Tax Credits (Working Families) — House of Commons, 2015-07-07
Topic: Macroeconomics
Stephen Creswell Timms (Labour, Centre-left): We have had a good debate. I begin by congratulating my hon. Friends the Members for Bradford West (Naz Shah) and for Blackburn (Kate Hollern), and the hon. Member for North Ayrshire and Arran (Patricia Gibson), on their excellent maiden speeches and their contrasting reflections on their predecessors. The House looks forward to hearing much more from them in the years ahead The Minister said at the beginning that he wants the Government to be a Government for working people. That is a laudable ambition, but they are failing. My hon. Friend the Member for Sheffield, Brightside and Hillsborough (Harry Harpham) is right that working people feel uncertainty and insecurity. Working families are deeply worried about what the Government have in store. They have suffered a long squeeze on their incomes, and they are worried about a fragile recovery and what the future holds for their grandchildren and children. Their insecurity has been heightened by the prospect of deep cuts to the tax credits that they rely on, and which it appears the Chancellor will announce in the Budget tomorrow. Working families will pay the price for the decision of the Prime Minister and his Chancellor to promise big reductions in social security spending before the election without having worked out a plan to deliver them. The announcements tomorrow will not be about making work pay—in this instance, that is baloney—but about making working families pay The Opposition welcome new concern from Conservative Members about low pay—we have heard a good deal in the debate about the living wage and the need for more secure, high-skilled and high-productivity jobs to support that. We all want a higher-productivity, higher-wage economy, but that requires a change of direction in the management of the economy. For example, it would mean delivering infrastructure, not just second or third announcements of future projects, or announcing and then cancelling them, as has happened in the past couple of weeks. It would mean high-quality training and apprenticeships for young people, not just rehashing old courses What the Chancellor must not do—it appears that this is exactly what he plans to do—is make working families much worse off by cutting their tax credits long before any increase in their pay. In millions of working families, people work hard but rely on tax credits for the family budget, as was acknowledged by Conservative as well as Opposition Members. It is high time to tackle low pay, but the Government should not attack the low paid, which is exactly what cutting tax credits will do. It will be an attack on working families on low and median incomes It would be fantasy to claim—I am glad nobody did so in the debate—that cutting tax credits will in itself lead to higher pay. Research has shown that the introduction of tax credits did not push pay down, and the drastic cuts now envisaged will not push pay up. Raising the personal tax allowance is not the answer—60% of tax credit claimants earn too little to pay income tax. Only about 1% of the cost of the planned personal allowance rises will actually be spent on lifting lower earners out of tax Tax credits recognise the needs of children in a household in a way that wages never can. The hon. Member for South Suffolk (James Cartlidge) suggested that tax credits provided a ceiling on earnings. That is completely untrue. That is not how the system works at all. In fact, tax credits have been by far the most effective move we have ever made in Britain to make work pay. They were introduced by the Labour Government alongside the boost to pay of the national minimum wage, improved and expanded childcare with Sure Start, and groundbreaking welfare-to-work support with the new deal The combination was a huge success, boosting employment by making work pay, supporting the incomes of large numbers of working families, and reducing child poverty in large part by making it worth the while of many more lone parents to be in work. The lone parent employment rate was less than 45% in 1997. Today, it is nearly 65%. Researchers have shown that that transformation was largely thanks to tax credits. The benefits have gone much wider. My hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood) opened the debate. In an excellent speech, she drew attention to what the Financial Times said recently, which is that the system of financial support we have in Britain for low-income working families is a key reason for our high rate of employment The flagship reform of this Government, universal credit, aims to build on the success of tax credits. We have always supported the principle of universal credit and we still want it to succeed. It is a good idea. The Government, however, have utterly failed to deliver it. Five years after it was announced, less than 1% of claimants are receiving it and 99% are still on the old benefits. In 2011, we were told it would take six years to deliver universal credit. Today, we are told it will take another six years. Now, before it has even properly begun, the Chancellor wants to make drastic cuts in support for working families that would hole universal credit below the waterline Will the Minister tell us whether he understands the crucial difference between reforming welfare and labour markets to get people into work and make work pay, and taking an axe to social security and to employment support? These cuts will store up far greater costs if they send into reverse the progress of decades in raising employment rates and reducing child poverty. We will welcome any credible plans to tackle low pay. We have championed the living wage. As my hon. Friend the Member for Edmonton (Kate Osamor) pointed out, the coalition Government presided over a 45% rise in the number of people paid less than the living wage,