As you may be aware, the manifesto which I was elected upon committed the Government to saving £12bl in welfare savings in order to increase the amounts we can spend on health, education and other essential public services. The Government have been able to achieve the £12bl savings in welfare but have listened to concerns raised about changes to tax credits.
Many of my constituents have impressed me with their individual arguments that any tax credit reductions should be gradually phased in. Because of the improvements in public finances, the Government have decided that the best thing to do is to avoid the changes altogether. Tax credits are being phased out anyway as we introduce the new system of universal credit.
I hope that constituents who would have been impacted will be pleased that the Government has listened to their concerns.
Background to Proposed Tax Credit Changes
Tax credit payments are made by the Government to top up the wages of the lower paid and to provide extra income to qualifying families. When first introduced in 1998, tax credits cost the taxpayer £6bl. By 2010, the cost had ballooned to £30bl. This increase was more down to politicians seeking to increase taxes and then return taxpayers’ money back at election time than a decline in living standards.
In 2014, three of our largest supermarket chains employed staff who claimed tax credits of almost £800m because they were paid less than the living wage. Why shouldn't these multinationals pay their staff a living wage rather than taxpayers covering a portion? If they did, we could speed the country to a position where the books are balanced and we could reduce the huge levels of interest we have to pay each year for Government borrowing. This interest bill recently stood at almost £50bl per year, almost as much as we spend each year on educating our children. If we get employers to pay for wages, and reduce the interest bill, then we can spend more on education, health and other vital public services.
I hold the greatest sympathy for my constituents whose household budgets would have been affected by the changes to tax credits and who had very real concerns about managing their finances. I did not seek election as MP to reduce incomes but to increase them. However, I ultimately felt that this measure was the right thing to do because it would have moved the country away from a position whereby Government, and tax-payers, subsidise the wage bills for employers and it would have caused employers to pay their staff properly to fund the gap.
As well as postponing the tax credit changes, the Government has increased the minimum wage to £7.20 per hour by April 2016 and introduced a living wage of £9 per hour by 2020. It is also delivering 30 hrs of free childcare for 3 and 4 year olds. The income tax allowance will have increased from £6,475 in 2010 to £12,500 by 2020, meaning workers keep more wages tax-free.
Delivering economic growth will see wages continue to rise in real terms - in the Bexhill & Battle constituency we are in the Top 10 of constituencies for the fastest rise in wages having previously lagged behind the regional average. Our unemployment rate has continued to fall and was at just 1.4% in January 2016. Again, this will help wages to rise as employers compete for staff.