Tax Credits

Stephen McPartland Excerpts

Thursday 29th October 2015 Commons Chamber

[Stephen McPartland (Stevenage) (Con)]

It is a great pleasure to follow the right hon. Member for Birkenhead (Frank Field), who spoke a lot of sense. I join him in thanking the Backbench Business Committee for allowing us a full-day debate.

I fully support the motion and was delighted to put my name to it. I voted against the statutory instrument because I could not support the Government. That was not an easy thing to do. I am proud to be the Conservative Member of Parliament for Stevenage, but I could not support the Government on the statutory instrument.

I support the idea of a high wage, low tax and low welfare society, and I believe that tax credits need to be reformed. They cost more than £30 billion a year and have completely snowballed. Families visit my surgeries all the time and they are very upset about the fact that no two families are treated the same. There are huge overpayments and there are underpayments. It is an incredibly complicated system. Some £1 billion a year is lost in fraud. There are huge issues with the tax credit system, but the problem is the impact the proposed changes would have had on those families with the lowest incomes.

I accept that the Conservative party manifesto said we would reduce the welfare bill by £12 billion. We need to look at that and I will come on to it later. Much of the debate about unemployment benefits is about how they contribute to the welfare bill, but actually they make up a very small proportion of it. For example, the reduction of the benefit cap from £26,000 to £23,000 a year was incredibly popular on the doorsteps during the election campaign, but it will save less than £100 million, because it affects fewer than 100,000 families in the whole of the UK. That is an indication of how small a proportion unemployment benefits are of the overall welfare bill.

I stood up for those families whom I believe Labour has left behind. They occupy the centre ground and I want to occupy it, too. The Prime Minister and the Chancellor said in their conference speeches that they also want to occupy the centre ground. Those families get up and go to work. They are trying to do the right thing and to support their families and work themselves out of poverty. They are the families I support and I am happy to fight for them. It is on behalf of those families in my constituency and across the United Kingdom that I voted against the statutory instrument.

Why have I been so vocal on this issue? I cannot believe that the impact of the changes was fully understood. The right hon. Member for Birkenhead made a very good critique of them. I want to focus on the reduction in the threshold that enables people to apply for and receive tax credits. The reduction from £6,420 to £3,850 is an instant £1,200 cut, so anybody earning more than £6,420 would be hit by a £1,200 cut right away. That is far too much of a blunt instrument.

A teaching assistant who earns £11,000 a year has restrictions on the number of hours they can work. They do a valuable job educating the next generation of society, including future business leaders. I make no bones about the fact that I am very proud of the work they do. My wife is a primary school teacher and I am proud of her. My sister is a secondary school teacher and a large number of my family work in education and do a great job. How can they be expected to go out there and make up a £1,400 cut to their income? It is not possible. That is too much to cut all in one go. Increasing the taper from 41% to 48% would result in cuts of only £200 or £300, but reducing the original threshold would result in a £1,200 cut. I cannot support that, which is why I had to vote against the statutory instrument and why I have not since then been able to support the Government in the Lobby on this issue.

[Mike Wood (Dudley South) (Con)]

Does my hon. Friend agree that a basic test of the fairness of this package would be for its painful parts, such as the threshold reduction, not to be introduced quicker than its more positive elements, including the living wage, personal allowance increases and other benefits?

[Stephen McPartland]

As Members can imagine, I wholeheartedly agree with my hon. Friend. People such as teaching assistants and cleaners do a great job in society and we need to be reaching out to them.

[Carol Monaghan (Glasgow North West) (SNP)]

The hon. Gentleman mentions teaching assistants and cleaners. I should probably declare an interest, because I used to be a teacher in receipt of tax credits. When the scheme came into being I was a single parent, and it was only because I had tax credits that I was able to remain in employment. It was a very difficult time and I faced the choice of either going into unemployment and being with my child or remaining in work. It is not just teaching assistants and cleaners who are affected, but other people in society as well.

[Stephen McPartland]

I completely agree with the hon. Lady. I mention teaching assistants because I think they are a classic example of people who are constricted in the hours they are able to work. They can work only so many hours a week and so many days a year.

The existing mitigation includes free childcare for three and four-year-olds, but if people do not have a three or four-year-old that is pointless and no help whatsoever. There has been talk about the personal income tax allowance increasing from £11,000 to £12,500. I would like to see it go up to £15,000 by the end of the Parliament, but if people do not earn more than £11,000, it is of no use to them. People on £11,000 will still be hit by the £1,200 or £1,400 cut. That punishes people who are going out to work and doing the right thing. That does not sit right with me and I cannot support it.

[David Morris]

Does my hon. Friend think that a tapering system would be better suited to this policy?

[Stephen McPartland]

That is a possible solution and I am sure that the Treasury is looking into it. I would like to work with the Treasury on how the mitigation could work, and I hope that it will listen.

[Mr David Davis]

Give him a job!

[Stephen McPartland]

I would like to point out that I do not want a job.

Getting back to the people who are on £11,000 a year or thereabouts and who will be particularly punished by the policy as it stands, I am pleased that the Chancellor is now listening. Although I do not agree with what the House of Lords did, I accept that it has brought us to this position. I want the debate to focus not on constitutional issues but on the loss of income for people who have no ability to make it up elsewhere. How can we help those people?

I have talked about the increase in the personal income tax allowance from £11,000 to £12,500, which will cost about £9 billion. The Government spend over £700 billion a year, yet it seems as though if we cannot find this £4.4 billion it will be the end of life as we know it. We all know that that is not the case. There is a way in which the effects can be mitigated.

How do we reform tax credits without punishing those who are trying to do the right thing—those who get up, go to work and try to move their families forward? Some £3 billion of the £4.4 billion saving is down to the change in thresholds that I spoke about—the initial £1,200 cut. It is an incredibly broad instrument that will punish people whether they earn just over £6,420 or £19,000 and it must be mitigated and changed. We have to find a way around that initial £1,200 cut. It is too much and it goes too far.

There is talk of a discretionary hardship fund. I would certainly welcome that for people who are struggling in one way or another. There has been a lot of talk about national insurance. I would like people not to pay any tax on the first £11,000 or £12,000 of their income, but that will not be looked at fully because it would be incredibly expensive. For me, this debate is about how we can help these families.

Basic macroeconomics suggests to me that if we take £4.4 billion off the people who earn the lowest incomes, that is £4.4 billion that will be taken straight out of the economy, because it will be taken out of the pockets of people who would have spent it right away. Every pound that is taken off those people is a pound that is taken out of the shops in their local economies. It just does not make sense.

I do want to work with the Treasury. I can be a prodigal son and be returned to the fold, I am sure.

[Heidi Allen (South Cambridgeshire) (Con)]

Can I join you?

[Stephen McPartland]

I think you are a little more disliked than I am.

There is huge fear out there among the public. We need to come forward with proposals as fast as we can. I want the Treasury to talk to us, listen to us and work with us. I warn the Treasury that if it does not come forward with mitigation proposals that we find acceptable, we will continue to raise the issue and try to look after the poorest in society. I accept that Britain has 1% of the world’s population, generates 4% of the world’s income and spends 7% of welfare spending. That is too much. I am proud of the Conservative party and will continue to put fairness at the heart of it.

--- Later in debate ---

[Neil Parish (Tiverton and Honiton) (Con)]

It is a great pleasure to speak in this debate and I thank the right hon. Member for Birkenhead (Frank Field) for initiating it. It has been a very good cross-party debate. I also want to thank my hon. Friend the Member for Stevenage (Stephen McPartland) and the hon. Member for Ogmore (Huw Irranca-Davies) for their contributions.

Dare I say that I am becoming a little more mature in years? I am now the Chair of a Select Committee and can afford to be a little more independent. It is not, however, always easy to further one’s ambitions in a party if one stands up for what one believes to be right. We are standing up for what we believe to be right. It is fundamental that people who work are better off than those who do not. As a Conservative, I believe that we should be encouraging people into work because they will be better off, but if we are not careful, the policy will drive people back on to benefits and take us in the opposite direction from where we want to go.

I support what the Chancellor has done in taking millions of people out of tax, raising the thresholds, halving the deficit, driving the economy and creating vast employment in the country. I come from a constituency with only 1% unemployment, but the average salary, for full and part-time employees, is £18,700 and the number of families claiming both working and tax credits is more than 22%. In addition, the average house price is £190,000—the prices are quite high because it is a beautiful part of the country to live in. However, we have to make sure we support people who are working hard across the country. That is why we need to take this opportunity.

I disagree entirely with what the House of Lords did, but it has given us an opportunity to reconsider. May I be so bold as to say that it does not matter how many spin doctors and people who are clever with figures we have? When someone on a low income who relies on tax credits knows that that money is being taken away from them, it is absolutely real. I hate to say it, but on this occasion, the Government and the Chancellor have to be absolutely certain about how many people will be affected and what we will do about it.

I very much support the national living wage, but the Government and the Chancellor need to help the many small companies in our constituencies to pay it. As people get more in their pockets and more from their employment, we can reduce tax credits and the state subsidy on employment. We all get that. We all know what has got to be done, but we cannot do it at the speed we are doing it and take money from perhaps millions of people. It is simple arithmetic. For someone on a low salary, £1,300 is a huge amount of their disposable income—we must remember that this is about disposable income.

I am optimistic. I have always been optimistic in my life because I believe there are always solutions, and I believe there is a solution to this because the Chancellor is a very clever man. I am sure he is listening and will come back to the Chamber with some proposals. These people, whether they are cleaners or classroom assistants, whether they work in the health service, the private sector, the tourism industry or on farms, are all hard-working, and we must be a party and a Government who support hard-working people. We have done that up until now, and we have just lost our way a little, but we can come back out of the wilderness and put this right.

[Stephen McPartland]

Does my hon. Friend agree that the Conservative party is at its greatest when supporting people getting on in life and providing a safety net for those who need it?

[Neil Parish]

I could not agree more with my hon. Friend, and I am in politics today to try and make that happen. It is why many of us on the Conservative Benches are prepared to stand up and be counted. It is right that we do so, and our constituents expect it. The Chancellor will say, “We must eradicate the deficit”, and yes, we must, but if we are six months or—dare I say it?—a year late in doing that, people will understand.

--- Later in debate ---

[Jeremy Lefroy (Stafford) (Con)]

It is a great honour to follow the hon. Member for Dumfries and Galloway (Richard Arkless). Indeed, I am one of those who have visited his constituency on holiday, and I remember one evening being bitten alive by midges on Clatteringshaws loch. We had to escape into our car and smoke cigars to keep them away—of course nobody under the age of 18 was in the car at the time, I hasten to add.

One noticeable thing that happened earlier this month, and which may not have come to everybody’s attention, was that the International Monetary Fund—not an organisation I have always had a lot of sympathy for, particularly when I was living in Tanzania in the 1990s—made a remarkable statement under its excellent managing director Christine Lagarde: excessive inequality damages growth and the economy. It is amazing and very welcome that the IMF has come to that conclusion. It has come to that conclusion not just in respect of developing countries, but in respect of any country.

In my opinion tax credits have been a means of reducing inequality and particularly excessive inequality in this country. That is why when I spoke in the Opposition-led debate last week I urged the Government to look again at the policy, especially its timing. I am very glad the Chancellor has said he will do that and will bring forward measures. I pay particular tribute to my hon. Friend the Exchequer Secretary because he has always been listening and is a great credit to his position, as indeed is the Chancellor’s Parliamentary Private Secretary sitting behind him, my hon. Friend the Member for Kingswood (Chris Skidmore).

I mentioned two other things last week, one of which was predictability. Income is about predictability; it is not just about levels of income, and if we cannot predict our income it is a great driver into relative poverty. We see that all over the world. The proposals originally before us would lead to cuts of perhaps 10% or 15% in people’s income without their knowing what is going to happen, as the hon. Member for Nottingham North (Mr Allen) and others have said. They would be getting a letter in December or January for something starting in a couple of months and would not have an opportunity to correct that.

I also mentioned the problem of scarcity. For those with a low income things are more expensive. The inflation rate is much higher for people on low incomes than for people on higher incomes. They are not buying electronic equipment, which comes down in price every year, or flying with Easyjet on holiday, both of which have brought the inflation rate down. We need to bear that in mind. The inflation rate may be 0% at the moment, but it is certainly not 0% for people on the lowest incomes.

[Stephen McPartland]

Does my hon. Friend agree that the real poverty in this country is poverty of education, of opportunity and of aspiration and that the people on the lowest incomes are trying to work their way out of that poverty?

[Jeremy Lefroy]

Absolutely; if we see everything in terms of income we are a poorer society, as John F. Kennedy once so magnificently said.

Members have also talked about the fallacy of trickle-down economics—and it is a fallacy. It was supposed to be the way in which the poor would get richer, but, as I have seen around the world, that is rubbish. What we need is surge-up economics, because those on lower incomes spend their money locally, and it goes into taxes and VAT. Of the £4.4 billion, probably several hundred million pounds will be spent on VAT and will come straight back into the Treasury. So we have to remember the consequences and effects on the local economy of the loss of this spending power, as the hon. Member for Dumfries and Galloway said. If one thing is to be reduced, we must see the other sources of income increase simultaneously.

There is also the impact on those on fixed incomes such as carers, which I mentioned last week and other Members have mentioned. Full-time carers who will not see rises in their income often have no opportunity to go out and work more hours. There is also the impact on the self-employed, and indeed on farmers in my constituency who have seen their milk prices, their only source of income, fall. They are reliant on tax credits as much as anyone else. Sometimes, people see them as asset-rich because of their farmland, but they are the ones providing our milk, wheat and other things on which we rely, week in and week out. Their incomes are low, and they, too, rely on tax credits.

I want to look to the future. Other hon. Members have mentioned areas in which we could raise the extra income to offset the cost of delaying the tax credit reductions. I mentioned a couple last week and I shall not repeat them. I want to make a couple of points about the future, however. The first is about national insurance. There has been talk in the past about merging national insurance and income tax, but I think that would be a big mistake. It is incredibly important to have a progressive national social insurance system to which people contribute—even those on low incomes, perhaps at a very low rate—in which they feel they have a stake and from which they are entitled to receive benefits if the need arises. I urge the Government to look closely at how we can improve the national insurance system, rather than getting rid of it. Perhaps we should consider adopting something like the German system, to which we would contribute more but which would provide guaranteed benefits for when people were sick or out of work and for when they eventually retired.

Secondly, we need to look at our savings. We do not save enough; that is a fact. If we look at other countries around Europe, such as Italy, we see that they are far better at saving than we are. The Japanese are excellent at saving. We have one of the lowest savings rates. When my colleagues and I produced a report on social stability last year, we emphasised the importance of introducing a lifetime savings account, which could perhaps be supported through tax-free contributions over the course of a person’s lifetime. People would be able to draw down funds from such an account at difficult times in their lives, perhaps if they became seriously ill or were out of work. Such an account could eventually be converted to become part of their pension. That would encourage people to put aside money, supported by the state, to top up any benefits they might need to claim. Those benefits are always likely to be fairly basic, because they are paid out of the state system, but it is to be hoped that people would still be able to live on them.

I welcome the Chancellor’s statement this week, but I encourage him to look at all the incredibly important points that have been made by Members on both sides of the House in a spirit of co-operation. Above all, I thank the right hon. Member for Birkenhead (Frank Field) for his initiative and his sagacity in bringing forward this debate.