Tax Credits — House of Commons, 2015-10-29
Topic: Mixed Topics
Caroline Louise Flint (Labour, Centre-left): It is a pleasure to follow the hon. Member for Aberconwy (Guto Bebb). He makes a very important point about how little people keep for every £1 extra they earn. I seem to recall that the Prime Minister once took Gordon Brown to task on that very issue. It is on film and it can be seen on YouTube. In making work pay, it is very important for people to feel that for every extra hour they work they are making a difference to their progression in their working lives The starting point for this debate is the Chancellor’s ill-formed proposals to reform working tax credits. The truth is that the distribution aspect to the tax credit cuts is severely regressive. The Institute for Fiscal Studies has shown that the national living wage, touted by the Government as a solution for that, at best undoes 27% of the damage Today, I would like to start with how the story really began. In 1997, when Labour came to power, the only help for families was child benefit, married person’s tax allowance and a child personal allowance as part of income support and income-based jobseeker’s allowance. A small number of people with disabilities also received a disability working allowance. The then Government found high rates of poverty among families with children. Tax credits were thought to be a new mechanism to support those families into work, which was the best route out of poverty. The evidence is strong that the more far-reaching tax credits and the introduction of help with childcare costs transformed prospects for millions of families. One outcome was that the lone parent employment rate rose. In 2014, it was at the highest rate on record: 65.7%. That is amazing. Of course, the vast majority of lone parents are women. Another outcome was that tax credits reduced child poverty. The Department for Work and Pensions confirmed that in the first decade of tax credits, up to 2010, child poverty fell dramatically as 1.1 million children were lifted out of poverty Tax credits give a benefit to employees. They are not simply a state handout to bad employers. When most employers set wages, they are blind to the private tax credit details of their employees. What is more, they cannot pay one worker one wage and the next person on the production line a different rate just because they claim tax credits. In most cases, the employer does not know. As the Resolution Foundation reported this week in evidence to the Work and Pensions Committee, if the Government remove tax credits the employer will not immediately step in to fill the void, regardless of the rises in the national minimum or living wage. The Government must know that, and it is wrong to suggest that the only beneficiaries of tax credits are bad employers We must challenge and address the Chancellor’s claim that the cost of tax credits has risen from £1 billion to £30 billion today. This summer, the Chancellor stated: "The original tax credit system…cost £1.1 billion in its first year. This year, that cost has reached £30 billion."—[Official Report, 8 July 2015; Vol. 598, c. 334.] That claim is simply bogus. Articles by Declan Gaffney and Tim Blackwell in the New Statesman and by many others show that the £1.1 billion figure relates to the first reforms, which began only in October 1999, halfway through the tax year and covering only three months of tax credit payments for a typical claimant. Indeed, in its first full year, 2000 to 2001, the cost was more like £10.5 billion, not £1.1 billion. That brings me to the question of why the tax credits bill increased. First, tax credits wrapped up within them a number of previously separate benefits. They were more generous—I acknowledge that. The tax credits we refer to today, however, include the childcare costs introduced in 2003, which no previous Government had ever met. Yes, tax credits were about challenging poverty pay. However, as my hon. Friend the Member for Darlington (Jenny Chapman) mentioned, they also aimed to address the issue facing many families, particularly lone parent women: even if they were on a reasonable wage—whatever "reasonable" is—they still could not afford to work, because of the amount of their wages that would have been spent on exorbitant childcare costs.