Tax Credits (Working Families)

Debate between Rob Marris and Shabana Mahmood

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.