Living Standards

Sheila Gilmore Excerpts

Monday 5th March 2012 Commons Chamber

[Rachel Reeves]

My hon. Friend is absolutely right. As we all know, unemployment is at a 17-year high and youth unemployment at an all-time high. That is taking more people out of tax and costing taxpayers more and more every day, as the bills of this failed economic policy add up.

[Sheila Gilmore (Edinburgh East) (Lab)]

Will my hon. Friend consider the point that the people affected by the change to working tax credit who work 16 hours a week—probably on the minimum wage—already fall well below the tax threshold, so however desirable it is to raise the tax threshold, it will not help those people at all?

[Rachel Reeves]

My hon. Friend is absolutely right. The most by which someone affected by the changes to working tax credits could benefit from next month’s increase is £125. That pales into insignificance compared with the £3,800, which is the amount by which these families will be worse off because of these changes.

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[The Exchequer Secretary to the Treasury (Mr David Gauke)]

After all the sound and fury that we have just heard, perhaps I may provide a little context for the benefit of the Opposition. When this Government came to power, we had the highest borrowing in our peacetime history. We were borrowing one in every four pounds that we were spending. It was clear then, and it has since become clearer, that countries that lack fiscal credibility pay the price in higher market interest rates, at a cost to mortgage holders and businesses throughout the country.

In order to reduce a structural deficit—that is, one that will not go away with growth—it is necessary to cut spending or raise taxes, or a combination of the two. Cutting spending and raising taxes will, unfortunately, have an impact on people’s living standards. We do not want that to happen—we did not go into politics to do that—but the impact on living standards is the inevitable consequence of the dire state of the public finances left by Labour and the recognition by the coalition parties that we could no longer continue to borrow in the same reckless way.

[Sheila Gilmore (Edinburgh East) (Lab)]

Does the Minister acknowledge that if some of the families that we are talking about give up their employment and claim other benefits—including, in some cases, help with their mortgages, to which they would then become entitled—the savings that he is trying to achieve would simply not be made?

[Mr Gauke]

I shall speak in greater detail about the reforms to the working tax credit in a moment, but there is a question that we all have to answer. As the hon. Lady knows, there is a threshold for claiming the credit. For lone parents, it is 16 hours a week. We think it entirely reasonable that the joint target for couples should be not 16 hours a week but 24; we believe that that incentive will be helpful. The principle of a threshold has been in the tax credit system since it was put in place.

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[Mr Gauke]

No, I am going to make a bit more progress. I have already given way to the hon. Gentleman once, and I think that that was enough for all of us.

It is because of our decisions that we have secured record gilt yields, feeding through to record low and stable interest rates that make a real difference to families paying their mortgages and businesses refinancing loans throughout the country. If we are going to discuss a squeeze on living standards, let us discuss what an increase in market interest rates would mean for families throughout the United Kingdom. It would force taxpayers to find an extra £21 billion in debt interest payments, increase the cost of business loans by £7 billion, and add £10 billion to mortgage bills every year, an extra £1,000 for the average family—and that is just a 1% rise. Let me remind the House that when the Government came to office, our rates were tracking those of the likes of Spain and Italy, and that they are now close to those of Germany. It is because of the tough decisions that we have made to cut the deficit that the UK has broken ranks. In the last year alone, its rates have fallen by about 1.5%, whereas those of Italy and Spain have risen by almost 3%.

I know the shadow Chancellor considers that low interest rates are a sign of trouble, and that he would prefer higher interest rates, a bigger squeeze on families, and an even bigger fall in living standards, but the simple truth is that the Opposition have no credible response to the economic challenges that the country faces.

[Sheila Gilmore]

rose—

[Mr Gauke]

I look to the hon. Lady to rectify that.

[Sheila Gilmore]

I am wondering whether the Minister has been out of the country for the past few days, and therefore has not noticed that several banks are increasing their mortgage rates.

[Mr Gauke]

If we had pursued the policy advocated by the Opposition, our market rates and gilt yields would be going up and we would be facing a very significant problem. We have record low interest rates at present. That does not necessarily mean mortgage rates will remain at their current levels for ever across the board, but the fact is that the tough steps we have taken have ensured that interest rates are much lower than they would otherwise be, which is to the advantage of both mortgage holders and businesses looking for finance.

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[Stephen Williams]

I have given way twice and I am on a time limit, unlike some previous speakers. The hon. Lady will have her turn later.

That is why reducing the tax burden for the lowest paid is the No. 1 priority, as far as the Liberal Democrats are concerned, of this coalition Government. I and all my colleagues stood at the last election on a promise that the income tax threshold would be raised to £10,000 and the coalition Government’s first budget raised the threshold by £1,000 to £7,475 a year, taking 800,000 people out of income tax altogether and giving a £200 tax cut to every basic rate taxpayer. From next month, the threshold will be raised again to £8,105, cumulatively taking 1.1 million low-paid people out of income tax altogether with a cumulative income tax cut for every basic rate taxpayer of £330. That is £330 extra take-home pay, particularly for part-time workers, who are disproportionately women and young people, that they can spend immediately in their communities.

Two weeks ahead of the Budget—16 days, as the shadow Chief Secretary kept saying—the Liberal Democrats want the Chancellor to go further and faster in announcing a timetable to reach that £10,000 threshold in this Parliament. We want to know that when all our constituents go out to work, they will be able to take home £10,000 a year and not face the burden of income tax. That will send out a message that we are determined to make work pay and to reduce the tax burden for everyone on the basic rate of tax.

[Sheila Gilmore]

rose—

[Helen Jones]

rose—

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[Sheila Gilmore (Edinburgh East) (Lab)]

If I showed some hesitancy in rising, Madam Deputy Speaker, it is because I tend to find that I am called at the very end of debates, so I am extremely grateful to you for calling me at this stage.

Sometimes Government get things wrong and must have the grace to say so. The change in working tax credit proposed for this April is one of those occasions. Interestingly, it was announced in October 2010, before the Government’s proposals on welfare reform were fully announced and explained. There is an obvious dichotomy between what the Treasury is saying and what the Department for Work and Pensions is saying. It is unfortunate that DWP Ministers have not been present in the debate to give their point of view. Those of us who served on the Welfare Reform Bill Committee had hours of Ministers and Government Back Benchers telling us that any job and any hours of work were better than none, and how important it was that we should be encouraging the mini-jobs that we were hearing so much about. The DWP is very clear that it is important that people should be supported in working, even for relatively short hours, whereas the Treasury Minister who opened the debate told us that it is very important that a couple should work more hours, and that if they do not the Government are going to take their working tax credit from them. Those two positions are irreconcilable. It is not good enough to say that it will all come right next year when the universal credit comes into being, because people will soon be suffering from this change, which is the complete and direct opposite of what the Secretary of State for Work and Pensions has been telling us he is going to do.

Is it really the Government’s position that they want people to stop work, as some people will in this situation because it is more attractive to do so? If the family who cannot find the extra eight hours’ work give up work altogether, then without the working tax credit they will get benefits paid at a higher rate than they would otherwise have received. In addition, if they are home buyers they will qualify for other things such as help with the mortgage, which they do not get if they are working. At that point, they may well conclude that it is not worth their while to continue with their jobs. They may continue to think like that in the future. We hear a lot from the Government, particularly from the Department for Work and Pensions, about how benefits policy should drive behavioural change. This policy will drive behavioural change, but in precisely the wrong direction.

[Meg Hillier]

Does my hon. Friend agree that one of the best things parents can do for their children is to embed the work ethic early on? By working, parents not only bring in an income for their children, but set an example for them and bring future benefit.

[Sheila Gilmore]

There is a long-term benefit in people learning from their parents what it is to work.

We used to hear so much about the couples penalty from the Conservative party. It used to say that there should no longer be a couples penalty and to talk about how unfair it was. However, this provision creates just such a couples penalty. A couple who lose their working tax credit might look at their neighbour, who is a single parent, and think, “She’s not losing her working tax credit. That doesn’t seem fair.” Why, when we have heard so much about that, are the Government creating a new penalty for the sake of just 18 months or two years?

That all comes on top of the decision not to increase working tax credit in line with inflation. We have heard a lot, particularly from the hon. Member for Bristol West (Stephen Williams), about how wonderful it is that benefits will rise by 5.2% in the coming year, as if it is some unique act of generosity. In fact, people are simply being given the rate of inflation.

[Stephen Williams]

There were, of course, other choices that the Government could have made. There were voices —I will not say who they were—telling the Government not to raise benefits by that historically high rate of inflation. The previous Government used the lowest possible rate when they raised pensions by 75p. This Government took a different view.

[Sheila Gilmore]

I think that the hon. Gentleman would accept that the 75p increase followed the rate of inflation. I might not have made that decision if I had been the Chancellor of the Exchequer, but that is the decision that was made.

I am pleased that the hon. Member for Bristol West and his colleagues, who are remarkably absent from this debate, managed to persuade the Government that out-of-work benefits should increase by the full amount. I support that. What I find strange is that a Government who wish to support work did not take the same view about working tax credit. I am not talking about levelling down the increase for out-of-work benefits. I am talking about a decision that increases the degree to which work does not pay, when the Conservative party says that it wants work to pay. If all these things are taken together, one begins to wonder where the Government are going.

People are sceptical about universal credit and anxious about what will happen. Let us consider something else that will happen under universal credit. Somebody who is working and who qualifies for universal credit will have their universal credit reduced if they have savings of more than £6,000 and eliminated if they have savings of more than £16,000. People who have managed to save, perhaps towards buying a house or towards their retirement, will be told, “You don’t need support, so we’re going to take it away from you.” Despite all the Government’s warm words about how much they want to support hard-working people and people who save, this is another example of how their policies will not do that in practice.

I say one last time to the Minister: change now. You —the Government, not you, Madam Deputy Speaker—know it makes sense.

[Several hon. Members]

rose—