Tax credits: Read Baroness Hollis's speech to the House of Lords in full

A Conservative proposal to reduce tax credits for the poorest workers was defeated by the House of Lords on Monday night, with many peers taking the floor to express their disquiet with the government's plans.

Among them was Labour peer Baroness Hollis of Heigham, who tabled the motion to delay the scheme's implementation for three years. You can read her full speech below:

My Lords, on the amendment standing in my name, two issues concern this House. The first is whether this amendment improperly challenges Commons financial privilege - a constitutional issue. The second is whether this amendment improperly challenges Government cuts to welfare - the policy issue.

Let me address the first, on constitutional propriety. As the noble Baroness, Lady Stowell, said, when we have framework Bills on childcare and social security, all the serious detailed work is done, rightly, by regulations - that is, SIs. We can amend Bills; we cannot amend SIs, yet often we do not know the Government’s intent until we see the SI itself. We then face either a draconian fatal Motion or a lamenting regret Motion that changes nothing, so instead this is a delaying amendment. It is not fatal, as the Government know. It was drafted with the help of the clerks and it calls for a scheme of transitional protection before the House further considers the SI. Essentially, the cuts would apply to new claimants only. Frankly, that new SI could be drafted in a week and implemented next April exactly as planned.

However, does it none the less break convention by trespassing on Commons financial privilege? No. The advice from the Clerk of the Parliaments - and he has seen and confirmed my words on the specific issue - is that Commons financial privilege is exercised in two ways. We can amend an education Bill, say, but the Commons can reject our amendment if the Speaker certifies that the Commons has financial privilege on this issue. Secondly, says the Clerk, the Commons can pass a supply or money Bill, which we cannot amend. He goes on: financial privilege does not extend to statutory instruments - it simply does not. Nor are statutory instruments covered by the Salisbury/Addison convention. The more so, I would add, because the Prime Minister ruled them out himself, and he did because these layered elements to tax credits are all affected by the taper and the cuts.

As has been said, if the Government wanted financial privilege, these cuts should be in a money Bill; they are not. If they wanted the right to overturn them on the grounds of financial privilege, they could be introduced in the welfare reform Bill on its way here; they did not. So why now should we be expected to treat this SI as financially privileged when the Government, who could have made it so, chose not to do so? It is not a constitutional crisis. That is a fig-leaf possibly disguising tensions in the Commons between members of the Government. We can be supportive of the Government and give them what they did not ask for - financial privilege - or we can be supportive instead of those three million families facing letters at Christmas telling them that on average they will lose up to around £1,300 a year, a letter that will take away 10 per cent of their income on average. That is our choice. Those families believed us when we all said that work was the best route out of poverty and that work would always pay. They believed the Prime Minister when he promised that tax credits - and they are one package - would not be touched.

But why do people need tax credits? There is a lot of misunderstanding about this. If the House will allow me, consider two women in a call centre: one is single, working 35 hours a week, who from April earns £13,000 a year for herself, and the other, a deserted mother with two young children, managing 25 hours a week, earns £9,000 a year for the three of them. The Government are completely right that we should certainly not subsidise employers’ low pay, but no employer could pay the deserted mother twice as much per hour as the single woman on the next phone in the call centre to make up for her family’s circumstances. The employer cannot do that and it is not reasonable to ask it to do so. That is the job of tax credits. They reflect family circumstances, which an employer cannot reasonably do.

In 1997, some 43 per cent of single parents worked. That figure is now 65 per cent - a 50 per cent increase- partly because tax credits made work pay. That was our contract with the working mother, and she has done everything that we asked. Now, we will send her a letter at Christmas telling her that we are taking away some £1,300. Her life is hard. She needs financial stability in which to bring up her children. She needs transitional protection, so that the cuts affect only new claimants who have not built their lives around the protection that tax credits currently offer.

National newspapers from the Daily Telegraph to the Sun are asking the Government to think again before those letters arrive at Christmas, as are the think tanks. The IFS says that the Treasury’s claims are “arithmetically impossible”, yet those letters will still arrive at Christmas. Members of the Conservative Party, including Members of this House, have expressed their disquiet as the cuts are too hard and being made too fast, yet those letters will still arrive at Christmas. We may be told - perhaps, among others, by the noble Lord, Lord Butler, who has gone on record as saying this - that the Commons has made its position clear three times: when it passed the Budget, then with this statutory instrument, and again in last week’s general debate on tax credits. However, is that right? What happens when the Commons has, in my view, made its decision based on incomplete information, some of which is only now becoming available?

The Government insist that there is no alternative to these cuts, which on average will take £1,300 from three million poor families. However, there is an alternative. We can and should offer transitional protection to families who currently count on tax credits. They include single parents, the self-employed - whose median wage, incidentally, is £10,000 a year - families with disabled children and carers. We could protect them but not new claimants and those newly on universal credit.

You would not know this from the impact analysis - which, I have to say, contains elements of neither impact nor analysis - but I am confident that the Government do not need to make these specific cuts to make their welfare savings, which they have authority to do. Why is that and how would that be? I have two major points to make. The first is that they will make their savings from the additional revenues that return to government from the very welcome rise in the national living wage. The Library has calculated for me that an increase of three-quarters of a billion pounds - £763 million - for every 50p rise will go back to the Government, plus of course there will be the ratchet effect of differentials, which we cannot calculate. By year two, the Government will make savings on that alone of £2 billion; by year three, it will probably be £3 billion.

Secondly - I do not think that this was mentioned at any point in the Commons debates, although, to me, it is crucial - those cuts will also kick in as families move over to universal credit, as I am sure the noble Lord, Lord Freud, will confirm. The National Audit Office says that by the end of 2019 only nine per cent - fewer than one in 10 - of existing tax credit recipients will still be on tax credits. Some will no longer need them, because, say, they may have a son who has left home; the rest of the claimants should be on universal credit and the Government will get their full savings from them. The impact analysis chirrups happily that its statutory instrument cuts will put tax credits on a “more sustainable footing”. Quite, as tax credits will have largely disappeared.

Some of these data that I would like to have used more robustly the Government do not collect, but over the next four years these savings to government from the rise in wages, the move to universal credit and the natural churn of claimants should, I estimate, more than match the savings that HMT claims it needs from these specific tax credit cuts to work thresholds and the taper. If so, the Government can get their welfare savings. I am not talking about tax rates, pension relief or inheritance tax - the Government can get their welfare savings without these specific cuts.

I ask the House this: should not the Commons even have discussed this? Might it have made a difference to its position? Its Members have not discussed it so far, and so we do not know. They did not have that information. The impact analysis did not give them that information; some of it is only now coming out. It is reasonable that, as information comes through that challenges the original assertions, the Commons should be given a chance to think again in the light of that.

My amendment to the Motion is not fatal. It does not challenge the financial privilege of the Commons and it does not deny the Government their welfare savings. Instead, it delays this SI to ask the Government to provide transitional protection for existing families who are doing everything that we asked of them, who trusted the Prime Minister’s word that tax credits would not be cut and who trusted Parliament - us - when we said that we would make work pay.

What happens next? If the House were to support my amendment, the Government could come back quite quickly - I estimate within a week - with a new SI, if they chose, in which these regulations and cuts would apply only to new claimants. That is all. It is very simple: if the House agreed to that new SI, it would then go to the Commons, where it would be accepted or rejected. Theirs would, quite properly, be the final word, as our conventions demand. The Commons would have kept its supremacy, and that is right, but we would have kept faith with struggling families and perhaps restored some faith in Parliament.

Let the final words rest with what families themselves say as they face those Christmas letters. Angela from Stevenage says: “I already work 40 hours a week on minimum wage doing two jobs around my children. I cannot believe that this is actually going to happen. I am terrified. We are not scroungers. We work unbelievably hard just to keep going and, once again, we are being punished for trying to earn a living wage”. She will lose £1,643 a year after she gets that Christmas letter. Sian from Basingstoke writes: “My husband works full time as a firefighter. We have four children. We won’t survive”. In her Christmas letter, she stands to lose £2,914. Rachel, from Milton Keynes, says: “It probably means that, as parents, we will skip a few extra meals to ensure our children eat”. In her Christmas letter, she stands to lose £2,005.

Finally, we have Tony and Jacinta Goode, from my city of Norwich. He is in full-time work, earning above the living wage, and she is the carer of two substantially disabled children. They are exhausted. Their Christmas letter will tell them that they will lose £60 a week, or £3,120 a year. That is £3,120 from a family where he is in full-time work and she is caring for two disabled children. We do not need to do this to them.

Last Wednesday, at PMQs, the Prime Minister said:

“Let us make work pay”.

He is absolutely right, and my amendment to the Motion is in that spirit. It will protect deserted mothers and lone parents who want their children to grow up in a household where their parent works; carers who live out their lives in service to others and struggle to maintain a foothold in the labour market; working families - such as the Goodes, whom I mentioned - who exhaust themselves caring for disabled children; or the self-employed, who will, I really hope, help us build a more productive and entrepreneurial economy.

If we do not pass my amendment today, or even if we pass the Bishop’s regret Motion, this SI will become law tonight. Whatever the Commons decides on Thursday, the Chancellor then need do nothing at all, because the SI will have been banked as law. Is that what we want, or do we want to give the Commons a pause to think about this additional information on where the savings could fall, about the additional information that is coming through from the think tanks and so on and about the additional thoughts that members of the Conservative Party might now have in the light of their correspondence with their constituents?

I hope that I do not sound pious, but I think that this is about honouring our word - the Prime Minister’s word - that work must always pay. It is surely about respect for those who strive to do everything we ask of them, and now find themselves punished for doing what is right. It is about trust between Parliament and the people we serve.