Tax Credits

Guto Bebb Excerpts

Thursday 29th October 2015 Commons Chamber

[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.

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[Guto Bebb (Aberconwy) (Con)]

It is a pleasure to speak in this important debate, and I congratulate the right hon. Member for Birkenhead (Frank Field), and others, on securing it.

This debate is a good opportunity for us to discuss tax credits in more depth—there is possibly a degree of unanimity across the Benches, because this issue is hugely complex and must be considered carefully. We have already heard talk of the need for immediate mitigation, but we must also consider the whole area again. Eighteen years ago the right hon. Gentleman was asked to think the unthinkable. He tried to do so, and was promptly sacked for his efforts. This issue is as complex today as it was in 1997.

The Treasury will bring forward proposals in November, but that will perhaps be an interim measure and we will still need to consider carefully how to create a system that supports working families, and those who are raising children and want to do the right thing. We need a system that does not penalise people with high marginal deduction rates, and a change that will not penalise the poorest workers in society.

I feel disappointed—to say the least—that I am not in agreement with my Government on this matter, because during my first five years in this place I was proud of the changes that we made to the welfare state, and of how we tried to make work pay for those who were willing to go out, make an effort, contribute to their communities and look after their families. The most moving event of my time in Parliament was when I visited a Tesco store in Toxteth and met people who were part of an effort by the DWP to get people back into work. The pride and passion that those individuals felt about working and supporting their families was testimony to the fact that our changes were making a real difference.

There is no doubt that the tax credit system has ballooned out of control, but whether we like tax credits or not, they are an important element of supporting workers who are willing to work but whose wages are not particularly comprehensive. We should all support and applaud the decision in the Budget to introduce a new living wage, but there is a clear discrepancy between the timing of changes to the new living wage and changes to the tax credit system. There is no balance to the way in which wages will increase and the immediate withdrawal of tax credits.

I genuinely welcome the fact that the Treasury is allowing time for the new living wage to settle in. I represent a constituency of small businesses and sole traders. It has the highest percentage of self-employed people in Wales, and average wages are only £23,000 or £24,000. Small businesses that employ people in my constituency understand that we need to move to a higher-wage economy and that they must pay their staff properly. Many of them take pride in the fact that they currently pay the minimum wage as a means of keeping staff in place, and they appreciate that the Government are giving them time to adapt and change their business models in order to pay their staff more. It is therefore difficult to understand why we are not willing to give recipients of tax credits the same time to adapt and change to the proposed situation. The decision to cut so quickly and so deeply is problematic, and the response of both Houses has shown that people are concerned about the proposed changes.

Moving forward, we must educate Members of this House. The worst example of a crass comment on this issue came from an unnamed Conservative MP, who stated clearly that if somebody loses £30 per week as a result of these changes, they should simply go and work for an extra three hours. Having taken an interest in this issue, I was genuinely shocked by that comment, because with an 80% marginal deduction rate, an individual earning £10 an hour would need to find 15 hours’ work to make up the £30 loss. When such comments come from Members who claim to represent their constituents, we really should despair.

We must understand the trap that exists in current marginal deduction rates. I was proud that universal credit tried to reduce that marginal rate, and even prouder when I sat on the Welfare Reform Bill Committee and the then Minister stated categorically that the aim was to reduce that rate even further when funds allowed. The Prime Minister stated categorically that the Conservative party should be as concerned—if not more concerned—about the marginal deduction rate of 94p or 95p that we inherited than it should be about the 50p higher rate of tax. It was therefore incredibly disappointing to see that incentive to work, and people’s ability to keep more of the money they earn, changed by these proposals. What message are we sending to people when we say, “Go out, work an extra couple of hours, but we will take 80% of your efforts”? We must be careful about that, which is why mitigation is only a short-term response. In the long term we must look again at the whole system.

To be fair, I have had numerous conversations with Treasury Ministers, and I am grateful to the Exchequer Secretary to the Treasury who called and made my difficulties in a long queue on the A55 much more bearable by discussing tax credits with me. The Treasury has shown a willingness to listen, and it will need to respond in the short term. In the long term we must consider carefully how to create a system that is more likely to support working families in a constructive way. In the short term, he stated clearly that we should look very carefully at how we deal with the £4.4 billion gap in the Government’s finances. I, too, take the deficit seriously. We need to think about why 70% of all the benefits that come from the increased personal allowances have gone to the half of those who are in the richest, highest paid part of society. We need to ask ourselves clearly whether, in view of the fact that we are desperate to find that £4.4 billion, we can justify the extra £9 billion on increasing the personal allowance from £10,500 to £12,500. That would at least contribute towards mitigation in the short term, but we need a longer term plan as well.

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[Mr Davis]

Not for the moment.

The problem was compounded by the method employed—the measure was introduced by statutory instrument, and is therefore unamendable—and by a lack of sufficient information. As four or five Members have already pointed out today, there was no proper impact statement. Had the measure been introduced in primary legislation and thus been amendable, and had the Government provided proper information, the measure would not have gone to the House of Lords in its current form; it would have been reformed in this House, and that is what should have happened.

I subscribe to the Government’s wish to balance the books by 2020, which I consider to be an eminently sensible and responsible aim. However, I also subscribe to the view that we need to protect the poor at all costs. The question is, how do we identify what this policy does? I wanted to find some examples that would enable us to assess both sides of the argument—not just the attack, but the Government’s line as well—and I thank the Chancellor’s Parliamentary Private Secretary, my hon. Friend the Member for Kingswood (Chris Skidmore), for being so helpful in that regard. I put some of the points that he made in defence of the policy to the House of Commons Library, and I shall now give a couple of examples that the Library supplied to illustrate its impact.

The worst-case example that I could find was that of a working single parent with two children, who, without the mitigating effects, could be £2,000 a year worse off in virtually every year until 2020. That is an unbelievable sum to take from a family who are already poor. If the family were eligible for mitigation, in particular housing benefit, the sum could be reduced to roughly £700—the fine detail is unreliable—but, again, it would be lost in virtually every one of the next four or five years,

The great battle over the 10% rate when Labour was in power involved sums that were a quarter of that amount. The great battles over the poll tax, which I remember only too well, involved sums of that size. The impact on a family who are already on the poverty line, by definition, is unspeakable and unthinkable. I grew up in a rather poorer era, and I remember children being hungry on Fridays when the bills were just a bit too big, or it was cold and the heating costs were too high.

[Guto Bebb]

My right hon. Friend touched on the issue of housing benefits mitigating some of the tax credit changes. Is that not another problem with the policy? Someone living in rented accommodation and receiving housing benefit would receive mitigation under the current system, but someone who had bought their own property would not.

[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.

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[Mr Allen]

I totally agree with my hon. Friend. The Living Wage Foundation has already blown that myth straight out of the water and said it is not actually what everybody else seems to think of as being the living wage. Indeed, the Institute for Fiscal Studies and our own House of Commons Library have both said that the so-called national living wage does not make good what people will lose. Both those highly authoritative, independent organisations say it will only cover about a quarter of the loss that families will incur. On top of that are a lot of other factors. Difficulties relating to the introduction of universal credit are compounding the situation for people on low incomes.

For my constituency, all this shows that society is not addressing deprivation in the way it should. In the past five years, the indices of deprivation have indicated that in my constituency 5.9% more people are in the category of being deprived than they were five years ago. I ask the Chancellor to try to understand that it is not always about Tatton or Witney. The 20 most deprived constituencies—such as Nottingham North, Liverpool Walton, Birmingham Hodge Hill, Manchester Central and so on—are where our people live. That is where people need their representatives to stick up for them. That is where the free market politically does not work. Inviting people over for a weekend of shooting, riding or whatever—that is not where I live, and it is not the way our people will get the message over and have their voices heard. It is by sensible people, from all parties, putting the case forward.

[Guto Bebb]

In the spirit of cross-party co-operation, does the hon. Gentleman not accept that there are small businesses in constituencies such as mine, where we do not go shooting and are not involved in that type of behaviour, which appreciate that the Treasury is allowing them time to adapt to a new living wage? The concern we have about the tax credit issue is that the time allowed for small businesses to adapt was not necessarily made available to the recipients of tax credits.

[Mr Allen]

I hope the hon. Gentleman will forgive me. I was not trying to characterise all his constituents as people who hunt, shoot and fish; on the contrary.

We must work together and make our points collectively so that the Government will listen, which they should have been doing before. I represent places such as Bilborough, Aspley, Broxtowe, Bulwell, Basford and Bestwood. These are areas not known to anyone in the Chamber, but they are where real people live—every Member will have the same sorts of places in their constituencies—and they are the people who will be hit hard by these changes. It will not be about the little debate I had with my right hon. Friend the Member for Birkenhead earlier about the technical knowledge. Let us work together, put our shoulders to the wheel and make the best of a bad job.