Tax Credits — House of Commons, 2015-10-29
Topic: Mixed Topics
Guto ap Owain Bebb (Conservative, Centre-right): It is a pleasure to speak in this important debate, and I congratulate the right hon. Member for Birkenhead (Frank Field), and others, on securing it This debate is a good opportunity for us to discuss tax credits in more depth—there is possibly a degree of unanimity across the Benches, because this issue is hugely complex and must be considered carefully. We have already heard talk of the need for immediate mitigation, but we must also consider the whole area again. Eighteen years ago the right hon. Gentleman was asked to think the unthinkable. He tried to do so, and was promptly sacked for his efforts. This issue is as complex today as it was in 1997 The Treasury will bring forward proposals in November, but that will perhaps be an interim measure and we will still need to consider carefully how to create a system that supports working families, and those who are raising children and want to do the right thing. We need a system that does not penalise people with high marginal deduction rates, and a change that will not penalise the poorest workers in society I feel disappointed—to say the least—that I am not in agreement with my Government on this matter, because during my first five years in this place I was proud of the changes that we made to the welfare state, and of how we tried to make work pay for those who were willing to go out, make an effort, contribute to their communities and look after their families. The most moving event of my time in Parliament was when I visited a Tesco store in Toxteth and met people who were part of an effort by the DWP to get people back into work. The pride and passion that those individuals felt about working and supporting their families was testimony to the fact that our changes were making a real difference There is no doubt that the tax credit system has ballooned out of control, but whether we like tax credits or not, they are an important element of supporting workers who are willing to work but whose wages are not particularly comprehensive. We should all support and applaud the decision in the Budget to introduce a new living wage, but there is a clear discrepancy between the timing of changes to the new living wage and changes to the tax credit system. There is no balance to the way in which wages will increase and the immediate withdrawal of tax credits I genuinely welcome the fact that the Treasury is allowing time for the new living wage to settle in. I represent a constituency of small businesses and sole traders. It has the highest percentage of self-employed people in Wales, and average wages are only £23,000 or £24,000. Small businesses that employ people in my constituency understand that we need to move to a higher-wage economy and that they must pay their staff properly. Many of them take pride in the fact that they currently pay the minimum wage as a means of keeping staff in place, and they appreciate that the Government are giving them time to adapt and change their business models in order to pay their staff more. It is therefore difficult to understand why we are not willing to give recipients of tax credits the same time to adapt and change to the proposed situation. The decision to cut so quickly and so deeply is problematic, and the response of both Houses has shown that people are concerned about the proposed changes Moving forward, we must educate Members of this House. The worst example of a crass comment on this issue came from an unnamed Conservative MP, who stated clearly that if somebody loses £30 per week as a result of these changes, they should simply go and work for an extra three hours. Having taken an interest in this issue, I was genuinely shocked by that comment, because with an 80% marginal deduction rate, an individual earning £10 an hour would need to find 15 hours’ work to make up the £30 loss. When such comments come from Members who claim to represent their constituents, we really should despair We must understand the trap that exists in current marginal deduction rates. I was proud that universal credit tried to reduce that marginal rate, and even prouder when I sat on the Welfare Reform Bill Committee and the then Minister stated categorically that the aim was to reduce that rate even further when funds allowed. The Prime Minister stated categorically that the Conservative party should be as concerned—if not more concerned—about the marginal deduction rate of 94p or 95p that we inherited than it should be about the 50p higher rate of tax. It was therefore incredibly disappointing to see that incentive to work, and people’s ability to keep more of the money they earn, changed by these proposals. What message are we sending to people when we say, "Go out, work an extra couple of hours, but we will take 80% of your efforts"? We must be careful about that, which is why mitigation is only a short-term response. In the long term we must look again at the whole system To be fair, I have had numerous conversations with Treasury Ministers, and I am grateful to the Exchequer Secretary to the Treasury who called and made my difficulties in a long queue on the A55 much more bearable by discussing tax credits with me. The Treasury has shown a willingness to listen, and it will need to respond in the short term. In the long term we must consider carefully how to create a system that is more likely to support working families in a constructive way. In the short term, he stated clearly that we should look very carefully at how we deal with the £4.4 billion gap in the Government’s finances. I, too, take the deficit seriously. We need to think about why 70% of all the benefits that come from the increased personal allowances have gone to the half of those who are in the richest, highest paid part of society. We need to ask ourselves clearly whether, in view of the fact that we are desperate to find that £4.4 billion, we can justify the extra £9 billion on increasing the personal allowance from £10,500 to £12,500. That would at least contribute towards mitigation in the short term, but we need a longer term plan as well.