Tax Credits

Luke Hall Excerpts

Tuesday 15th September 2015 Commons Chamber

[Luke Hall (Thornbury and Yate) (Con)]

Thank you, Mr Speaker, for giving me the opportunity to speak in this debate. I will keep my remarks short, because several other colleagues wish to speak.

This Government were elected just over four months ago with a clear mandate to get our country’s books in order, balance our finances and run a surplus. Our manifesto included the commitment to make £30 billion of savings, including £12 billion in welfare. Although the deficit was halved in the last Parliament, Britain is still borrowing too much money, with a budget deficit of 5%. The sheer scale of tax credits is

“subsidising lower wages in a way that was never intended”.

Those are the words of the former Chancellor Alistair Darling.

Under Labour, spending on tax credits more than trebled in its 10 years in office. In fact, as my hon. Friend the Member for Havant (Mr Mak) pointed out, the original tax credit system cost just £1.1 billion in its first year, but will reach a cost of almost £30 billion this year. Reductions in spending are therefore vital to ensure that we are not burdening our children, grandchildren and great-grandchildren with more debt than they can ever hope to repay.

In 2010, 90% of families were eligible for tax credits, which was a disproportionate amount. After these Budget changes, that will be reduced to five in 10, which is a much more sustainable number. Ultimately, the changes will return tax credit spending to pre-crisis levels—to the level that it was under Labour Governments in 2007-08—and deliver £4.4 billion of savings in 2016-17.

The Chancellor’s Budget delivered the promised increase in the personal tax allowance, which will rise to £11,000 next April and to £12,500 by 2020. The living wage will be £7.20 an hour, and employers are already pushing wages up to match that figure. That is equivalent to annual gross earnings of £13,100 for someone aged 25 or over working 35 hours a week. The projected increase to £9.35 an hour will increase the figure to £17,100 for someone aged 25 or over working 35 hours a week, which is a huge increase in a basic salary. In general, the losses from the combined effect of the threshold reduction and the taper increase will be greater for tax credit claimants with relatively high incomes, which is vital to ensure that our welfare system is kept affordable and provides support for those most in need.

In summary, the Government have a clear mandate to control our spending, to reform welfare and to balance our country’s finances. The proposed tax changes, combined with the increased personal allowance and the introduction of the first national living wage in the first Conservative Budget for 18 years, demonstrate that this Conservative Government are committed to creating a higher wage and lower tax economy. I believe that these changes will put our welfare system on a long-term sustainable footing, and I will support them today.