Tax Credits

Lord Field of Birkenhead Excerpts

Thursday 29th October 2015 Commons Chamber

[Frank Field (Birkenhead) (Lab)]

I beg to move,

That this House calls on the Government to reconsider the effect on the lowest paid workers of its proposed changes to tax credits due to come into force in April 2016, to carry out and publish an analysis of that effect, and to bring forward proposals to mitigate it.

Thank you for your ruling, Mr Speaker. On behalf of the House, I thank the Backbench Business Committee, which not only acted quickly in giving us this debate but decided that we should have a whole day to debate the issue given the importance of the matters we are discussing to many of our constituents, particularly those who have the least money.

Members will have seen from the motion on the Order Paper, signed by a large number of my hon. Friends from both sides of the House, that we want to touch on three themes today. First, we call on the Government to give us more data so that we can, secondly, consider the impact of the tax credit cuts on our lower-paid constituents. Thirdly, given that there is now a debate raging in this House as well as outside it, we wanted to give the House the opportunity to suggest means by which the Government might mitigate the measures, although the debate has moved so fast that I do not think that those on the Treasury Bench are thinking merely of mitigation.

In this opening contribution I want to touch on three themes. First, I congratulate the House of Lords not on causing a constitutional crisis, but on giving the Government a well-earned opportunity to think twice about their proposals. Secondly, I shall outline the data that we need in this place to consider how the biggest change in the Budget will impact on our constituents. Thirdly, I want to start introducing the proposals that Members are putting forward not merely for mitigation, but for reform of the tax credit proposals.

First, on the lucky break that has been dealt to the Chancellor, when the Lords rejected the statutory instrument giving the Government authority to go ahead with the tax credit changes, I began to pity that no doubt young adviser in the Treasury who had thought up the wheeze of putting the measure in a statutory instrument rather than in the Budget itself. Although on many subjects we would disagree with Lloyd George, he had a certain wisdom in deciding how to protect money resolutions in this House from interference from the other place. The convention that had been developing before and was reaffirmed with legislative force then was that if a Budget motion goes from this House, the other place might wish to debate it but could not interfere with it. I pitied the career of that young adviser who suggested a wonderful wheeze not to debate it here on the Floor of the House, but to take the very essence of the Budget in a Committee stage upstairs.

Now, as more hon. Members have begun to realise the consequences of the tax credit changes, I began to think that maybe that official is for promotion, in that the procedure gives wonderful cover for the Government to engage seriously with us here and with our constituents on what might best be done both to meet the Government’s target to reduce the deficit and to make sure that any reduction is not disproportionately or to any extent put on those with the weakest shoulders. It is a huge opportunity and I hope that in the course of the debate we will see the changes and the movement that has taken place since that Budget debate.

Secondly, I make a plea for the data that this House requires so that it can understand what is involved for all our constituents, particularly those strivers who get up and work, doing some of the least privileged jobs in our society, and whom successive Governments of different complexions thought we should encourage rather than deter. It is worth remarking, although I do not wish to add any conflict to this debate, that we have to go back to Lloyd George’s debates to look at the information that he provided to the House on who would pay for his 1909 Budget—that Budget in which he enshrined it in our constitution that Budget measures were for this place and not for the other place.

Lloyd George provided far more information than the Government provided this year on who would be affected by his Budget. I know it was simpler then—he was after the landlords’ pay and he made it plain that they would pay for the measures, and that the Budget would redistribute not just to the poor, but to the poor who were not in trade unions and who at that point had no one to protect them. The Government have achieved a first—and I hope they will withdraw from this innovation—in starving the House of the necessary information.

What I would like to see from the Government is how we break down among decile groups—each 10% if the income distribution—the impact of this £4.5 billion cut in tax credits. May we have that information by each data group? There are three big changes that the Government wrought in the Budget statement. First, they reduced the earnings threshold from £6,420, lowering it to £3,850 next April. Secondly, they are abolishing the family element—the £500 that was put into the calculation —which will disappear in 2017. Thirdly, the child element, which is valued at £2,780 a year, will be lost for all children after the second child in a family.

Those measures will obviously affect different groups in all our constituencies. Given that there is a unity across the House on the idea that the necessary reductions in the budget deficit should be borne by those with the broadest shoulders, we need to look at the impact of those measures, both individually and collectively, on each decile group. Then we need to look at the impact for each type of family and for each year up to 2020.

To be fair to the Government, many of us wish them to include in that analysis the four compensatory measures that they argue will mitigate most, if not all, of those changes. For example, the Prime Minister has told the country that eight out of 10 families will be better off as a result of this year’s Budget. The truth is that eight out of 10 might well be better off, but practically all of our constituents who draw tax credits are in the two out of 10 who will be substantially worse off. I therefore hope not only that we will see a careful analysis of the cuts affecting individual families, but, in order for it to be rounded and fair, that it will include the four compensatory measures that the Government argue will mitigate the impact.

One such mitigating factor is the welcome increase in the tax threshold. When the Exchequer Secretary replies to the debate, perhaps he will be able to tell us whether all those claiming tax credits will be covered, or is the figure more like half? Let me say now—I might not have an opportunity later—that I have huge regard for him. I am sympathetic to the position he is in, because he is defending a Government brief that is on the move. I will mention a precedent that I think will cheer him. Those of us who have been in this place for some time will remember when Mrs T insisted that John Major come to the Dispatch Box to defend her policy on cold weather payments. She then heard the eruptions from the Benches behind him and decided to change the policy that afternoon, but she instructed him to tell the House that something much better was in store. I hope that the Chancellor, who is now in listening mode and thinking about what changes to make, will be similarly generous and allow the Exchequer Secretary to announce those changes, rather than seeking to take any kudos himself.

One of the big changes is the increase in the tax threshold, but only half of those who will lose out as a result of the tax credits changes will be compensated, or partly compensated, by that increase. Probably the most important positive measure that the Government will introduce in this Parliament is the significant increase in childcare for all our constituents who have children under the age of five: the number of hours of childcare for the poorest two-year-olds and all three and four-year-olds will increase to 30 a week.

The Minister who will reply to this debate has probably the most important brief of any Minister, because he now has overall responsibility for life chances. If this House is serious about ensuring that the life chances of children in the poorest households are raised to the level of children in more privileged households, we must look very carefully at how that extra money is spent and, in particular, whether our very poorest and youngest constituents get the best deal out of that childcare. The increase in childcare is probably the most important social measure that the Government are likely to introduce in this Parliament, but following close on its heels is the introduction of a national living wage.

[John Glen (Salisbury) (Con)]

The right hon. Gentleman is making a characteristically thoughtful speech, but in discussing amelioration of the third element will he acknowledge that many employers are going further than the schedule for the national living wage uplift requires? That will be massively welcome to many people across the country and will have a material impact on the four elements he is describing.

[Frank Field]

Many employers are doing so, but some are not, hence the importance of the Chancellor’s making it a statutory requirement. That demonstrates the role of law when it is used cleverly. A number of employers who previously were not interested in introducing a national living wage—in correspondence with me, they said that they would not do so—are now among those that have, in a sense, jumped the gun in introducing the Chancellor’s national living wage. That is welcome.

[Mr David Anderson (Blaydon) (Lab)]

Is there not a problem for employers in the public sector? A number of them, including my local council, Gateshead Council, are committed to paying the living wage, but clearly they do not know whether extra funding will be made available to them so that they can do so.

[Frank Field]

There is clearly, as my hon. Friend says, a question about resources. We are arguing that Ministers should produce an analysis of the impact of the national living wage, but many local authorities are paying above that level now, so those workers already have that money in their wage packet. The ability of local authorities to increase wages will be limited in the years we are considering, so many public sector workers on the lowest pay will not be beneficiaries of the living wage; their pay increases will be limited by the requirement the Government have laid down. Perhaps that is a factor the Government will use in the analysis for which we are asking.

[Sammy Wilson (East Antrim) (DUP)]

Does the right hon. Gentleman also accept that when the data are being compiled, there should be an indication of the impact the changes will have on the under-25s, who will not be covered by the national living wage?

[Frank Field]

Well, indeed. Our plea is to have made available the range of analysis that has traditionally accompanied any Budget statement that any Member of this House, however long he or she has served, has come to expect.

The Work and Pensions Committee has emphasised a fourth factor, which is that there may be some wage push as a result of the introduction of the national living wage. Will that be taken into account in the Government’s analysis? I am slightly sceptical about the extent of that wage push—again, it is one of the problems of having been a Member of this House for some time. When I was initiating the Low Pay Unit’s campaign for a statutory minimum wage, the official trade union position was to oppose it on the ground that there would be a mega-bill as we re-established differentials. However, when we look at the impact of the statutory minimum wage, we see a great deal of bunching of wages, and not the big increases that some people feared and expected.

[Mr David Davis (Haltemprice and Howden) (Con)]

Will my right hon. Friend give way?

[Frank Field]

Yes, I give way to my right hon. Friend.

[Mr Davis]

I can call him my right hon. Friend, because we have known each other for 40 years. On the data the Government provide, because this is an incredibly complicated area, there are elements of data that are important but that would not normally be provided. One of them is the marginal withdrawal rate of any scheme that the Government put into effect. Government spokesmen have previously said that people can work their way out of poverty, but it looks as though some of the effects of the national living wage will result in a 93% withdrawal rate, which will mean that people cannot work their way out of poverty. Will he add that to his list of data for the Government to provide?

--- Later in debate ---

[Frank Field]

I will certainly do that, because I want to refer to a proposal that I initially made about making a reform at nil cost. I did not do that because I wanted to be dragged to the stake and burned as a result, but because I was anxious to begin a debate. If one is asking the Government to change their mind, somebody who has made proposals might also change their mind. With any proposal, the net withdrawal rate is crucial. We in this House thought it intolerable that people should pay more than 45% on their income tax and suffer that rate of withdrawal. It is not a bad rate to aim at for poorer people when we add income tax, national insurance, and withdrawal of tax credits and other benefits. That underscores the point that the right hon. Gentleman made.

[Hywel Williams (Arfon) (PC)]

Would the right hon. Gentleman also see merit in looking at the geographical distribution of the effects of these measures, given that as the Member for Birkenhead he will know that there are very poor communities where the effects will be very widespread? The result will be not just poorer people but poorer communities.

[Frank Field]

I very much agree. I know that the Exchequer Secretary also has an interest in improving Treasury data so that we can better understand tax and benefit changes. I hope that the hon. Gentleman’s plea will not fall on deaf ears.

[Mr Graham Allen (Nottingham North) (Lab)]

Will my right hon. Friend take into account the fact that we need to have something that is saleable to the people who are benefiting from tax credits? Language such as marginal rates of return, thresholds and differentials can completely confuse not only the beneficiaries but small employers. Will he make it clear in negotiations with the Treasury that we must try to make this saleable and to keep the concept simple, so that people who genuinely need tax credits can claim them, because there is still massive underpayment?

[Frank Field]

There is indeed. That leads me neatly on to what the proposals for reform might be. I wish briefly to touch on four.

First, I make a plea to the Government to recognise just how quickly this whole debate is changing and to take advantage of that. Tax credit payments are here for the long run. When we began this debate back in 2010, there was enthusiastic talk about, in almost no time, a new benefit—universal credit—that would sweep away means tests and deliver a seamless service to our constituents. To be truthful but gentle about universal credit, its progress is very modest. I do not disagree with the Secretary of State in looking back at previous instances of trying to smash reform through whatever the costs, but at some stage somebody in Government has to look at how slow the progress of roll-out has been and question whether a full flowering will ever see the light of day. This raises questions about how tax credits might be reshaped, given that universal credit is not for the chop and is here for the longer term. It will not, in the lifetime of this Parliament or even the next, make tax credits redundant.

We have begun to have debates about this with the public. When I recorded a programme this morning, every time I said a word that people thought the public would not understand, we had to stop and start filming again. I could not say how long it took to film. We have our own language, which is a shorthand that is not understood by people outside.

[Huw Irranca-Davies (Ogmore) (Lab)]

My right hon. Friend speaks with great authority and experience on these matters. One of the very straightforward concepts that all my constituents understand is that there is a right-minded intention to get rid of taxpayer-subsidised poverty pay. In doing so, however, we cannot say to people on low pay, “We’re going to impoverish you on that journey.” The simple concept is yes, let us talk about the instruments for doing that, but remember that it is about getting rid of poverty pay and lifting people up, so that at some future date we do not have to rely on subsidy to make it worth while to go to work.

[Frank Field]

I could not agree more, in that we have not had a Chancellor who has decided that it is misplaced for taxpayers to play the role in the welfare system that wages should play in our economy. That leads welfare reform into new areas about how to raise productivity, particularly among those who are lowest paid. We should not simply accept and welcome the Chancellor’s proposals for a national living wage but think about how we take it on from there. My hon. Friend is absolutely right.

My first suggestion to those on the Treasury Bench stems from the fact of the Government’s introducing a national living wage. When the people who designed tax credits got to work, nobody thought that any Government would bring forward that proposal. They therefore incorporated two aspects into the tax credits system. The first was about how to subsidise, and make up to a more decent level, poverty wages. The second was that given the life cycle and where life’s journey takes us, there are periods when people have children and their budget is stretched, and the tax credits system should play a role in that. I ask those on the Treasury Bench, when they are thinking about what they do in only a few weeks’ time in the autumn statement, to consider whether we should now grow up and accept that we are going to have a national living wage, and that the tax credits system should not only subsidise low wages but take some of the responsibility for the costs of children. I think there would be a great deal more support in the country if tax credits were about supporting children rather than the need to subsidise poverty wages.

[David Morris (Morecambe and Lunesdale) (Con)]

Will my right hon. Friend, as I would call him outside this Chamber, make it clear that this is about tax credits and not child tax credits, as they are two different benefits?

[Frank Field]

There are two benefits—child tax credit and child benefit. The Prime Minister seems to misunderstand the difference between the two, because he said during the election that child tax credits would not be touched, but given that under this formula we are changing the clawback—or, as my hon. Friend the Member for Nottingham North (Mr Allen) would say, the amount of money people lose—by changing the threshold at which people begin to take back tax credits, and the rate at which tax credit income changes, we are affecting the value of child tax credit. There are questions about the sense of having two benefits serving the same purpose.

My second proposal is one that I guess many Tory MPs have made privately to the Government. I cannot imagine that Government Whips are different from Opposition Whips. If we had been in government making this proposal, our Whips would have been very busy last weekend phoning hon. Members to ask what they would tolerate as a minimum for reform. I would have thought that one very clear message coming back would be that bringing in these reforms next April is not acceptable

The third and more radical proposal, which again unites Back Benchers on both sides of the House, is that the changes to tax credits should apply only to new claimants. One of the problems of our popularity in shovelling around taxpayers’ money without realising that the music might stop some day and people might think the bill was not actually affordable is that in the meantime our constituents have responded to the very clear messages—in the form of incentives in the tax credits system—about what we wish them to do. In talking both publicly and privately with Conservative Members and certainly with Labour Members, I have noticed a sense that it is one thing to say there is a new contract for people who are not claiming tax credits now, but it is a totally different ball game to say to the others, “You’ve responded and you’ve done all we expected you to do, but, by Jove, we are going to clobber you now for doing so.”

[Andrew Percy (Brigg and Goole) (Con)]

I will make two points. The right hon. Gentleman is absolutely correct that for people in the system who have changed their behaviour—in terms of the vehicle they have bought, or the house they have chosen to buy or rent—we cannot change the rules afterwards and hit the poorest hardest, as the changes would.

I also want to put it on the record that I have made my view perfectly clear—certainly to Conservative Members—that the changes cannot go ahead next April and that any mitigation should be full mitigation. Mitigation must protect the poorest households, of which, owing to our low median salary, we have an awful lot in east Yorkshire.

[Frank Field]

I am grateful to the hon. Gentleman for his intervention.

[Sammy Wilson]

rose—

[Frank Field]

I will give way again, but I will then begin to conclude.

[Sammy Wilson]

Does the right hon. Gentleman agree that the Government have accepted the principle he has just espoused about those who are already in the system? With the pension changes, for example, the Government have not required those coming up to the pension age who have certain expectations to change their expectations. Why does that not apply to those who are currently recipients of tax credits?

[Frank Field]

I could not agree more. I think those on the Treasury Bench are picking up a very strong message. There would be very little opposition to the Government introducing the reforms for people who are not claiming tax credits now, but who, if they claimed them in the future, would know the rules of the game. When this place has helped to shape people’s lives, expectations and drive, it is very different all of a sudden to blow the whistle and say, “We’re changing the rules.” People both in the Chamber and in the country feel very strongly about that.

[Guto Bebb (Aberconwy) (Con)]

On the specific issue of dealing with the changes for people coming into the system, does the right hon. Gentleman not recognise that that shows its complexity? Somebody who is offered a position paying more than enough to take them out of the tax credits system might be reluctant to take such a job, because if it does not work out they will come back into the system as a new claimant. Even with his proposed change, the system will be complicated.

[Frank Field]

I was waiting for those on the Treasury Bench to point out the difficulties involved with all such moves. It is important to say that we are not in the hole; the Government are in the hole. We are trying to make suggestions about how to get out of the hole. It is no use the Government turning round to us and saying, “Did you not realise that this would have this effect and that effect?” I know we will not get that from the Exchequer Secretary, but a suitable sense of humility from the Government would be welcome.

[Mr David Davis]

Does that point not reinforce the requirement for the changes to be made not with another yes/no measure such as a statutory instrument, but through primary legislation?

[Frank Field]

There would of course be a tendency for any Chancellor to say, “I’m going to make the Lords agree to my new SI.” If it was an SI that this House cheered on its way down to the other place, that might be wise. If it is an SI on which there was still deep disagreement, particularly among Conservative Members, I think it would be very unwise not to bring forward the proposal in primary legislation.

[Mr Graham Allen]

Is there not room for a little bit of forethought and pre-emption? We are only six months into a five-year Parliament, and this is the first of many changes that may happen. Will my right hon. Friend stress that Parliament could be seen as a partner in this process? Rather than having a crisis-management approach to social policy, can we not involve the Work and Pensions Committee, the Treasury Committee and colleagues in both Houses? The Government can set the object, but we could be allowed to say something to help them on their way. We know that there has been a general election and that they are entitled to get their laws through, but they should use Parliament as a partner, rather than have this constant crisis management.

[Frank Field]

I could not agree more. In my speech opening this debate, I am in a sense saying that this is a glorious opportunity for the Chancellor to get it right: both to change his image and to become a much more serious reformer on the tax and benefit front. I am sure that he did not want to land himself in this position, but now he has, I hope that he will be optimistic not only about the partnerships he can build, in the way that my hon. Friend suggests, but about the opportunity it gives him in beginning to take into account the effect of a national minimum wage on the welfare debate. I sometimes wonder whether he has quite realised just how significant change is and could be.

If hon. Members will allow me, I will turn to the fourth suggestion for reform. I have put it forward, largely to get a debate going, and I now wish to attack it. The suggestion was to take the Chancellor seriously when he said that reforms should be done at nil cost. I wanted to show that it would be possible to raise the thresholds—the point at which people begin to lose tax credits—to the national minimum wage at nil cost, but that would require an even greater penalty in the loss in tax credits for people above that level.

There is not a great deal of support for that idea, but I put it forward merely to stress this point. When we had a huge great uprising of Back Benchers from both sides of the House over the abolition of the 10p rate, the Government were adamant that they were not going to listen, but then, on the night before the big concessions, huge sums of money were found at the Treasury to go everywhere but to help those on the 10p rate. It is now clear that the Chancellor will put some extra money into the whole operation. If we suppose that he wants to go down the nil cost route, the extra money ought to go to protecting those who will lose, rather than to those not claiming tax credits—including all hon. Members, who are not affected—who would benefit if he raises the tax threshold further or increases the national insurance threshold.

I will make my last point quickly, not because I do not want to develop it further, but because I am conscious of the large number of hon. Members who wish to participate in the debate. If we are saying that the Government should give up £4.5 billion from savings toward the reduction of the deficit, we are required to say where that money might come from. I wish to suggest two areas. I have lifted the first from the Treasury. It is now briefing the media that one possible way of finding the extra resources for a delay and a staged introduction—that is certainly what Conservative Back Benchers are asking for as a bare minimum—of this reform, if that is what we can call it, would be to have a smaller budget surplus by 2020. I just put that forward, because it certainly seems to be a possibility for the Treasury.

My second proposal relates to pension tax relief. It is very interesting that the Chancellor has asked for views on how we might reform it. Huge sums of money are involved. I am not advocating that we should abolish it overnight. I do not think that we should treat people higher up the income scale in the same horrible way that the Government were proposing to treat those on tax credits. When Governments start changing incentives, people need to have time. If, however, we abolished it overnight, we are talking about an extra £34 billion. If we made the tax concession 15% for everybody, the figure would be more than £15 billion, and if we made it 20%, it would be £10 billion. These are mega-sums of money.

I raise that issue because I do not believe that the Government’s consultation on pension tax relief is up to speed with their pension reforms. The reason pension tax relief has been built up over a century is that previous Governments gave up the ghost of ever introducing a state pension that would take people off means tests. Hence, we had to bribe people to save more so that they would not be subjected to the horrors of poverty in old age. The Government are now introducing a basic state pension for the first time ever. That is an achievement. [Interruption.] I will certainly make way on the Bench for my hon. Friend the Member for Coventry South (Mr Cunningham). Shall I give him my notes so that he can finish my speech? I have never seen that before. I had always thought that if a Member was on their feet they were meant to be speaking, but never mind.

Sometimes Governments are very slow to look at how one really radical reform will have a knock-on effect on other parts of their programme. I do not think that this Government have taken into account the resources they are beginning to unlock now that the vast majority of people are going to be given a pension that will take them off means-tested assistance. Therefore, the reasons for bribing people to save in particular ways fall away, and that begins to unlock huge sums of money. I have not made proposals without also suggesting where the money might come from.

I want to end with what the tax credit changes will mean to our constituents if we are not successful today in convincing the Government to rethink radically their proposals. Having talked to my constituents and to others on television programmes, I cannot but be incredibly conscious of their fear at what the changes will do to them. People we should be saluting and cheering are sick with worry about how they are going to make ends meet and about whether they are going to lose their homes and whether they are going to be able to pay the interest on their mortgages, not to mention how they are going to protect their children properly.

Although it is important that we sometimes use technical language as shorthand, I am sure that we will never, ever forget what this debate is about. It is about some of our most vulnerable constituents, whose efforts in work we should be saluting. We should not be handing out this sentence, which terrifies them. For that reason, I hope the House will come to one mind and pass our motion and that we will get a very clear response from those on the Treasury Bench.

[Several hon. Members rose—]

--- Later in debate ---

[Neil Gray]

It goes without saying that I agree with and welcome my hon. Friend’s intervention.

Under the plan of the right hon. Member for Birkenhead, every household earning more than £13,100 would continue to lose out—and in a more brutal fashion than under the Chancellor’s plan. The House of Commons Library briefing highlights that under the right hon. Gentleman’s plan, a full-time single-earner household with two children and an income of £16,000 would still lose out by £700 annually. The level at which tax credits would be removed thereafter is 65p in the pound. We are still going to see the budget balanced on the backs of low-income households.

[Frank Field]

I put forward a number of proposals. If the hon. Gentleman had been in the place a little longer, he might realise that words such as “mitigate” are words used to unite people with different views—including even those who want to see a whole withdrawal. I would like to ask the hon. Gentleman to follow carefully, when the record is published, the words of the Secretary of State for Work and Pensions when I asked him whether Scotland—under existing arrangements, without waiting for any further devolution—would be able to use its revenue-raising powers to compensate everyone in Scotland for the changes in the event that the Government do not move on tax credits. The reply was yes. Will we see the Scottish Government using their revenue-raising powers not merely to put motions on the Order Paper, but to make sure that nobody in Scotland suffers from these tax credit cuts?

[Neil Gray]

It is worth saying, first, that I hope that the Labour party is looking to work with the SNP wherever possible to oppose cuts that are going to impact on low-income families. I make my contribution today, as far as possible, in the interests of consensus. We need to work together effectively to oppose what is coming down the line from this Conservative Government. On the issue of tax-raising powers, the fiscal framework has not been agreed. We have no idea what might be coming forward and no idea whether it will be possible to use these powers to raise taxes in the way suggested. I thus think that the right hon. Gentleman introduces an element of obfuscation when he uses that example. The Library briefing shows that we will still see the budget balanced on the backs of lower-income households.

--- Later in debate ---

[Mr Davis]

Exactly—and before anyone suggests that a person who owns his or her house is better off, let me say that many people in that category have fallen into it and got out of it later. The idea that someone earning less than £20,000 a year, and with two children to support, should lose £2,000 is simply untenable.

The right hon. Member for Birkenhead suggested that there were four possible strategies, but in my view there are three. The first possibility is that we shift the burden elsewhere. The right hon. Gentleman proposed that we should shift it up the income scale, and Lord Lawson said the same during the debate in the House of Lords. I shall not elaborate on that possibility, because I think that there are better ways.

The second strategy is to find savings elsewhere. Here I strongly disagreed with the right hon. Member for Birkenhead, who almost encouraged the Chancellor to go hunting for the pensioner pound. It will not be today’s pensioner pound; it will be tomorrow’s. I think it would be very unwise to remove the tax benefits of investing in pensions and undermine what we have left of our private pension scheme. I am protected, because virtually all my pension is paid for now; it is the next generation that will have to worry.

[Frank Field]

I thought that my argument would appeal more to Conservative Members, because it was a free-market argument. When Governments have guaranteed a minimum, it is not our business to put our sticky fingers into other people’s lives and tell them how they should save or not save. Once there is a minimum pension agreement for everyone, how and when people save should not be a question for the House.

[Mr Davis]

I shall not go too far down that road. Let me simply say that middle-class pensioners are now paying one of the highest effective income tax rates in the country. People who have saved a lot for their pensions and gone above the lifetime allowance must pay 55%. I think we ought to be a bit careful, because if we let the Treasury get at that deferred income, it will take as much as it can.

The third option, which I think is probably the winner—although not by itself; it would have to be modified—is to stage the cuts. I believe that the right hon. Member for Birkenhead lit upon this strategy as well. The cuts would be staged to match movements in the minimum wage and the living wage so that people would not lose.

The Government’s figures for 2020 seem broadly to balance, although they are not perfect. We shall have to work through the mitigation carefully, and that is where the impact statement comes in. Those figures do two things. They protect the working poor, but they also achieve the deficit reduction, which is vital. If we hit the deficit reduction target by 2020—this point was made by my hon. Friend the Member for Stevenage (Stephen McPartland)—each saving of £4 billion a year is not critical. It represents less than 1% of the economy. The really critical issue is how the financial markets see the position. The financial markets do not care about the trajectory from here to 2020; the fact that we get there is good enough. We do not need to worry about the £4 billion a year in between, but we do need to worry about the final outcome. My argument, therefore, is that we should cut the tax credits in step with the minimum wage and the living wage.

The criterion is what is important here. The criterion that the Government must meet is that there should be no losses for the least well off in any of the three intervening years. The poorest, the working poor and their dependants cannot afford to lose one pound. I was never a great fan of the minimum wage, but I was persuaded that it was worthwhile.

--- Later in debate ---

[Rebecca Long Bailey (Salford and Eccles) (Lab)]

As you are no doubt aware, Mr Speaker, I am new to the Front Bench. This is the second time that I have been let loose at the Dispatch Box this week. Earlier this week, I had the pleasure of facing the Financial Secretary. Today, I am delighted to face the Exchequer Secretary for what I hope will be the first of many lively debates.

I thank the Backbench Business Committee, my right hon. Friend the Member for Birkenhead (Frank Field) and the other hon. Members from across the House who secured this important debate. I place on the record my thanks to the IFS, the Resolution Foundation and other groups for their ground-breaking work on this issue.

We have heard some extremely thought-provoking contributions from Members today. My right hon. Friend the Member for Birkenhead set out his case eloquently, stating that to make the reforms next April is not acceptable and that the Government must carry out proper due diligence, focusing on a range of data groups, such as decile groups, family types, annual effects and life chances, to name but a few.

I commend my right hon. Friend for realising that his nil-cost reform suggestions would create a greater work penalty. That is the beauty of debate in this Chamber—sometimes we are convinced to change our minds.

[Frank Field]

I am grateful to my hon. Friend for giving way. Perhaps I may address the Scottish nationalist spokesman. I emphasised that I had put forward one idea to initiate debate. I have put forward three others today. I hope that the Scottish nationalists will not use that as an excuse for a cop-out, but will send a clear message to the Government on the very point that my hon. Friend has just made.

[Rebecca Long Bailey]

I thank my right hon. Friend for that intervention. I want to highlight one more comment that he made earlier: the people we should be saluting and cheering are sick with worry.

Countless Government Members spoke out against the Government’s plans today. I commend them wholeheartedly. The hon. Member for Stevenage (Stephen McPartland) said that he could not support the Government’s statutory instrument because families were coming to his surgery all the time who were frightened. The hon. Member for Aberconwy (Guto Bebb) said that we need to look at this issue again to create a system that does not penalise the poorest in society. The hon. Member for Tiverton and Honiton (Neil Parish) said that everything he believes in as a Conservative is about getting people into work, but there is a risk that these proposals will do the opposite. The right hon. Member for Haltemprice and Howden (Mr Davis) said that this policy was a mistake and highlighted the absence of a proper impact statement.

We had a refreshing change from that kind of dialogue when the hon. Member for Morecambe and Lunesdale (David Morris) became one of the few Government Members to applaud the Chancellor and champion some of the so-called measures that the Government say will offset the tax credit losses.

The hon. Member for Colchester (Will Quince) supported the call for mitigation. The hon. Member for Twickenham (Dr Mathias) fully supported the Chancellor’s claims about higher wages, but agreed that those at the lowest end of the income scale must be protected. The hon. Member for North Cornwall (Scott Mann) broadly supported the Government’s proposals. In stark contrast, the hon. Member for Harrow East (Bob Blackman) supported an examination of the proposals.

The hon. Member for Colne Valley (Jason McCartney) supported other Members on the need to reconsider the pace of change. The hon. Member for Waveney (Peter Aldous) agreed that there is a need to review the measures and that more transitional support is needed. The hon. Member for Torbay (Kevin Foster) supported the motion because his family was rich in love as he grew up, but poor in money. He realised the effect that the proposals may have on aspiration in the long term.

The hon. Member for Stafford (Jeremy Lefroy) cited JFK and stated that if we see everything in terms of income, we are a poorer society. I applaud his condemnation of trickle-down economics. He also made refreshing comments about improving the national insurance system.

Moving over to the Opposition Benches, we heard from my hon. Friend the Member for Darlington (Jenny Chapman), who said that the fear of what may happen is out there already and that the Government must act quickly. My right hon. Friend the Member for Don Valley (Caroline Flint) highlighted the fact that the distributional impact of the cuts will be severely regressive. My hon. Friend the Member for Ogmore (Huw Irranca-Davies) said that his mailbag was full of letters from people who are terrified about what is to come, and my hon. Friend the Member for Birmingham, Selly Oak (Steve McCabe) highlighted Labour’s desire to ensure that we build an economy where families do not need to rely on tax credits. He said it was a mistake to take money from the working poor before their wages have risen. My hon. Friend the Member for Ealing Central and Acton (Dr Huq) stated that the Chancellor could still change his mind and that Labour would welcome such a move, and my hon. Friend the Member for Lewisham, Deptford (Vicky Foxcroft) highlighted the risk that struggling families may fall into debt.

My neighbour and hon. Friend the Member for Heywood and Middleton (Liz McInnes) mentioned the potential increase in child poverty, and my hon. Friend the Member for Nottingham North (Mr Allen) said how lovely today’s debate had been, as it seemed to be a collection of all the sensible people in the House. He said that perhaps the Government should have done things that way in the first place, and I share his sentiments. My hon. Friend the Member for Edmonton (Kate Osamor) said that 72% of people in her constituency receive tax credits, and my hon. Friend the Member for St Helens South and Whiston (Marie Rimmer) outlined—worryingly—that her constituency has the seventh highest levels of unemployment poverty.

The hon. Member for Airdrie and Shotts (Neil Gray) confirmed that we can do better than we are currently doing, and the hon. Member for Arfon (Hywel Williams) highlighted the disincentivising effects of the changes, and especially the impact on under-25s. The hon. Member for Kilmarnock and Loudoun (Alan Brown) rightly asked the Government to revisit their tax avoidance policies, and the hon. Member for Dumfries and Galloway (Richard Arkless) highlighted the worry that his local economy would be affected by cuts to tax credits because those on low incomes are less likely to holiday in Scotland.

The hon. Member for East Antrim (Sammy Wilson) was broadly supportive of the Government’s proposals but questioned their timing, and the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) highlighted household debt and the potential of the changes to exacerbate an already serious problem. Last but not least, the hon. Member for Ross, Skye and Lochaber (Ian Blackford) said that we need to drive sustainable economic growth, which we will not do by taking £4.5 billion out of the economy.

The motion before the House is timely in light of events in the other place this week. Labour supports the position of our noble Friends, which is that the proposals should not go ahead until there has been proper consultation, a Government response to the distributional analysis conducted by the Institute for Fiscal Studies, and mitigation, reform, or indeed withdrawal of the changes if appropriate.

Given the names on the motion and the contributions from across the Chamber, it is clear that widespread pressure spans all parties in the House for the Government to carry out and publish a detailed and adequate impact assessment of the cuts to tax credits. Following such an assessment, they should detail proposals that will ensure that no family is worse off. Labour is clear that if the Government commit to ensuring that no family will be worse off as a result of amended proposals, we will put the interests of those families above party political considerations, and we will not attack the Government for such a move. I cannot think of any recent occasion when any Opposition have made such an offer, so I call on the Minister to listen to the contributions made today.

This House is at its best when we use the power of debate to convince other Members of the merits of a particular argument, whatever our deeply held values or ideologies, and on rare but welcome occasions such as this we can reach a consensus in the House on certain issues. I hope that the Minister and hon. Members will agree that the Government’s policy on tax credits needs to be reviewed and changed.

Let me anticipate what the Minister might say in responding to the debate, because he and I agree on one key point: it is necessary to reduce the deficit over the economic cycle. What we disagree on is the economic strategy used to achieve that, and I do not believe that the Government’s plans achieve that goal fairly or effectively—indeed, in the long term, these savage cuts and the resultant pressure that they will place on other parts of the welfare system will achieve quite the opposite. As we were reminded during the debate, the Prime Minister denied any need or plan to cut tax credits during the election, and the Minister must understand that members of the public—especially those who voted Conservative—are rightly angry.

Cuts to tax credits would mean that more than 3 million families will be on average £1,300 worse off next year. Some working families will lose nearly £3,500 a year, yet £2.5 billion pounds has been found for a cut to inheritance tax that will benefit the wealthiest 4% of people in this country. At the same time, £4.5 billion is being taken out of the pockets of low and middle-income families. The Treasury’s own analysis, and that of the Resolution Foundation, shows that the cuts to tax credits, based on the Government’s current proposals, will put another 200,000 children into poverty. There are already half a million more children in poverty than there were in 2010.

We are told by the Government that cuts to tax credits will be compensated by the so-called living wage. Let me be clear: they will not. In fact, the Institute for Fiscal Studies made that clear:

“the increase in the minimum wage simply cannot provide full compensation for the majority of losses that will be experienced…That is just arithmetically impossible.”

We are grateful for its analysis of course, because the Government have refused to publish an adequate version of their own. The IFS research shows that because of the different profile and scale of families and individuals on the minimum wage versus those in receipt of tax credits, an increase in the minimum wage, though welcome, will not mitigate the effect of the cuts. The average family will still be significantly worse off.

The rise in the minimum wage was accompanied by £4 billion of giveaways in cuts to corporation tax. We are also told that the Government will compensate for losses to income by providing 30 hours’ free childcare for three and four-year-olds. In my constituency of Salford and Eccles, our Labour council already provides 25 hours’ free childcare, but demand for nursery places currently far outstrips supply. The Pre-School Learning Alliance has warned that councils are already paying childcare providers insufficient hourly rates to provide the existing hours of free childcare, and that going up to 30 hours would push many providers to breaking point. If the Minister intends to cite childcare as the answer to tax credit cuts, perhaps he will confirm that the 30 hours scheme will be properly funded and will not push providers to the limit.

In conclusion, in my constituency more than 61% of families are receiving tax credits. They are not the so-called scroungers we hear about; they are men and women who are working hard to try to build a future for themselves and their children. They are trying to lift their children out of poverty and provide them with the nourishment and financial support they need so that maybe, just maybe, they will not have to endure the same hardship their parents endured. We have heard about the American dream, but there is no equivalent British dream for these people. They work hard and get nowhere. Low-paid, unskilled work is often the order of the day for many. For some, it is a case of trying to build up a business to be proud of. For others, they simply juggle work with the responsibility of caring for loved ones. It is clear that the Government’s claims that tax credits cuts will not cause any family to be worse off simply do not stand up to scrutiny. These families deserve a future. As such, we will support this motion.

--- Later in debate ---

[Frank Field]

I thank the Backbench Business Committee for allowing us to stage a fine debate—fine not just because of the eloquence, although there has been plenty of that, but because a very clear message has come from all parts of the House to the Government. Nobody has spoken in favour of these changes coming into force next April. If they do come into force at that time, it gives the Government a good period of time to think seriously about how to reform tax credits. It is important to get that message over to the Chancellor in his thinking mode, so I hope we will now have a Division.

Question put.