Tax Credits (Income Thresholds and Determination of Rates) (Amendment) Regulations 2015

Lord Mackay of Clashfern Excerpts

Monday 26th October 2015 Lords Chamber

[Lord Mackay of Clashfern (Con)]

My Lords, we have just heard some very moving speeches on this matter. I have no doubt that, as the Leader of the House has said, the Chancellor of the Exchequer will consider these matters very carefully. I know that it is extremely difficult to analyse the precise effect of income tax or tax credit changes in individual circumstances. Your Lordships will remember that when Mr Gordon Brown, as Chancellor, thought to take out of the tax system the 10% tax band that had previously existed, finding out precisely who was affected and how they were affected turned out to be extremely difficult. I believe that there are difficulties in this connection also. It may well be that the information that arises in the course of the attempt to deliver this will show what in detail is required if changes should be made.

I am intending to deal only with the constitutional question as I see it. These draft regulations are made under the Tax Credits Act, which sets up mechanisms for the payment of tax credits of two types: children’s tax credits and working tax credits. The arrangements were under the control of the Board of Inland Revenue which was entitled under Section 2 to deduct the sums paid for tax credits from the income of the board raised by taxation. So it is perfectly clear that these tax credits are a charge on the taxes raised by the Board of Inland Revenue, as it was then. The details of the credits and the machinery necessary for their administration were set out in the later sections of the Act. Section 66 of the Act provides:

“1) No regulations to which this subsection applies may be made unless a draft of the instrument containing them (whether or not together with other provisions) has been laid before, and approved by a resolution of, each House of Parliament.

(2) Subsection (1) applies to … (a) regulations prescribing monetary amounts that are required to be reviewed under section 41”.

That is the system under which this statutory instrument has been made. Accordingly the statutory instrument before the House requires to be approved by each House of Parliament before it can be made. The instrument, as we know, was approved by the other place and a Motion to reverse it was defeated in the other place. So it has come to us as a matter which has been fully considered so far as the other place is concerned until now.

In considering this, regard must be had to the financial privileges of the other place. It is not a question of the conventions of this House, it has nothing to do with them; it is to do with the financial privileges that belong to the House of Commons. So far as I understand it, there is nothing to prevent a Motion along the lines proposed here being considered by this House, but the question is whether that consideration can properly interfere with the financial primacy of the elected Chamber. Erskine May says that the practice is ruled today by resolutions which were made in the 1670s. The last one of these, the clearest and fullest, states that,

“all aids and supplies and aids to his majesty in Parliament, are the sole gift of the commons; and all bills for the granting of any such aids and supplies ought to begin with the commons: and that it is the undoubted and sole right of the commons to direct, limit, and appoint in such bills the ends, purposes, considerations, conditions, limitations, and qualifications of such grants; which ought not to be changed or altered by the House of Lords”.

It is clear that these tax credit payments are made out of the supply raised by taxation and that the other place has decided that the Tax Credits Act 2002 should be amended in terms of the approved draft. I am clearly of the opinion that a failure on the part of this House to approve the draft of this instrument would be a breach of the fundamental privileges of the elected Chamber.

It may be asked why the approval of this House is required. I believe that it is as a courtesy to the House, just as it is asked to agree to the passing of money Bills on their way to becoming Acts of Parliament. The House never seeks to delay them as it is obliged to respect the financial privileges of the elected Chamber and how it deals with those matters; it should deal with this matter in the same way. To decline to approve these draft regulations or to decline to deal with them until certain conditions are met is a refusal to accept that the decision of the elected House on a matter of financial privilege is the final authority for it. It has to be noted that this is a matter of the privilege of the elected Chamber, not of the Government. The Motions other than that in the name of the right reverend Primate—

[A noble Lord]

The right reverend Prelate.

[Lord Mackay of Clashfern]

I am sorry, the right reverend Prelate. That was a bit of a promotion because we are in the presence of the two Primates. The Motions mark a refusal to accept a decision of the elected House on a matter of financial privilege as the final authority for it. That is what they amount to. It has to be noted, as I have said, that this is the privilege of the elected Chamber, not of the Government.

The amendment proposed by the right reverend Prelate—I shall try to get it right this time—is entirely in accordance with the arrangements of this House and with the financial privileges of the House of Commons. Therefore from the point of view of the powers of this House, it is by far the safest of the Motions that have been put forward. In light of what the Leader of the House said in opening, I believe that the Chancellor of the Exchequer is very open to considering the detail—

[Lord Thomas of Gresford (LD)]

My Lords, does the noble and learned Lord not agree that the conventions to which he has referred, going back to the 17th century, were so uncertain that in 1908 the Conservative Party defeated Lloyd George’s People’s Budget in which he sought to give money to the poor people of this country? Does he also not agree that the 1911 Act set out a mechanism whereby the Speaker would certify that a money Bill was a money Bill, and that would remove from us our powers of consideration? Is he not going back to an argument that failed more than 100 years ago?

[Lord Mackay of Clashfern]

Not at all. I am stating the present practice, according to Erskine May, in relation to matters of financial privilege. As I said, it is not a matter of the conventions of this House, but of the rights of the other place in this matter. My clear submission to your Lordships is that these amendments challenge the final authority of the elected House on a matter of financial privilege. It is true that the Liberal Democrats—I suppose they were the Liberal Party then, but the succession is probably allowable—found it necessary to take further action to ensure that the practice that had been built up in the 17th century applied in the 20th century and beyond. They put mechanisms in place to prevent financial privileges being in any way transgressed again.

[Lord Snape]

Does the noble and learned Lord think that a statutory instrument that cannot be amended is a suitable vehicle for passing legislation that will adversely affect hundreds of thousands of people?

[Lord Mackay of Clashfern]

That is the arrangement that was proposed in the Tax Credits Act, which was passed by the Labour Government in 2002. It was thought to be the right way to do this particular thing, and the Chancellor of the Exchequer and the Government have followed that. It is not a necessary consequence that the Commons or the Government should use a different procedure in order to secure the financial privilege of the House of Commons. The procedure was laid down in the Tax Credits Act, which is the main statute on this matter. For the Government to do anything other than use that course would be offensive to the way in which the system was set up.

The Leader of the House mentioned the Chancellor of the Exchequer’s attitude to considering more detailed material when it becomes available. That is a considerable consolation to me in light of what the right reverend Prelate said. I believe the right reverend Prelate’s approach to be the safest way to secure what a number of your Lordships have asked for.

[Baroness Lister of Burtersett (Lab)]

My Lords, I have several points to make about the substance of these regulations. First, this represents a lamentable example of non-evidence-based policy-making, the victims of which are going to suffer greatly. Secondly, the arguments used to justify the policy—by reference to other policy changes and to how people could or even should work harder—betray a lack of understanding of policy and of people’s lives.

In its letter to the Financial Secretary to the Treasury, the Social Security Advisory Committee criticised the “scant” evidence to support the policy changes. It thus encouraged the Government to make available to Parliament,

“more detailed information that clearly explains the changes and potential impacts to ensure that they can be subject to effective scrutiny”.

With due respect to the noble and learned Lord, Lord Mackay, SSAC clearly believed it possible to provide such information. Its advice was ignored, leading the Secondary Legislation Scrutiny Committee to observe that the explanatory memorandum laid in September “contained minimal information”.

Getting an impact assessment out of the Government has been like pulling teeth. That which finally emerged is a travesty; much of it simply reiterates repetitively the rationale behind the policy. It certainly does not provide the information about potential impacts that SSAC sought. There is no information on the impact on different groups affected, including the self-employed, who, as we have heard, cannot benefit from an increase in the minimum wage. The information about the impact on protected groups is simply laughable. When I asked in a Written Question,

“how many people in receipt of Carer’s Allowance are also in receipt of Working Tax Credit”,

and are therefore vulnerable, I was told that the information,

“could only be provided at disproportionate cost”.

I know that Carers UK is very worried about the likely impact on all carers receiving working tax credit.

In the letter accompanying the impact assessment the Chancellor excused the delay on the grounds that the Government do not usually publish an IA for statutory instruments of this kind. I found this statement very revealing. It suggests that the Government made no attempt to assess the impact for themselves before going ahead with such significant cuts and that they see an IA simply as a tick-box exercise to pacify pesky parliamentary committees. Surely, given the Prime Minister’s pledge at his party conference of an “all-out assault on poverty”, the Government would want to know the impact on poverty. But no: it was left to the Resolution Foundation to point out that it could mean an additional 200,000 children falling into poverty next year, rising to 600,000 by 2020 when other summer Budget measures have taken effect.

Surely a Government who have promised to apply the family test to every measure would want to know the impact on low-income families—a point made by Heidi Allen MP in her passionate maiden speech demolishing her own Government’s policy. Surely a Government who go on constantly about making work pay would want to know the impact on low-paid workers. But we had to look to the IFS for that. In effect, the Government appear to be contracting out to the voluntary sector genuine assessment of impact. Of course, that is assessment after, rather than as part of, the policy-making process. That is one reason why it is so important that your Lordships’ House asks the Government to think again in the light of the evidence that has emerged of the damaging impact that the cuts will have.

I am grateful to all organisations that have exposed how the overall policy package that the Government constantly cite does not amount to an adequate defence of the policy, particularly in the case of lone parents, who will be disproportionately affected, according to Gingerbread. A key reason why the overall policy package does not provide adequate protection is that with the exception of childcare, which applies to only a very limited age range, the other policies—the increase in the minimum wage, welcome as it is, and in personal tax allowances, which is less welcome because it is wasteful and poorly targeted—cannot take account of the presence of children, a point made by my noble friend Lady Hollis. All the talk about tax credits subsidising low pay ignores the fact that child tax credits were introduced primarily as a child poverty measure. Wages cannot take account of the presence of children. That was one reason why family allowances were originally introduced and why an increase in child benefit, which also helps families below the tax threshold and is currently frozen, would provide more effective mitigation than further increases in tax allowances.

Finally, according to the Health Secretary, the cuts are intended to send a “very important cultural signal” about hard work. Leaving aside his denigrating suggestion that receipt of tax credits is somehow incompatible with “independence, self-respect and dignity”, he does not appear to understand that reducing the income threshold and the universal credit work allowances while increasing the taper rate penalises what he calls “hard work”. Likewise, the Work and Pensions Secretary suggested that the problem can be solved if those hardest hit are encouraged to work a few extra hours. Even if extra hours were feasible and available, the gain from doing so will be reduced by the very changes that they are supposed to mitigate. As the Children’s Society points out, every extra £1 in wages will provide a net income increase of only 3p for those also in receipt of housing benefit and only 20p for those not. What about those with family responsibilities, particularly lone parents and carers, for whom working extra hours could impact negatively on their and their families’ lives?

It is our job to scrutinise legislation. This legislation does not stand up to scrutiny. The policy-making process from which it has emerged does not stand up to scrutiny. It is not noble Lords, or Government Ministers, who will bear the cost of this. It will be people like the low-paid worker who emailed me to say that he was very scared about how he will manage next year. Hundreds of thousands of children will be pushed into poverty. We have a duty to defend them, our fellow citizens.