Show Hide image The Staggers 18 November 2016 The government is not helping the “just managing” – it’s “just managing” to help millionaires If it wants to put its money where its mouth is, the government must stop cuts to welfare and start moving towards universal free childcare in the Autumn Statement. Print HTML The Labour MP for Leeds West and former shadow work & pensions secretary Rachel Reeves argues that if the government is serious about helping those families who are “just managing”, the Chancellor should not be giving more money to the richest through cuts to inheritance tax. Instead, that money should be spent on ensuring that the cost of childcare as a barrier to work is removed by moving towards universal free childcare, while ensuring work pays by scrapping cuts to universal credit which leave people worse off and reduce incentives to work. *** The vote for Brexit has cast a cloud of uncertainty over our economy. While we must respect the people’s verdict, we need to work to ease that fragility and create a climate that fosters jobs and prosperity. The first opportunity to set our economy on the right course after the EU referendum falls to the Chancellor, Philip Hammond, with his first Autumn Statement. He should start by removing what I believe are two major road blocks on the path to a more stable economy with a strong base to get more people into jobs and improve their skills. Firstly, he must reverse cuts to Universal Credit (UC) and restore confidence after the programme’s chaotic introduction so it genuinely provides an incentive to work. Secondly, the Chancellor has to do more to help parents join or rejoin the workforce and give every child the best start in life. We should move towards a system of universal free childcare for all working parents of pre-school children, starting with free childcare for all two-year olds. The two issues of making work pay for families and improving childcare are inextricably linked. At present, UC – introduced with cross-party support to increase incentives to work - seems to have been reduced to a Treasury ruse to cut costs. According to the Resolution think tank, UC risks failing to achieve its aim of letting people keep more of their top-ups to low wages as their income rises because of the cutbacks. Resolution estimated 1.2 million families who get tax credits would be £41 a week worse off because they would no longer be entitled to help under UC. A further 1.3 million people would qualify for UC, but would be an average of £46 a week worse off. That’s not an encouragement to find work. It’s a major disincentive and needs to be fixed before UC is rolled out nationwide. The project – aimed at streamlining existing working-age benefits into a single monthly payment - is six years behind schedule and risks failing in its aim of making work, and working longer hours, a more attractive option than relying on benefits. The cuts, a result of changes in the work allowance drawn up by George Osborne, reduced the amount people can earn before low-wage top-ups are withdrawn at the rate of 65p for every £1 earned. Earlier this year, the Child Poverty Action Group estimated families with a sole earner working full-time on the government’s “national living wage” of £7.20 an hour would have to work a 13-month year to make up for the cuts, while a full-time single parent would have to work a 14-month year. As a priority, the Chancellor must ensure that working, or working longer hours, pays. He also needs to fix another key flaw of UC and the way it treats low-paid second earners – predominantly women – for whom there is a reduced incentive to work under the current system. The numbers returning to work are much lower than anticipated under the earlier design of UC and the cuts will hit families and lone parents hardest. By 2020, an estimated 2.6 million working families on UC will be £1,600 a year worse off and some single parent families will lose as much as £2,630 per year. Lone parents without housing costs will endure the largest reduction in their work allowance from £8,800 last year to £4,764 this year – a cut of £4,000, according to House of Commons Library statisticians. The children of single parents are already at twice the risk of living in poverty as those in couple families. These cuts will put them at an even greater disadvantage. For second earners in a couple the situation may be worse still, with increasing numbers deciding not to enter work at all. There is also a worrying picture on pay progression too. UC was intended to help workers move onto higher pay levels, as well as get a job in the first place. But as the Resolution Foundation has said “implementation realities scuppered the ambition of the design”. The likely result is that UC will leave an increasing number of workers stuck on the minimum wage when they should be looking to earn more. The implications will be a workforce that fails to grow as quickly as it should, lower productivity, lower growth and stagnating pay. But the problems with UC are not just about adult earners. They are linked to issues about childcare. When UC was introduced, it was expected to lift 350,000 children out of poverty. That figure was revised downwards to 150,000 last year and child poverty is set to get even worse. According to analysis from the Institute for Fiscal Studies in February, child poverty is projected to increase from 15.1 per cent in 2015-16 to 18.3 per cent by 2020. The Resolution Foundation believes that 200,000 more children, predominantly from working households, will fall into poverty this year. Lifting over a million children out of poverty was one of the last Labour government’s most important achievements. These estimates would almost entirely reverse that progress. That’s why, as well as making sure the right incentives to work are in place, the Chancellor must do far more to remove a second barrier to work by helping families with young children. The Tory policy to introduce free childcare from next September for the parents of three and four-year-olds is in disarray as nurseries run out of money due to government cost cuts. That needs to be fixed. But far more needs to be done to give parents more opportunities to work and give their children the best life chances. I have long called for major improvements to the childcare and I believe the Chancellor should move towards a system of universal free childcare for all working parents of pre-school children, starting with two-year-olds. He could start to pay for this by cancelling the Tories’ unjust and unwarranted £1bn cut to inheritance tax due to be phased in from next year. All benefits of the inheritance tax cut go to the 10 per cent of wealthiest families, while nothing is done to address the inequalities of wealth and opportunity that divide and hold back our country. The Autumn Statement is a huge opportunity to put our economy on the path to stability and higher growth. But the Chancellor must be clear about what is required and how we get there. The priority must be to make sure work pays by removing the barriers that discourage people from getting a job. The benefits are clear – for employment, productivity, for the economy, and for tackling child poverty. This government has claimed it is on the side of those who are “just managing”. It must put its money where its mouth is and help those who are just managing rather than just managing to help millionaires. › Curry in crisis, Bollywood bored of London: how India’s perceptions of Britain are changing More Related articles Diane James quits Ukip seven weeks after quitting the leadership too Theresa May just scrapped her own brilliant pro-business idea Is Francois Fillon Marine Le Pen's dream opponent?
Show Hide image The Staggers 21 November 2016 No, John McDonnell, people earning over £42,000 have not been "hit hard" by the Conservatives The shadow chancellor's decision to support this tax cut is as disappointing as it is innumerate. Print HTML John McDonnell has backed Conservative plans to raise the point at which you start paying the 40p rate (that’s 40p of every pound earned after you hit the threshold) to above £45,000 by April 2017 (part of the Conservative manifesto pledge to raise the 40p rate so that it only covers people earning above £50,000 by 2020). Speaking to the BBC, the shadow chancellor said that those affected “need a tax giveaway at the moment because the mismanagement of the economy by the Conservatives is hitting them hard”. Is he right? Well, let’s crunch some numbers. Let’s say I earn £42,000, my partner doesn’t work and we have two children. That puts our household in the upper 30 per cent of all British earners, and, thanks to changes to tax and benefits, we are 1.6 per cent worse off than an equivalent household in 2010. Have we been “hit hard”? Well, no, actually, in point of fact, we have been the least affected of any household with children of the coalition. The pattern holds for every type of household that will feel the benefit of the 40p rate hike. Those with children have seen smaller decreases (1.0-2.3 per cent) in their living standards that those in the bottom three-quarters of the income distribution. The beneficiaries of this change without children, excluding pensioners, who have done well out of Conservative-led governments but are unaffected by this change, have actually seen increases in their tax-home incomes already under David Cameron. There is no case that they need a bigger one under Theresa May. But, nonetheless, they’re getting one, and it’s the biggest bung to higher earners since Margaret Thatcher was in office. For context: a single parent family earning £42,000 is in the top 15 per cent of earners. A family in which one person is earning above £42,000 and the other is working minimum wage for 16 hours to look after their two children is in the top 13 per cent. A single person earning £42,000 is in the top 6 per cent of earners. That’s before you get into the big winners from this policy, because higher earners tend to marry other higher earners. A couple with one person earning £45,000 and the other earning £35,000 is in the top three per cent of earners. A couple in which both are earning £45,000 with one child are in the top four per cent. (Childless couples earning above average income are, incidentally, the only working age demographic to do better since 2010 than under New Labour.) And these are not cheap tax cuts, either. To meet the Conservative proposal to raise the 40p rate to £50,000 by 2020 will cost £9bn over the course of the parliament, and giving a tax cut to “hard-pressed” earners on £42,000 will cost around £1.7bn. The political argument for giving up on taxing this group is fairly weak, too. Hostilty to tax rises among swing voters extends all the way up to the super-rich, so Labour’s commitment to the top rate of tax has already hurt them among voters. To win support even for that measure, the party is going to have to persuade voters of the merits of tax-and-spend – it makes no sense to eschew the revenue from people in the top five per cent of earners while still taking the political pian. Which isn’t to say that people earning above £42,000 should be tarred and feathered, but it is to say that any claim that this group has been “hit hard” by the government or that they should be the target for further tax relief, rather than clawing back some of the losses to the Exchequer of the threshold raise and the planned hike in the higher rate to £50,000, should be given extremely short shrift. Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics. More Related articles Diane James quits Ukip seven weeks after quitting the leadership too Theresa May just scrapped her own brilliant pro-business idea Is Francois Fillon Marine Le Pen's dream opponent?
