Mr John Redwood (Wokingham) (Con): I think it would be a good idea for us to start by working out what we agree about, because during debates such as this the House sometimes becomes very tribal. It seems to me that we agree that we hate poverty, and that that is true not just of the Opposition but of the two governing parties. We see poverty as a scourge. We come here to promote and support policies that will make people better off and improve their living standards—of course we do—and today’s debate is about how we can achieve that in very straitened and difficult circumstances.
I should have thought it was common ground that we need to ensure that it is more worth while to work. In order to ascertain whether that is common ground, I intervened on the right hon. Member for East Ham (Stephen Timms)—who was very eloquent—and he said that that was indeed Labour policy as well as Conservative and Liberal Democrat policy. So we agree that we want to get rid of poverty and that we need to make work more worth while. That is where our Ministers are faced with a difficult dilemma. Last year’s benefits uprating occurred at about the peak of the spike in inflation and so benefit recipients got the 5.2% increase whereas low-paid people working alongside them in their local communities got perhaps 1.7%, if they were lucky—that was about the average. Suddenly, in one fell swoop, people were 3.5% worse off in work than out of work because of the normal uprating.
Toby Perkins (Chesterfield) (Lab): What the right hon. Gentleman has just said is fundamentally untrue. Just because the percentage rise for someone on £71 a week is more than that for someone on £35,000 a year does not mean that they are better off. Will he correct the record on that point?
Mr Redwood: No, I am talking about people in very similar circumstances—those either in low-income employment or out of work—where the two numbers are much closer together. They are closer together than any of us would like, because we want it to be that much more worth while for people to work. The hon. Gentleman has to accept that, at the lowest income levels, there was a problem because the benefits went up by much more than the wages. What would the best answer be? It would be for all wages to go up more. The second best answer would be for the prices not to go up so much. But we are where we are and we have to work to try to come up with a fair settlement for the future.
Dr Julian Huppert (Cambridge) (LD): The right hon. Gentleman highlights the 5.2% increase last year. I have not yet heard Opposition Members congratulate the Government on that, but I congratulate the Government now. Does he agree that one of the worst things—for decades far too little was done to fix it—was the benefits trap, whereby people discovered that when they started to work part time, they ended up with less money than they had before? I hope that this entire House could agree that that is fundamentally wrong. It has affected some of my constituents and has not yet been fixed sufficiently.
Mr Redwood: That is where I hope, again, we can try to build a little more agreement. We need to work to avoid that kind of problem.
Mr Redwood: Let me deal with one intervention and then, of course, I will give way to another.
If we can work to try to prevent that kind of problem from happening again, we might make a bit more progress. My right hon. and hon. Friends have a couple of policies that try to do that. First, they are rightly taking many low-paid people out of tax altogether. I believe in tax cuts for everyone. I do not just want tax cuts for the rich; I want tax cuts for those on middle incomes and low incomes, particularly those at the lower end. The idea of the tax cut for the rich is to get more money out of them; all we are trying to do is get back closer to Labour’s very successful 40% rate, which it kept for almost all the time it was in office. I noticed that its 40% rate collected considerably more revenue than the 50% it bequeathed to the incoming Government, and so it was rather foolish to put in a rate that did not work in taking money off the rich. We are trying to get back to the earlier rate.
Mr Redwood: I now give way to the hon. Lady, who will now be duly aroused again.
Helen Goodman (Bishop Auckland) (Lab): The right hon. Gentleman clearly did not read the background papers published with the Budget in March, which showed, incontrovertibly, that the amount of money lost by the cut in the top rate of tax from 50% to 45% was £2.5 billion. As he well knows, the only reason why the Government have got cover is because people have been shuffling their income around from one year to another.
Mr Redwood: The hon. Lady has chosen the wrong Member to accuse of not reading the Budget papers properly; I am normally accused by my right hon. Friends of reading them too closely. If she read on through those Budget papers, she would see that that top rate led to an almost 10% reduction in the amount of top-level income tax coming in, which is a very foolish position to get into when we need all the money we can get. My right hon. and hon. Friends are very sensible to try to correct that, in order to get more money off the rich. We need more money off them and less money off people at the other end of the income scale. The way to take less money off people at the other end of that scale is to take them out of tax altogether, and good progress is being made in that regard.
I agree with my hon. Friend the Member for Dover (Charlie Elphicke), who has not stayed for the rest of the debate but who wisely said that it was more sensible to let people keep the money they earn at the low income levels rather than taking it off them through an expensive tax system and then giving it back through an expensive benefits system; by definition, they get back less overall, because we have to charge them a handling charge, as the rich will not pay all the money we need—they pay only quite a bit of it—and so we also have to tax the poor in order to give them benefits, and that can be silly.
Kate Green (Stretford and Urmston) (Lab): The problem with using the tax threshold as a means of not taking money away with one hand and giving it back with the other is that it gives to people who do not need as well as to people who do. By contrast, tax credits targeted at lower-income households give to people who need, and the tax credit is tapered away rather than kept at the same level as people rise up the income spectrum.
Mr Redwood: What a miserable world the hon. Lady lives in. People on £30,000 and £40,000 need more money as well as people on £10,000 and £20,000, and I am here to try to ensure that they get more money. I do not believe that the Government should take all their money; they should be allowed to keep more of it so that they have more to spend, which would create more jobs. I thought that was part of the Opposition’s argument—or it would be, were we having a different debate. They will not use that argument today, because we are debating benefits.
My right hon. and hon. Friends on the Front Bench are trying to deal with part of the problem by taking people out of tax altogether and cutting the amount of tax that those at the lower end of the income scale have to pay. That is a very good thing to be doing. They are also about to launch their universal credit in trial systems. The whole purpose of universal credit, as described, is to make it more worth while to work and to deal with the fact that if benefit is taken away too quickly, people face a high rate of tax combined with benefit withdrawal, which is a big disincentive to going to work. It might even get in the way of their going to work, as they might not have enough money for the bus fare, the clothes they need and all the rest of the things one needs when setting oneself back up in a job. That is very important.
Ian Mearns (Gateshead) (Lab): Where is the work?
Mr Redwood: The hon. Gentleman shouts “Where is the work?”, and of course we need more work. There are a lot of jobs on offer and we wish people well in applying for and getting them. I accept his implied point: in some parts of the country work is very scarce and we need economic policies that promote it. That is where lower taxes can be extremely helpful, and I urge my colleagues on the Front Bench to do more, if they can, because if more money is circulating in people’s pockets, bank accounts and purses, we will have more spending in the economy, which will help.
Mr Michael McCann (East Kilbride, Strathaven and Lesmahagow) (Lab): The right hon. Gentleman’s idea of compassion is almost as convincing as his attempts at the Welsh national anthem. Does he concede that the Government have proposed to put benefits up by 1% because of his Government’s economic failures?
Mr Redwood: That is not my case at all. My case is that the Government inherited an impossible financial position: the public sector was spending and borrowing far too much and the economy had been performing very badly, with a collapse in living standards towards the end of Labour’s period in office that was the biggest that any of us in this House had witnessed in our lifetimes.
My right hon. and hon. Friends on the Front Bench are trying desperately to come up with a series of policies that promote growth and restore a greater degree of normality. The Committee must recognise that the model that sustained growth from 1945 through to 2007 was comprehensively broken when Labour broke the banks and nationalised them. Until we sort that mess out, we will be dealing with very unpopular and difficult choices, whoever is in government.
Mr William Bain (Glasgow North East) (Lab): I know that the right hon. Gentleman always reads his economic documents, so why does he disagree with the view expressed by the Chancellor when he came to office in 2010 and by the IMF now that the automatic stabilisers in our economy should operate unimpeded?
Mr Redwood: If the hon. Gentleman looks again at the numbers in the Budget Red Book, he will see that the automatic stabilisers have been more than functioning. Under this Government, public spending has gone up considerably while borrowing has remained at extremely high levels. The borrowing levels the Government inherited were off the chart compared with those in any previous cycle we have witnessed in the British economy. Levels of public borrowing are still well above the peaks in previous cycles. The hon. Gentleman must understand that the numbers show that plenty of automatic stabilisers are in operation—the question he needs to answer is why they are not working. Of course, they are not working because of the other problems that have been inherited, such as the broken banks, the difficulties with tax rates and the large structural deficit. Those are all part of the problem and we can debate them at another time during a general debate on the economy.
The Government are attempting, through their tax and benefit changes, to tackle the problem of people asking, “Why work?” I have two bits of advice for my right hon. and hon. Friends on the Front Bench that might be more to the liking of the Labour party. If my right hon. and hon. Friends are going to pursue and sustain the policy of very low benefit increases for the next period, it is important that two other conditions are met. The first is that every action should be taken to get inflation down. If inflation suddenly took off, this would become a much tougher and crueller policy than Ministers have in mind. That would be extremely difficult. So it is in everybody’s interest—not just of those in low-paid work and not just those on benefit, but those people in particular—that more is done to sustain and control price rises.
I hope my right hon. and hon. Friends on the Front Bench will make sure that their contacts with the Bank of England stress the need to do a better job of controlling price inflation than the Bank has been able to do in recent years, and I hope they will also be looking at reforms in a number of areas, particularly in energy, for example, because it is energy prices above all which have done so much damage to people at all income levels, but especially to people on low incomes and benefit incomes. There are other things, which are not the main subject of this debate, that could be done to tackle high and rising energy prices. This policy will be much easier to sell and to sustain if Ministers can say, “The real cut is very small because we are doing a better job now of controlling price inflation than was the case in the past.”
The second condition picks up on a point that has already been mentioned by the Opposition. The policy will also be much easier to sustain if more jobs are flowing into the economy. I pay tribute to those on the Front Bench for what they have achieved so far. Some 1.2 million new jobs have been created in the economy during their period in office. That is extremely welcome. We need to make sure that more people already settled here and down on their luck get access to those jobs and can take them so that they can enjoy the benefits of higher income in work.
Andrew Bridgen (North West Leicestershire) (Con): My right hon. Friend makes a valid point—1.2 million new jobs created. He missed one point, however— 1.2 million new private sector jobs.
Mr Redwood: That is true, and it had to be the case because the public sector had no money left, as the previous Chief Secretary reminded us, and it was inevitable that action had to be taken to rein in the public sector. I remember that just before the Labour Government left office, they enacted proposals to halve the deficit over the next Parliament, so members of their Front-Bench team in office were fully aware that they had overdone it and they were recommending pretty unpalatable cuts to their colleagues. They did not specify the cuts, of course, because that would have been even more unpopular, but they told us in general terms that there had to be very big cuts.
Hywel Williams (Arfon) (PC): Is the right hon. Gentleman pleased that many of those 1.2 million jobs claimed to have been created are part-time and low paid, and as such allow people to claim tax credits and lift the bill that his hon. Friends complain so much about?
Mr Redwood: If somebody wanted a part-time job, I am delighted that they have now got a part-time job. Quite a lot of people choose to have a part-time job. Their family commitments mean that that is what they can manage and it is a very good thing that we have generated more part-time jobs so that they can have them. To those who seriously want a full-time job—I am sure the hon. Gentleman can find people who would prefer a full-time job and are still in part-time work—I would say it is easier to get that full-time job from their part-time job than from unemployment. It is easier to get work from work. It is easier to get promoted when they are in the company and very difficult to get promoted if they have not joined the company.
It is very encouraging that people in some of our best large enterprises start off in part-time, low-paid, not very glamorous work, and when they show application and interest, they get trained and are then given greater responsibilities, and they can go on to do great things. When I last visited one of my local supermarkets, I met the manager and the deputy manager who had worked their way up from shelf-stacking some years before. That is great and shows that that path can work for people.
Andrew George (St Ives) (LD): The broad-brush principles that my right hon. Friend describes are pretty much unarguable, but the Bill is very specific. It specifies a 1% uprating for two years beyond the coming year. Does he sign up to that inflexible approach? He is talking about keeping inflation down. Does he think that being able to predetermine and know the rate of increase is a wise approach to deal with the problem?
Mr Redwood: I have already expressed the view that I did not come to Parliament to impose such restrictions on people with very little income, that that is a difficult thing to have to do but that I quite understand why Front Benchers are in that position.
Yes, I will trust Ministers’ judgment today but I am also saying to them that there are those two important conditions. They have to watch the situation because if inflation starts to rise too far, things will be too tough, and it would be wrong not to recognise that. If there is not a sustained increase in the number of jobs, that, too, will make the policy difficult to sustain. I am hoping that the economic policy can kick in with lower price rises and more jobs, which would make the measure a little less unpalatable. However, surely nobody can say that they want to do this—it is not very pleasant—but what else can we do?
Stephen Timms: The right hon. Gentleman is making an interesting speech. However, is not a clear consequence of his argument that it is a serious mistake to be setting now the levels of benefits in two years’ time, when we just do not know what inflation will be in the meantime?
Mr Redwood: The Government are fighting for credibility with their general finances. They have a series of difficult decisions to make and have decided to make this decision. The Opposition cannot always come here and say that they must get the deficit down but never support anything that makes a contribution towards that. That is where they have great difficulties.
The Opposition have great difficulties today because they are coming here and saying that they do not like the measure, but will not support amendments that would mean that we were definitely going to pay a lot more. They have sufficient maturity to understand that the benefits bill is extremely large and difficult to manage.
I have one final thought to put to Ministers. The British public, who wish to see the benefit bill controlled and brought down, are keen for us to check up on eligibility, which causes more issues than anything else. Most of us feel extremely generous when it comes to eligibility for disabled people and we want the Government to do the best they possibly can, which might not be generous enough.
What we are worried about is extending eligibility too far—through the European Union rules, for example. I hope that that kind of thing will be pursued. I hear that the Prime Minister is now looking at the matter, but I do not think it is right that a large number of people should be able to come into the country and immediately start claiming benefits that other people, who have been settled here for a long time and are working hard, have had to pay into and make contributions towards. I hope that we will get better news and that there will be some kind of contributory principle or settlement before people can get those benefits, so that somebody who has been living here clearly becomes our responsibility after a sensible period.
Andrew Bridgen: Does my right hon. Friend agree that if we put benefits up faster in this country, we would make it more attractive for other EU citizens to travel here and take advantage of our generous benefits system?
Mr Redwood: I am rather pleased that our benefits system is a lot more generous than those afforded in eastern Europe, but I also want to make sure that we do not open ourselves up to paying a large number of benefit bills to people from more or less anywhere in the European Union who come here because they have worked out that we have a generous system compared with theirs. That would seem extremely unfair, very tough on British taxpayers and ultimately self-defeating, because people who were working hard and had talent and enterprise would say, “I can’t afford to pay the tax rates in Britain to pay for benefits for everybody else, so I’ll go somewhere else to do my work.”
George Freeman (Mid Norfolk) (Con): My right hon. Friend made an interesting and important point about eligibility. Does he agree that one of the most pernicious legacies of the last Government was that their tendency to hand out, increase and widen the eligibility for welfare payments has meant that, when the payback comes, the most vulnerable people in our society tend to be hardest hit? We are doing everything we can to target benefits at those who need them most. For example, there are 600,000 disability claimants. Increasingly, we know that small groups of people desperately need the benefits but that many receiving them do not.
Mr Redwood: I quite agree. I would like to see a more generous regime for disabled people, as my hon. Friend rightly says. To pay for that, I have come up with suggestions both on getting more people back into work, which is the best way, and on dealing with the issue of eligibility so that only our own deserving cases get the generous treatment that we rightly expect.
In summary, the policy is not easy. Ministers have to watch to make sure that it does not become unintentionally more penal. We want much more work on the side of promoting jobs and growth because we come here to eliminate poverty, not to make it worse. It is also time for the Opposition to join the serious conversation about how we tackle these obstinate and difficult issues, given that the high-level aims—getting rid of poverty and making it more worth while to work—are, mercifully, shared across the House.