Climate Change
Right to Learn

Nick Brown MP’s Reply to Constituents on Tax Credits

*28 October 2015

Thank you for you getting in contact with me regarding the Governments proposals on tax credits.

I apologise that this is a standard reply, however I have received a large number of emails on this issue. This reply however sets out my views in full and if you have any further questions or feel I have missed anything out please get back in touch.

I have also been informed that some constituents have received emails from the campaign Group 38 Degree’s stating that I am a Conservative MP. As I’m sure you are aware I am a Labour MP and I voted against the tax credits legislation on 15 September 2015 when it first passed the House of Commons.

I have major reservations about the Governments proposals on tax credits. Following the Chancellors announcement in the summer budget the Institute for Fiscal Studies released a report stating that it was arithmetically impossible for the Government’s increased minimum wage to compensate for the cuts in tax credits to low income workers. The Treasury insists that these changes will save £15bn a year. However, this £15bn of savings is drawn from the take home pay of low income workers.

Due to the Governments proposals families on low incomes will see the benefit of a higher minimum wage taken away from them by the Chancellor’s cuts to tax credits. The IFS has stated that a lone parent with two children working 16 hours a week at the current minimum wage would gain £400 from the move to the living wage, however they would lose more than twice that, £860, from the changes to tax credits in 2016/17, a net loss of £460 to their household income.

Over 13 million families will lose on average £260 a year due to the freeze on working-age benefits, according to the Institute for Fiscal Studies. The North East will be disproportionately affected as average salaries are lower than elsewhere.

Historically lower end wages have not grown at a significant enough rate to keep up with day to day costs in the UK. Tax credits therefore were designed to top up the wages of those who needed them in order to prevent situations of poverty and to ensure people were always better off in work rather than relying on benefits. Tax credits which were introduced by the last Labour Government were successful in this and child tax credits in particular were important in reducing child poverty across the time the Labour Party was in Government.

The changes to tax credits are not good for the labor market more generally. By not synchronizing the fall in tax credits with the gradual increase in the minimum wage low income families lose out now before being compensated, and only in part, by 2020 as the minimum wage begins to rise. This risks punching a large black hole in many families’ budgets which will not be made up. The Government should be prioritizing increasing wages before cutting in work support, not the other way around.

I made a speech in the House of Commons responding to the Chancellor’s Summer budget, in which the changes to tax credits were announced. In my response I set out my concerns with the changes to tax credits and the budgets wider implications for Newcastle and the North East. I have copied in below a link to my speech for your reference.

The Labour Party put forward a motion in the House of Commons on 20 October urging the Government to rethink its changes to the tax credits system. I voted for this motion however as the Government has a majority in the House of Commons this motion was defeated by 317 votes to 295. The Government, as you may know, was defeated in the House of Lords and the Chancellor has stated that he will bring back the proposals to change tax credits in the Autumn statement.

The average amount received in tax credits by families in the constituency is about £6,836 per year. These tax credits are not a luxury and in many cases are vital for families’ budgets. By limiting tax credits, the Chancellor is hurting families not helping them.

Thank you for getting in touch with me about this.

With best wishes,

Nick Brown

Speech in Response to the Summer Budget