Tax Credits (Working Families)

Rob Marris Excerpts

Tuesday 7th July 2015 Commons Chamber

[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.

[Rob Marris (Wolverhampton South West) (Lab)]

My hon. Friend is making a powerful case. She touched on a point mentioned in the motion: dealing with the causes of high social security spending, not just the effects. One such cause to which she adverted and that can be found in the motion is housing costs. We have shockingly high housing costs all around the country, caused by huge housing shortages. Can she indicate what the Labour Front-Bench team thinks should be done to address high housing costs?

[Shabana Mahmood]

In the end, it is about building more houses. That is something that this Government have singularly failed to do over the five years during which they have already been in office. In view of what is being briefed ahead of the Budget tomorrow, it does not seem to me that they are going to come forward with a game-changing plan when it comes to house building in our country.

Tax credits and child poverty are inextricably linked. The same Resolution Foundation study of 2012 found that there was a clear inverse link between spending on tax credits and child poverty rates. The latest households below average income figures show that progress in tackling child poverty has ground to a halt since this Government came to office, with 2.3 million children remaining in relative poverty and 2.6 million in absolute poverty.

The Work and Pensions Secretary spent most of last week trying to distract from the Government’s record on child poverty, first by trying to claim a win on child poverty on the basis that the figures were not as bad as some suggested they might have been—in itself indicative of a shocking complacency—and then by changing the definition of child poverty. The reality remains that too many children in our country struggle with a poor and difficult start in life that directly impacts on their life chances as adults. If not dealt with early, this means that we will all face higher costs further down the track. As I mentioned, the IFS says that cutting £5 billion-worth of tax credits tomorrow will push a further 300,000 children into relative poverty. Tax credit cuts will do nothing to address child poverty; they will simply add to it.

Government Members would have us believe that by cutting tax credits, wages will automatically rise to compensate workers, but that is simply not going to happen. Employers will not give everyone a pay rise on the day the Chancellor cuts tax credits. As I said, the national minimum wage would have to rise by 25% overnight to compensate a lone parent working 16 hours a week for the loss of tax credit, and the wage of a worker on average earnings of £22,000 a year would have to rise by 6% overnight. That would require employers to raise pay overnight by twice the amount by which the Office for Budget Responsibility has said that they will raise pay over a full year, and we know that there is not a chance in hell that that will happen.

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[Mr Gauke]

In 2014, the UK was the fastest-growing economy in the G7 and it looks likely that that will also be the case in 2015. [Interruption.] The hon. Lady talks about wages, but they are up 2.7% in the last year. As I said, living standards have risen by 3.9% on the year, despite the fact that we are still living with the consequences of the deepest crash and the biggest deficit, which we inherited from the Labour party.

[Rob Marris]

Does the Minister not recognise a contradiction in his position? If the economy is as strong as he suggests, there is no need to cut tax credits. If, on the other hand, as Labour Members think, the economy is not nearly as strong as he and his colleagues are making out, we need tax credits because of poverty.

[Mr Gauke]

The economy is growing strongly, but we are still recovering from the deepest crash. We inherited the biggest peacetime deficit in our history, and we must take difficult decisions to address it. We took difficult decisions in the previous Parliament, which were opposed by the Labour party, and we still have more to do. The Labour party might wish to learn that, if a Government or a political party cannot face up to those challenges, they will not win the trust of the British people.

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[Ian Blackford]

I must say that I find it remarkable that the hon. Gentleman has asked such a question. I have spent much of the past 10 minutes talking about the need for sustainable economic growth, because that is how we can reduce the deficit, not by punishing the poor in this country. That is what he fails to accept.

[Rob Marris]

Will the hon. Gentleman give way?

[Ian Blackford]

I will make some progress and then I will give way.

The SNP firmly believes that we need to do far more to tackle poverty, and addressing inequalities is at the heart of the Scottish Government’s programme for Scotland. We challenge the UK Government to commit to a more ambitious rise in the minimum wage, and to follow the Scottish Government’s lead in paying all staff the living wage.

The UK Government have already cut tax credits. In 2012, the eligibility threshold for child tax credit changed from a family income of £41,000 to £26,000 for lone parents and to £32,000 for families with two children. The number of hours that couples with children had to work in order to be eligible for working tax credit went up from 16 hours a week to 24, with one parent having to work at least 16 hours. As a result of those changes, 11,370 Scottish families lost working tax credits worth up to £3,870 per year and 73,300 Scottish families lost child tax credits worth about £545 per year.

More than 500,000 children in Scotland benefit from tax credits. Two thirds of the £2 billion expenditure on tax credits in 2013-14 went to low-income families with children; only 5% went to households without children. That is why we are alarmed. Any removal of tax credits will clearly lead to an increase in child poverty. It is simply inhumane to consider such a move.

In a speech last week, which was widely interpreted as a statement of intent to gut tax credits, the Prime Minister said:

“There is what I would call a merry-go-round. People working on the minimum wage having that money taxed by the government and then the government giving them that money back—and more—in welfare. Again, it’s dealing with the symptoms of the problem: topping up low pay rather than extending the drivers of opportunity—helping to create well paid jobs in the first place.”

Those comments suggest that the Tories are planning to target child tax credits and working tax credits, which provide support to low-income working people.

Although we agree that we need to take urgent action to tackle low pay and raise wages, removing the vital support that tax credits give cannot be the answer. The SNP has set out a range of policies that aim to boost low incomes and drive wage growth. We have proposed raising the minimum wage to £8.70 by 2020, raising the incomes of the lowest-paid in our society and reducing dependence on tax credits.

The Scottish Government are the first living wage-accredited Government in the UK, and we are actively promoting the living wage by encouraging companies to sign up to our Scottish business pledge. We challenge the UK Government to follow suit and guarantee that all their staff will be paid the living wage.

We want to see a £600 increase in the work allowance of universal credit, which determines when people entering work begin to have their benefits reduced. That would support people on low incomes and boost the income of a worker who receives universal credit by £390.

Removing much need financial support for those on low incomes, in the form of tax credits, simply cannot help make work pay. The SNP wants to make work pay, but we must do so by raising incomes and tackling low pay.