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.
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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.
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