It’s not too late for the Chancellor to change course

Last night my Shadow Treasury team colleague Cathy Jamieson MP and I led a debate in the House of Commons to call attention to the injustice of ill-considered changes to benefits and tax credits about to hit hard working and hard-pressed families throughout the country.

We are raising this issue against the backdrop of the biggest squeeze in living standards in a generation, a squeeze being made all the more painful because of the government’s failures – to generate jobs and growth, and to deal with the deficit fairly.

This year the government have chosen to take more from women and families with children than they are taking from the banks – refusing to repeat the tax on bonuses that the last Labour government introduced, with banks benefiting from a cut in corporation tax instead. At the same time the average family with children faces a £580 cut in their annual income next month.

Yesterday’s debate focused on two particularly stark examples of the government’s lack of competence or care when it comes to fairness for families. A crude cut to child benefit, planned for January 2013, means that while two-earner families with incomes up to £84,000 will keep all their child benefit, a single-earner family with an income over £43,000 will lose all of theirs. And a punitive withdrawal of working tax credits for couples with children means that unless they can increase their working hours from 16 to 24 next month, a family on £17,000 a year will see their incomes fall by almost £4,000.

It’s a shocking illustration of this government’s failure to come to grips with the crisis our country is facing: the crisis in jobs, incomes and living standards that is putting millions of ordinary families under strain.

The cost of living crisis does not hit the headlines like a banking crisis or a currency crisis – perhaps because it’s a crisis that those with the loudest voices can too easily insulate themselves from. But for the vast majority of people trying to keep going and keep their heads above water, it is one of the toughest challenges they’ve ever faced. Every day a battle in a long war of attrition that is made all the more demanding because there is no end in sight, no light at the end of the tunnel. Just the fear that one day, sooner or later, they won’t be able to pay the mortgage, their rent or their gas bill.

But a government that says it believes in fairness, that says ‘we are all in this together’, is straining at the leash to give a tax cut to the one per cent with incomes over £150,000; while one-earner, three-child families on £43,000 stand to lose almost £2,500 in child benefit; and families struggling on £17,000 a year stand to lose almost £4,000 because of changes to tax credits.

And a government that says it believes in rewarding work is creating a perverse and economically damaging incentives: with people near the higher rate tax threshold better off if they turn down pay rises or promotions, because of the crude ‘cliff edge’ their policy will create; and a written answer from the government’s own Minister for Work and Pensions confirming that the new rules on working tax credit mean some families could end up being £728 a year better off on benefits than in work.

Unfortunately neither the Chancellor, the Chief Secretary to the Treasury, nor the Secretary of State for Work and Pensions turned up to hear last night’s debate or answer for the government. Some Conservative MPs have spoken out against the changes to Child Benefit in the media but chose not to voice their concerns in the Commons chamber, and it was only from the Labour benches that we heard any concern about the fate of low paid families losing their working tax credit. Our motion to protect family incomes was defeated by the votes of Conservative and Liberal Democrat MPs.

But with two weeks to go till the Budget, it is not too late for the Chancellor to change course. We will keep up the pressure on the government to commit now to an urgent review of the child benefit changes, and use money from a crackdown on stamp duty avoidance to cancel this damaging cut to working tax credits.

With a Conservative-led government so distracted by its internal divisions and out of touch with the realities of life for ordinary working families, it is vital that Labour stands with the people who are trying to the right thing but struggling to make ends meet, and stands up for the principle of fairness in tough times.

Rachel Reeves is Labour MP for Leeds West and Shadow Chief Secretary to the Treasury.