My Lords, I will also speak to Amendments 5, 7 and 10 in this group. These amendments stand in my name and in those of my noble friend Lady Sherlock, the noble Lord, Lord Low of Dalston, and the right reverend Prelate the Bishop of Leicester. I say at the start that we view the amendments as consequential on Amendment 1, and
we are advised that should these amendments be carried, they do not pre-empt a discussion on the subsequent amendments on the Marshalled List.
Amendments 1 and 7 would remove the reference to 1% in Clauses 1 and 2, and hence would remove the 1% cap on the uprating of the relevant sums and amounts. Amendments 5 and 10 would delete the prohibition on uprating such sums and amounts under the annual uprating of benefits and tax credits. As we explained in Committee, we fully intend these amendments to negate the fundamental purpose of this Bill, which is to lock in real-terms cuts to a range of benefits for the two years to March 2016. This follows on from the equivalent cut for next year, which has been implemented by Statutory Instrument.
The uprating of benefits and tax credits should proceed in accordance with the existing statutory framework, whereby the Secretary of State is required each year to review the rates of various benefits and tax credit components to see whether they have retained their value in relation to the general level of prices. There is no general requirement to fully uprate, but there is an obligation to assess on the basis of up to date information on the cost of living.
On these grounds alone, the Bill is completely unnecessary. If the Government are intent on three years of cuts by 1% uprated, they can use existing mechanisms, just as they have for 2013-14. They would then at least retain some flexibility to revisit the policy, especially if inflation were to surge above currently expected levels. If the Bill stands, there is no certainty about the level of real cuts that have been imposed on some of the most vulnerable people in our country.
The government assertion that committing these cuts to primary legislation is crucial to giving confidence to the markets has no credibility. It is frankly untenable to suggest that by locking into legislation these estimated benefit savings, which amount to less than 0.1% of government spending, the markets will be assured and comforted. It does not seem to have cut any ice with the rating agencies.
Let me reiterate Labour’s position. We will make no commitment now on spending or tax for the next Parliament, and we will set out our spending plans at the time of the next election. However, right now, we would uprate in line with inflation. I will come in a moment to how the Government can plug the hole in their increasingly fragile finances.
This Bill is misdirected on several other counts. We are told by the Secretary of State that cutting benefits and tax credits is necessary in advance of universal credit, as a contribution to fiscal consolidation. However, it does nothing for the deficit or borrowing. Indeed, by withdrawing real resources from low-income families, which of necessity have the highest marginal consumption rates, it is damaging demand. It ignores the IMF warning that the fiscal stabilisers should be allowed to operate. Just last week, the FT joined an increasing chorus of those pointing out that fiscal tightening could raise the debt ratio in the short term, as fiscal gains are partly wiped out by the decline in output.
We also had the spectacle of the Prime Minister being rebuked by the OBR for asserting that the Government’s debt-reduction programme had not affected
growth. Its justification is supposed to be that there needs to be some correction for the fact that benefits have been uprated at a faster rate than earnings over the past five years: essentially, that those out of work have done better than those in work. It is perverse, therefore, that some two-thirds of those hurt by the 1% restriction are those who are actually in work.
Looking at percentages rather than cash amounts is misleading. One per cent of a small number is a very small number. Indeed, specifically included among the cuts are in-work support such as working tax credits, SSP, SPL and maternity pay, as well as in and out of work benefits such as housing benefit: the very support that enables individuals to sustain employment and manage work and family responsibilities. We are told that the Government are committed to eradicating child poverty, and of course we would accept that child poverty is not only about income levels, but improving income and relative income is an essential component of tackling poverty, and matters are being made worse by this Bill, with another 200,000 children being drawn into poverty. Compared with CPI uprating, this Bill and the 2013-14 order mean that 30% of all families are affected, losing on average £156 a year.
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Worst of all, at a time when this Bill is reducing the living standards of the very poorest, the Government are rewarding those with the highest income, including some 8,000 millionaires, with a generous tax cut. The contrast could not be greater: a £2,000 a week tax cut for some; a 71p a week rise if you claim JSA.
By leaving inflation risk with claimants, this Bill is creating greater risk for the poor and uncertainty about their real incomes. The 2012 Autumn Statement cited energy and fuel prices as a source of potential risk over the coming year. It estimated that inflation would be higher in 2013 and 2014 than originally announced due to rises in domestic energy prices and food commodity prices: the very costs that hit the poorest hardest. Sterling has fallen some 8.5% against the dollar since the start of the year, pushing up import prices. All these matters will now affect the incomes of the poorest, and they are things that they have no way of influencing. They are being cut further adrift from the mainstream of society.
Uncertainty is compounded by there still being no cumulative impact assessment for the raft of benefit and tax credit changes that have been introduced so far by this Government, including council support changes and the bedroom tax, which are about to become a horrible reality. The IFS has analysed the effect of the 2013-14 tax and benefit changes in its 2013 Green Budget, concluding that the,
“broad pattern of tax giveaways and welfare takeaways means that the changes, on average, reduce net incomes towards the bottom of the income distribution and increase net incomes in the middle and upper parts of the distribution”.
It states that below-inflation uprating is the predominant cause of the losses in the bottom half of the income distribution and the reduction of the top rate of tax from 50% to 40% the main gain for the richest. So the rich need more to motivate them and the poor need less.
Our opposition to this Bill is clear. We oppose it locking in indeterminate cuts to real incomes through to April 2016. We argue that the normal uprating process should operate and have been clear that, right now, we would support uprating by inflation. We will continue to argue for the reversal of the proposed tax handout to the very rich. We heard the Minister at Second Reading and in Committee suggest that the saving that such a reversal would produce would be illusory because the rich would order their affairs to make sure that the will of the Government was defeated. We would maintain that the Government do not have to acquiesce in this. If they believe in tackling tax avoidance, they could secure the revenues that reversing this tax cut should generate. We are told by the Secretary of State that other countries have cut benefits. Well, so has this country. We have had cuts to contributory ESA, cuts to DLA, cuts to housing benefit, cuts to council tax support, cuts to child tax credits, cuts to tax credits and now cuts in this Bill, yet we still have no growth and debt continues to rise.
We are asked today to sign off this further three-year cut affecting the poorest, the ultimate real size of which we cannot be certain of—and this the day before a Budget that may well visit yet further cuts. I urge noble Lords to prevent this from happening.