Budget Resolutions and Economic Situation

Debate between Shabana Mahmood and Helen Whately

Tuesday 14th July 2015 Commons Chamber

[Shabana Mahmood]

That was hardly worth the wait. I have to say that the hon. Gentleman should have been paying attention to what my right hon. and learned Friend the Member for Camberwell and Peckham (Ms Harman) actually said. She came out very strongly against the whole package of working tax credit changes. If he had listened to my remarks, rather than try to intervene with a Whip’s question, he would have realised that that is exactly what I am doing myself.

The Government will say that they have moved on pay. Again, however, there is a big difference between rhetoric and reality. The Government’s cuts to tax credits overwhelmingly outweigh their measures on pay. I welcome the proposed rises in the national minimum wage, which is still what it is. [Interruption.] I am pleased to see that the Chancellor has joined us. He has failed to explain why raising the minimum wage was so wrong only a few short weeks ago during the general election campaign, in view of our manifesto commitment, or how he came to agree with us so soon after the general election. Nevertheless, imitation is indeed the sincerest form of flattery. We are pleased to observe that the party that forced the last all-night sitting in the House in an attempt to block the introduction of the national minimum wage by the last Labour Government now agrees with us not only that it is important and necessary, but that it should go up. However, we should be clear about the fact that it is not a living wage.

There has always been a difference between the minimum wage and the living wage. Re-badging the new national minimum wage as a living wage will not help the Chancellor, because ordinary working people can see a political con for what it is. The Living Wage Foundation was quick off the mark on Budget day in making that very point. The inconvenient fact for the Chancellor is that the living wage—the real living wage—is calculated on the assumption of a full take-up of tax credits, the very tax credits that the Chancellor has just cut. To make up for the loss of those tax credits, a real living wage would have to be considerably higher than what the Chancellor is now promising working people in Britain.

The new national minimum wage rate of £7.20, when it is introduced next year, will be lower than the current living wage of £7.85. In effect, the Chancellor, who says that he stands with working people, will offer working people in 2016 the 2011 living wage, and we will not let him pretend otherwise. In the end, the simple truth is that the wage increases that are on their way are not enough to make up for the loss of tax credits.

Twenty-four hours after the Chancellor delivered his Budget, the Institute for Fiscal Studies dismissed his claim that increasing the minimum wage would compensate working people. The IFS said:

“the key fact is that the increase in the minimum wage simply cannot provide full compensation for the majority of losses that will be experienced by tax credit recipients. That is just arithmetically impossible.”

The IFS also said that the biggest change, which sounded very technical, was the reduction in the work allowance. It explained:

“The work allowance is the amount that a claimant can earn before benefit starts to be withdrawn. Significant allowances were an integral part of the design of UC”

—universal credit—

“intended to give claimants an incentive to move into work. This reform will cost about 3 million families an average of £1,000 a year each. It will reduce the incentive for the first earner in a family to enter work.”

A regressive Budget with a work penalty of £1,000 a year: that is what the Government have delivered to ordinary working people in our country—and while they hit those ordinary working people, they also fail to address a central economic challenge—productivity. That is the puzzle that it is crucial for us to crack and solve, because getting it right is vital if we are to achieve higher living standards, sustained GDP growth, and effective deficit reduction, but this Budget failed the productivity test.

[Helen Whately]

Will the hon. Lady give way?

[Shabana Mahmood]

I will not give way for another Whip’s question. I must make some progress.

Productivity has stagnated under this Government, and the Office for Budget Responsibility has revised its productivity forecast downwards for next year and the three years after that. It has also confirmed that the Chancellor will miss his target of increasing exports to £1 trillion by a staggering £367 billion by 2020. Productivity has been revised down and the current account deficit has widened to 5.9% of GDP, becoming the largest annual peacetime deficit since at least 1830. However, all that the Government had to offer was a damp squib of a productivity plan on the Friday after the Budget—a patchwork of existing schemes rather than a substantial reform to boost skills, business growth and wages, and, in relation to infrastructure, output that is lower than it was five years ago.

There are, of course, some measures in the Budget that we will support, not least those that started life—[Interruption.] I am glad that Conservative Members are cheering, because the measures that I am about to mention started life on our Benches as our manifesto commitments. I welcome the Government’s new-found zeal in dealing with non-doms and with the so-called carried interest loophole involving private equity managers. Conservative Members were not so vocal on such matters just a few weeks ago, but I am glad that they have had a rethink since the general election, and have found their voices when it comes to our policies.

We will, however. stand against measures that are wrong and unfair. Apart from the overall package of measures on tax credits, we are deeply concerned about the impact of removing student maintenance grants from the poorest undergraduates, about the lowering of the level of benefit for those who cannot currently work and are in the work-related activity group, and about the Government’s strategy on child poverty, which essentially boils down to their changing the definitions because they will miss their target otherwise. Every Budget is about choices. This should have been a Budget to bring the deficit down and help people into work and into better work by creating the high-skill, high-pay jobs needed to boost productivity. Instead, it penalises those already in work. It is people on low and middle incomes, the ordinary working people of Britain, who will pay the price for this Chancellor’s choices, and we will stand with the ordinary working people of Britain by voting against this Budget tonight.