Shabana Mahmood
Main Page: Shabana Mahmood (Labour - Birmingham Ladywood)Department Debates - View all Shabana Mahmood's debates with the HM Treasury
(9 years, 4 months ago)
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Shabana Mahmood (Birmingham, Ladywood) (Lab)
I beg to move,
That this House believes that people should be given support and incentives to find employment and stay in employment; notes that, at a time when the recovery is still fragile for many, the impact of a significant reduction in in-work tax credits could increase hardship and undermine the importance of making work pay; believes that any meaningful effort to address the real causes of high welfare costs should tackle the underlying drivers of low pay, housing costs and insecure working conditions; further notes that the threat of a £5 billion reduction in child tax credits would see 3.7 million working families lose an average of £1,400 a year in income; and urges the Chancellor to guarantee that any assistance in the July 2015 Budget is focused solely on people on middle and low incomes.
I am pleased that we have finally come on to our Opposition day debate. It was postponed last week and has been delayed today owing to the emergency debate on English votes for English laws. It is important that we have this debate ahead of the Budget, because what the Government decide to do tomorrow in relation to tax credits will show up the rhetoric they have been using since the election and prove whose side they are really on. It is not the side of working people. They say that they are now the workers’ party. Indeed, the Chancellor’s op-ed in The Sun this weekend started with the line:
“We were elected in May as a party for working people; that’s how we’ll govern; and that’s who my budget this week is for.”
On reading that line for the first time on Sunday morning, I would have choked on my cereal were it not for the fact that it is Ramadan and I am fasting. Saying it—asserting it—simply does not make it true. It is about what we do and the choices we make. If the decision the Government make tomorrow on tax credits is as we expect, it will prove that their rhetoric is very far removed from the reality.
We know from what the Chancellor said over the weekend that £12 billion of savings from the welfare budget had been found. It is reported that a substantial chunk of that money will come from cuts to tax credits. Certainly, the Government’s attempts to discredit the tax credits regime suggest that they are laying the groundwork ahead of tomorrow’s Budget. The independent Institute for Fiscal Studies has suggested that the Government could cut the childcare element of child tax credit back to its 2003-04 level, saving £5.1 billion per year. The IFS says that a £5 billion cut in tax credits in this way would mean some 3.7 million families losing £1,400 a year on average and would push a further 300,000 children into relative poverty. Those are huge sums of money for working people on low pay—people who are trying to do the right thing, who are at the mercy of a labour market that, at the lower end, is insecure and of high housing costs that keep going up and up. Without tax credits to help them through, those who are working and stuck on low pay simply cannot make ends meet.
Luciana Berger (Liverpool, Wavertree) (Lab/Co-op)
I thank my hon. Friend for very kindly giving way during her remarks, which are so incredibly important. I am so glad we are having this debate today. She talks about the millions of families who will be affected by the announcement we are expecting tomorrow. Does she agree that behind those millions of families are individuals, such as my constituent Joanne Todd, who is already struggling to feed and clothe her children? If these cuts go ahead, she does not know if she will be able to put the heating on this winter.
Shabana Mahmood
My hon. Friend makes a really important point in her customary powerful way. She is absolutely right. Behind each of these statistics—3.7 million families and 300,000 children are shockingly large numbers—are individual stories of hardship and toil: people trying to do the right thing and being punished by the choices the Government will make tomorrow.
Lucy Frazer (South East Cambridgeshire) (Con)
Does the hon. Lady accept that in my constituency the number of jobs has increased since 2010 and that unemployment is down? The people behind those statistics are individuals. Does she accept that they are individuals the coalition Government helped to get into work and get paid to support their families?
Shabana Mahmood
And many of those people going into work, I gently say to the hon. and learned Lady, will be in receipt of tax credits. The only way that that work will pay for those individuals moving from unemployment into work is through the tax credits her Government may well cut tomorrow.
Andrew Gwynne (Denton and Reddish) (Lab)
My hon. Friend hits the nail on the head: tax credits are also in-work benefits. Has she sensed any intention on the part of the Government to offset cuts to tax credits to working families in my constituency and hers with an increase in the minimum wage, which would have to rise by about 25%?
Shabana Mahmood
My hon. Friend is absolutely right. The national minimum wage would have to rise by 25% overnight tonight if the Government make these changes tomorrow. I shall come later to the difficulties and to the changes we need to make to the national minimum wage.
Frank Field (Birkenhead) (Lab)
To help reinforce that point and in response to the hon. and learned Member for South East Cambridgeshire (Lucy Frazer), was not mark 1 of welfare reform—moving large numbers of people from benefits into work—one of the successes of the last Labour Government and the coalition Government—and is not mark 2 of welfare reform how we now help those individuals to so increase productivity that they can be paid a fair or living wage? Should we not have been relaxed about this, given that we have five years to make these changes and make mark 2 a success? Instead of punishing people in work—the strivers—should we not be encouraging them up the career ladder?
Shabana Mahmood
My right hon. Friend is absolutely right, and this is where I disagree with the tenor of the comments from Government Members in the debates on the economy thus far in this Parliament. For them, a job is a job is a job, whereas we have a better, bolder vision for people moving into work, not just for their first job, which could be any job, but for progressing. We do not do that by punishing people and taking away the support they rely on when stuck in low-paid work. We have to chart a course towards a higher skilled, higher wage economy, but that is not going to happen before tomorrow’s Budget. The support for those on tax credits should not be removed before we have that high-wage economy.
Chris Philp (Croydon South) (Con)
Will the hon. Lady join me in welcoming the fact that the personal allowance rose to £10,600 in the last Parliament, putting £800 a year directly back into the pockets of the people on the lowest pay?
Shabana Mahmood
I gently say to the hon. Gentleman that 60% of those in receipt of tax credits do not pay income tax anyway. If someone is working 30 hours a week on the national minimum wage, they are below the £10,600 personal allowance threshold.
Lyn Brown (West Ham) (Lab)
The last comment and the one earlier from the hon. and learned Member for South East Cambridgeshire (Lucy Frazer) amply illustrate Government Members’ failure to understand the impact the proposal will have. It will affect 22,000 children in my constituency alone—children who live in homes of families who work but are on low wages—through no fault of their own.
Shabana Mahmood
My hon. Friend makes her point powerfully, but it is not that Government Members do not understand—I think they know full well the impact of their decisions; they simply want to pretend it is not going to be as bad as everybody knows it will be.
A Resolution Foundation study of these proposals just a couple of weeks ago suggests that
“over two-thirds of the families affected would be in-work”,
that
“almost two-thirds of the cut would be borne by the poorest 30 per cent of households; and”
that
“almost none of the cut would fall upon the richest 40 per cent of households”.
On what basis, then, can the Tories claim to be the party of working people? These are the working people the Government are choosing to hit and hurt. If the Government are happy to make these choices, they should at least admit that, rather than hiding behind the rhetoric of being the party of working people, as if somehow that will get them through the next five years.
Caroline Lucas (Brighton, Pavilion) (Green)
The hon. Lady is making a powerful case. Like many others, I have been inundated by constituents who are really frightened by the impact of these cuts. One wrote to me saying:
“Child Tax Credit allows people to get over difficult times which happen despite working hard, and cuts will end up forcing more people into poverty”.
Does the hon. Lady agree that these cuts will be counter-productive as well as deeply cruel?
Shabana Mahmood
The hon. Lady makes a powerful point, and I absolutely agree with her. Of course, it was the support available via tax credits that meant that in the recession some people could remain in work even when their employers had to cut back on their hours as a result of the global financial crisis. That is an important point.
The Government’s critique of tax credits over the last couple of weeks has implied that this is a flawed regime that does not work and simply subsidises so-called poverty pay, but a simple examination of the facts shows that the case undermining tax credits is weak. If the Government were serious about tackling the reasons why people have to rely on tax credits, they would come forward tomorrow not with planned cuts or immediate cuts to tax credits, but with longer-term measures to tackle the underlying factors of low pay, high housing costs and insecure employment.
There are 4.6 million households in the UK claiming tax credits. Four million of the families claiming them have children and 2.7 million of those families are in work. There are 5 million children in working families receiving tax credits, and over 70% of all of those, with or without children, claiming tax credits are in work. They were introduced in 2003 to tackle poverty and make work pay. Much of the debate at the time was focused on helping single parents to get into work. We know that the lone parent employment rate rose by 28% between 1997 and 2010, and by a staggering 43% between 1997 and 2014.
Shabana Mahmood
I want to make some progress, but I will give way a little later.
A study of tax credits by the Resolution Foundation in 2012 found that the introduction of working families tax credit, which was the predecessor to working tax credit, provided a
“small but direct boost to employment”,
particularly for single parents. The economics editor of the Financial Times recently said:
“Britain’s financial support for low income working families is a key reason why we now have a high employment rate and…the Prime Minister must take care not to put at risk a 20 year success story”.
Kevin Hollinrake (Thirsk and Malton) (Con)
The hon. Lady cites the Resolution Foundation report. Does she agree with the same foundation’s report which says tax credits have
“a predictably negative impact on work incentives”?
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.
Julie Cooper (Burnley) (Lab)
A reduction in tax credits will be not only a kick in the teeth for working people, but be totally counterproductive. A constituent who contacted me this week is a single mum who is struggling to put a roof over her head for her young son and teach him a strong work ethic. If the cut goes ahead, she will no longer be able to afford the childcare that enables her to go to work in the first place.
Shabana Mahmood
My hon. Friend has made a powerful point, and I agree with all that she has said.
Graham Evans (Weaver Vale) (Con)
When Gordon Brown introduced tax credits in 1998, he said that the cost would be £2 billion. It is now £30 billion. Will the hon. Lady tell us whether that is too much, too little, or about right?
Shabana Mahmood
I think that what we are talking about is the cost of making work pay in the economy that we have at the moment. As I will explain in more detail later, the Government are doing things the wrong way round. As was pointed out by the Chair of the Work and Pensions Select Committee, my right hon. Friend the Member for Birkenhead (Frank Field), we must establish a higher-skill, higher-wage economy before we remove the support for those who are stuck on low pay. I would prefer people not to be in that position.
Ms Margaret Ritchie (South Down) (SDLP)
My hon. Friend is advancing powerful arguments. Does she agree that there is a compelling need for the Government to spell out how they intend to increase pay to a living wage, and increase economic growth, so that people can have more access to jobs in our economy?
Shabana Mahmood
I think that it is for the Government to tell us what they plan to do about the living wage, and I hope that the Minister will enlighten us when he winds up the debate. At the time of the general election, we made a manifesto commitment to incentivise employers to pay the living wage. The Government are welcome to steal that policy, but they should steal it—and allow it to embed a living wage, and higher wages, in our economy—before they start messing around with tax credits.
Shabana Mahmood
I will give way to the hon. Member for Bedford (Richard Fuller), but then I must make some progress.
Richard Fuller
The hon. Lady mentioned the Labour party manifesto. Will she be a bit more specific? For example, does she favour the granting of tax credits for training contracts to take people from the minimum wage to the living wage, does she support a requirement for local authorities that commission care to commission it in a way that enables employers to pay the living wage, and does she agree that, given the persistence of zero-hours contracts for less than two years, there should be a requirement for such contracts to carry the living wage?
Shabana Mahmood
The hon. Gentleman has made some interesting and important observations about the way in which we can encourage employers to pay the living wage, and I hope that Ministers take up his suggestions. Ours was a clear, straightforward policy to incentivise the paying of the living wage by sharing with employers the benefit that the Government obtain because people are earning more money.
Shabana Mahmood
I am afraid that the boy-band operation on the Government Back Benches is a little unimpressive. Rather than give way for a further Whip’s question, I shall make a little more progress.
Another argument advanced by Government Members in recent weeks is that tax credits have been subsidising poverty pay. There is academic and expert evidence that they have not depressed wages at the lower end, and that there has been no general slippage in the part of the earnings distribution where they bite. For the sake of argument, however, let us agree that in an ideal world we would not even take the risk that tax credits might depress wages, or subsidise low or poverty pay. Indeed, let us agree that we would ideally want a system in which they were not needed at all, because everyone could earn a high enough wage to manage perfectly well without them. If the Government were serious about that, they would come forward first with proper and realistic proposals for increasing wages and tackling low pay, and then start thinking about reform of tax credits. Instead, they are putting the cart before the horse and doing things the wrong way round, salami-slicing the tax credits budget but without any credible plan to get wages up before the cuts bite. The Government have no plans to ensure working families do not lose out from their tax credit cuts.
Instead of tackling low pay, the Conservatives are attacking the low paid, and they have form: they cut tax credits 14 times in the last Parliament, including cutting the childcare element of working tax credits from 80% to 70% of a child’s childcare costs, costing some working families up to £1,560 a year—an average loss of £570 per year—and increasing the working hours threshold for couples to qualify for WTC from 16 to 24 hours per week, with an average loss of £2,600 for families unable to increase their working hours, according to research commissioned by us from the House of Commons Library. We also know that a number of indicators suggest that the recovery is not feeding through to job security and pay growth for those who have to rely on tax credits.
Catherine West (Hornsey and Wood Green) (Lab)
Has there been an equalities impact assessment of this measure, which will be introduced tomorrow?
Shabana Mahmood
My hon. Friend raises an important point, and we will have to see whether we get any additional information on the impact on equalities ahead of the Budget, but we already know from what we saw over the last Parliament that women are disproportionately affected when the Government start to cut tax credits, as are black and minority ethnic communities.
Shabana Mahmood
I am going to make a little more progress.
As I have said, we also know that a number of indicators suggest that the recovery is not feeding through to job security and pay growth for those who have to rely on tax credits. The number of jobs in low-paid sectors grew at twice the rate of those in non-low-paid sectors between the second quarter of 2010 and the second quarter of 2014. The number of working people paid housing benefit has risen by 400,000 since 2010, because working people are not bringing home enough money to pay the rent. The number of people earning less than the living wage has increased by 1.8 million since 2009. Now it seems that these same people—the strivers, the doers and the workers whom the Chancellor claims to want to put his arms around and hug close—are, having been hit hard over the last five years, going to bear the brunt again.
Labour believes the way into work and off welfare is by tackling the real causes of high welfare costs: the underlying drivers of low pay, high housing benefit costs and insecure working conditions. The Government’s failure to address these underlying causes in a meaningful way over the past five years has meant they have spent £25 billion more than they expected to spend on welfare in 2010. The welfare bill remains higher than expected for the same reason as the deficit remains high: we cannot disconnect what happens in household budgets from the economy overall, and that means we cannot remove tax credits for working people without creating the conditions that allow that to be done in a way that does not penalise workers on low pay.
We want a higher-wage economy where people are less reliant on tax credits to make ends meet. That is why we set out plans to raise the minimum wage to at least £8 an hour by 2019, and it is why we support the living wage and set out proposals in our manifesto to encourage and incentivise businesses to pay it. I strongly encourage the Government to steal our policy, and if they do steal it they should do so as a first step to embedding higher wages in the economy before they consider going ahead with any changes to tax credits.
The Government should also remember that the way in which the living wage is set assumes that families are already taking up their full tax credits entitlement. The Greater London Authority, which works out the London living wage, says:
“If means-tested benefits were not taken into account (that is, tax credits, housing benefits and council tax benefit) the Living Wage would be approximately £11.65 per hour.”
That is more than £2 higher than it is at the moment. The living wage already has tax credits priced in, and it will not be a living wage in the face of tax credit cuts. If the Government come forward tomorrow with proposals on the living wage, they will have to explain either that they are going to go for a much higher living wage than we have at the moment or why they are going to hit working people again and again.
The proposed tax credit cuts tomorrow have attracted widespread criticism across the political spectrum. Everyone agrees that people should be better off in work than unemployed, but removing or significantly cutting tax credits without having charted a course towards a high-skill, high-wage economy means that this Government are not tackling low pay, but are attacking the low paid. That is wrong; those people will be punished for circumstances outside their control as they try to do the right thing. Hon. Members from across the House should send a clear signal to the Government that that is the wrong approach and vote in favour of our motion.