system, introduced by the Labour Government, cost £1.1 billion in its first year; the tax credit system now costs some £30 billion a year, most of which is spent on child tax credits. This money was pumped into the system in a clear attempt to chase what was then a moving poverty line. In fact, under the previous Government, £258 billion of hard-earned taxpayers’ money was recycled to be spent cumulatively on tax credits—a huge sum.

We saw massive spikes in tax credit spending in the run-up to election years. In the two years before the 2005 election, spending increased by £10 billion—a 70% increase. In the two years before the 2010 election, it increased by some £6 billion, or 25%. It is worth looking again at the in-between years, when it suddenly flattened but rose before an election. There were disproportionate increases in the child element, in an attempt to keep up with that moving median line. The child element was increased by more than earnings in 2004-05 and from 2008-09 to 2010-11, so that by 2010-11 the child element had increased by 25% more than if it had been uprated in line with average earnings since 2003-04.

One of the worst aspects of the system was the way people had to predict their income for a year. If their actual earnings turned out to be different, they were left with large overpayments or underpayments. This caused misery for families and left a gaping hole in the public finances. Although Labour Members have never owned up to it, we lost billions through that process. To try to deal with the situation, a large disregard was introduced. People then did not have to tell the Government if their income changed by up to £25,000 in the course of a year. To have the disregard at that level was completely irresponsible. It was an attempt to use taxpayers’ money to plug holes in a failing system.

[Mr Peter Bone (Wellingborough) (Con)]

Was that not one of the cruellest aspects of Gordon Brown’s system? In my constituency surgery, I saw desperately poor people who were being asked to repay money they could not afford. It was extraordinarily cruel.

[Mr Duncan Smith]

I agree with my hon. Friend.