Further Update (3 December 2015)

 

I welcome the Chancellor’s announcement in the recent Spending Review that, rather than phase in the proposed tax credit changes, he is able to avoid them altogether. This has been possible because the forecasts for the public finances have improved substantially since the Summer Budget. Our strong economy means tax receipts are higher than expected and we are therefore able to pay lower interest on our debts.

 

The Government was elected to fix the public finances with a clear mandate to deliver £12 billion in welfare savings. These savings will still be delivered in full, but in a way that gives families longer to adjust to the transition to a lower welfare, lower tax and higher wage society. Tax credits are being phased out anyway as the Universal Credit system is introduced, but transitional protections are in place so that those transferred to this new system will not see their payments fall in cash terms.

 

These positive changes are only possible because of the difficult decisions the Government has taken. The Government's welfare reforms will mean that the welfare system is there for people who need it; a system where work pays, and one that the country can afford. This means people are able to keep more of what they earn, while dealing with the deficit, so future generations are not burdened with more debt than they could ever hope to pay.

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Updated on 27th October 2015

Following the vote in the House of Lords on October 26 I welcome the Chancellor’s statement that he will listen carefully to the concerns that have been raised and will help in the transition to the tax credit reforms.

 

We shall now have to wait and see what further developments take place.

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Thank you for all that have taken the trouble to contact me recently regarding the forthcoming tax credit reforms.

I am aware of the concern about this issue, but there are some matters which have not received the attention they deserve, which puts the Government changes in a different light.

In the Summer Budget, the Government offered a new deal for working people, moving Britain from a high-welfare, high-tax, low-wage economy to a lower-welfare, lower-tax and higher-wage one.

The reforms are part of a single coherent plan involving a new National Living Wage, reformed tax credits and lower taxes. They go hand-in-hand as a new settlement. From next April, the introduction of a National Living Wage will mean a £900-a-year pay rise for someone working full-time on the minimum wage. By 2020, it will reach more than £9 an hour, worth at least £4,800 a year extra in cash terms. It is reassuring to note that major firms have already started to pay the National Living Wage before it comes into effect, which has helped increase wages in the private sector by 4.4 per cent. The independent Office for Budget Responsibility expects that this wider ripple effect of the National Living Wage, to impose upward pressure on wages further up the scale, will result in approximately 6 million people getting a pay rise.

Taking tax and benefit changes into account, a renting family with two children, where both parents work 35 hours a week on the minimum wage, will see their income increase in cash terms by more than £5,500.

Furthermore, I am pleased that the increases in the personal allowance have already saved the typical basic-rate taxpayer £825 a year. The threshold will rise to £11,000 next April, with it reaching £12,500 by the next general election. Analysis shows that 8 out of 10 working households will be better off as a result of the personal allowance, living wage and welfare changes in the Summer Budget.

It must not be forgotten that reforms to tax credits are needed to get the welfare bill under control. The system cost just over £4 billion in its first full year, rising to £30 billion a year in 2014-15, with 9 out of 10 families qualifying for means-tested payments. There should be a better way to boost the lowest paid, which is what the Government is striving toward, and why I support, and voted for, Government policy.