Tax Credits

Steve McCabe Excerpts

Thursday 29th October 2015 Commons Chamber

[Steve McCabe (Birmingham, Selly Oak) (Lab)]

Like most people, I would prefer the Chancellor to scrap his tax credit proposals and go back to the drawing board. This is not because I am against the phasing out of tax credits. I am prepared to accept that there might be an argument for new measures of support, and if we can raise living standards for working families without tax credits, that would be a desirable aim. I also note in passing that freezing the value of tax credits is a clear indication that they are on their way out anyway. The truth is, however, that the Chancellor has made a pig’s ear out of this. He has blundered, and low-paid hard-working parents are going to pay the price for his mistakes.

If we can take the Prime Minister at his word, I think he suggested during his six non-answers yesterday that there would be some attempt to address this mess in the autumn statement. Normally, his word would be good enough for me, but of course this is the same Prime Minister who gave his word on national television that tax credits would be safe. Is it any surprise, therefore, that within five months of the election, people are beginning to wonder about the long-term future of this Government? Conservative Members have taken to telling us that they have a mandate. Let us just remind ourselves that this is a Government that did not expect to win, and that secured less than 40% of the popular vote—trade unionists, please note! This Government have a limited mandate, and if there are many more shenanigans like this tax credit debacle, they will have no moral authority.

As I said, there might be an argument for phasing out tax credits, and if the Government could give us a clear indication of their determination that wages and living standards will rise to compensate for that, I think most people would accept the change. In a still-fragile economy, however, there is no sense in taking money off the working poor before their wages have risen. It is also a mistake for some Conservative Members to attempt to demonise Gordon Brown, and to demonise tax credits as a policy instrument. The Adam Smith Institute recently pointed out that working tax credits were the best form of welfare we have, and that simply cutting them would serve as a disincentive to work and hurt those at the lowest levels of society. It also pointed out that the new minimum wage structure, which the Chancellor deliberately misleadingly calls a “living wage”, will do little to help those affected by these cuts. The institute states:

“Enticing more people into work was one of the stated aims behind the Working Tax Credit…and attacking it for achieving this end is somewhat perverse.”

I want to consider what changes the Chancellor might make. I have read that he might speed up the increase in the personal tax allowance, but that could cost about £12 billion, and 70% of that benefit would go to those in the top half of the income distribution curve. It would actually be worth less than £1.25 a week for working families. I am not at all convinced that, in these economically difficult times, such a costly measure would be the best way to help the low-paid.

The House of Commons Library has produced a simple way to calculate the impact of the combined effect of the reduced threshold and the increased taper, which form the centrepiece of the Chancellor’s plans. A family on £20,420 with two children will, in combination, be £2,200 worse off. The consequence is that 3.3 million working households will be losers, more than 8,000 of whom are in my constituency.

The Chancellor could decide to change the disregard level. That would not undo the damage he plans to inflict, but it would mitigate the effects. As Barnardo’s points out, such a change could mean that a single parent working 18 hours, with two children below school age, could lose only £376 rather the £805 the Chancellor currently plans to take from them. He could also scale back plans to increase the taper from 41p to 48p, which would mitigate the impact on those struggling to make a living. He might decide to turn the clock back and recognise family responsibilities in the tax system by reintroducing some kind of tax allowance for children as a feature of our tax system. He could also use the autumn statement to revisit his plans for inheritance tax cuts and the tax cuts he has already given to millionaires. If we are all in this together, as somebody over there once suggested, it is time we had some evidence to back up the empty statements.

As the former higher education Minister, now Lord Willetts, points out in his book “The Pinch”, the balance is wrong. Young people and young families are taking far too big a hit, and we need to restructure our welfare system. My hon. Friend the Member for Nottingham North (Mr Allen) has suggested that the Chancellor and the Government should involve Parliament in such plans. I would like to suggest that they also involve my right hon. Friend the Member for Birkenhead (Frank Field) and his Work and Pensions Select Committee. We desperately need a system that promises fairness and support for young people and families, and that encourages and incentivises people. Above all, however, the Government must make it clear that it is their sincere intention to row back from this mad cliff edge that they are now on.

--- Later in debate ---

[Scott Mann]

I thank the hon. Gentleman for his contribution. I will deal with that as I continue my remarks.

The proposals presented by the Opposition over the past few days would maintain the status quo. They believe that we should not change the £30 billion tax credit bill at all. [Interruption.] I do not accept that. They have offered no credible plan to take this burden off our children. [Interruption.] I was elected on a manifesto to reduce the welfare bill and I hope we will do that. We on the Government Benches know that we have to take the difficult decisions that lie ahead in order to bring about spending reductions. It is all very well for the Leader of the Opposition to ask six questions on tax credits yesterday, but a policy that affects 3 million families cannot be changed on a whim. I welcome the Chancellor’s announcement that he will deal with the matter in the autumn statement.

[Steve McCabe]

Is the hon. Gentleman saying, therefore, that the Prime Minister could not answer because the Government are not committed to protecting families from this problem?

[Scott Mann]

Absolutely not. We are looking seriously at the proposal and we will make some announcements in the autumn statement.

North Cornwall, which I represent, is a modest-waged economy. We benefited from the economic improvements that the country has seen. We have seen rising school provision and many people in my constituency have benefited from the Help to Buy scheme. They are trying to improve their lot in life and trying to do the right thing. As my hon. Friend the Member for Tiverton and Honiton (Neil Parish) said so eloquently, the Government must ensure that we make it better for people to be in work than out of work, but we must support those who work.