We in Britain spend more on family benefits than Germany, France or Sweden. It is, in the words of the right hon. Member for Birkenhead (Frank Field), the new Chair of the Work and Pensions Committee, simply “not sustainable”. As Alistair Darling has said, the sheer scale of tax credits is
“subsidising lower wages in a way that was never intended.”
Those who oppose any savings to tax credits will have to explain how on earth they propose to eliminate the deficit, let alone run a surplus and pay down debt.
We will take the following steps to put working-age benefits on a more financially sustainable footing. Since the crash, average earnings have risen by 11%, but most benefits have risen by 21%. To correct that, we will legislate to freeze working-age benefits for four years. That will include tax credits and local housing allowance, and it means that earnings growth will catch up and overtake the growth in benefits. Statutory payments such as maternity pay and the disability benefits—personal independence payment, disability living allowance and employment and support allowance group—will be excluded from the freeze.
We are also going to end the ratchet of ever higher housing benefit chasing up ever higher rents in the social housing sector. Those rents have increased by a staggering 20% since 2010. Rents paid in the social housing sector will not be frozen, but reduced by 1% a year for the next four years. That will be a welcome cut in rent for those tenants who pay it, and I am confident that housing associations and other landlords in the social sector will be able to play their part and deliver the efficiency savings needed.
We also need to focus tax credits and universal credit on those on lower incomes, if we are to keep the whole system affordable and support those most in need. From next year, we will reduce the level of earnings at which a household’s tax credits and universal credit start to be withdrawn. The income threshold in tax credits will be reduced from £6,420 to £3,850. Universal credit work allowances will be similarly reduced, and will no longer be awarded to non-disabled claimants without children. The rate at which a household’s tax credit award is reduced as it earns more will be increased by raising the taper rate to 48%. The income rise disregard will be reduced from £5,000 to £2,500—the same level at which it was originally set in 2003. Taken all together, the freeze in working-age benefits, the down-rating of social rents, and the focus of tax credits and universal credit on the lowest income households will reduce the welfare bill by £9 billion a year by 2019-20.
The fourth principle that we will apply to our welfare reform is this: the benefits system should not support lifestyles and rents that are not available to the taxpayers who pay for that system—[Interruption.]