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Impact of Government Policies on Family Budgets

My Lords, I am grateful to the noble Lord, Lord Knight of Weymouth, for initiating this debate on an important topic and for all the contributions that have been made. As your Lordships are aware, and as we have been reminded, we are living through a period of real international uncertainty and instability. The eurozone, as we heard earlier, has been and is at the epicentre of this crisis, but the volatility has reached right around the world—to the US and China, and of course here in the UK. We are not immune from what is going on in our largest export markets. That instability acts as a powerful drag on what was already a difficult recovery from the deepest debt-fuelled recession in living memory. It is right when we face such difficulties to ask ourselves: are we doing enough to support families; are we doing enough to protect the budgets of the poorest families; are we doing enough to provide opportunities for the youngest in our society; are we doing enough to support working parents; and, most importantly, are we doing enough to put the economy back on track to provide the opportunities, jobs and growth that we all need? When we came into government we inherited the deepest recession since the war and the largest budget deficit in our modern history. The adjective that the noble Baroness, Lady Pitkeathley, used was ““dire””. I agree. It was absolutely vital that we tackled that deficit. High deficits lead merely to higher inflation, taxes and interest rates. Cutting the deficit is a vital precondition to growth and prosperity. I am grateful to my noble friend Lord Stoneham of Droxford for underlining this point. As we have seen over the past year, UK gilt yields and interest rates generally have fallen dramatically in response to the tough choices that we made in our spending review. Low interest rates help businesses to refinance debt and help families to stay in their homes. Of course the noble Lord, Lord Stevenson of Balmacara, was quite right to remind us that even in this time of low interest rates, debt is a very real problem for many in our society. Even a 1 per cent increase in interest rates would take £10 billion out of the pockets of families through higher mortgage payments. I therefore applaud the debt advice provided by a wide range of private and not-for-profit organisations. It is important that consumers know that many free and high-quality sources of help and advice are available from publicly supported projects and the voluntary sector. Perhaps I may add a comment on one aspect to which the noble Lord, Lord Stevenson, drew attention—graduate debt—because I do not entirely share his analysis. Under the new system, all graduates will pay less per month than under the old system and they will have a longer repayment term of up to 30 years compared to the current 25 years. It is important to remember that. Generally, on the deficit and interests rates, it is by getting ahead of the curve, by consolidating on our own terms, that we have avoided the uncertainty and the instability that have cut through other countries and plunged families in other parts of Europe into even more austerity and difficulty. More than that, in our spending review, we took the decisions to tackle the deficit in a proportionate, responsible, but also a fair, way. Therefore, I completely reject the charges coming from the noble Lord, Lord Knight of Weymouth, and the noble Baroness, Lady Smith of Basildon. Indeed, we are all in this together and it is critical that those who can, pay most. That is why we have tackled the deficit in the way we have. The first transparent analysis of the distributional effects of our budget and spending measures—something never produced by previous Governments—shows that after combining the impact of tax, tax credit and benefit, and public service spending changes announced by this Government, the top 20 per cent of households will make the greatest contribution towards reducing the deficit as a percentage of their income and benefits in kind from public services. We take those distributional effects very seriously. We are also taking more from the banks in our on-going taxation of them than the previous Government did through their one-off tax on bonuses. In relation to VAT, I share the analysis of my noble friend Lord Stoneham of Droxford. I believe that what we did to reverse the previous Government’s national insurance tax—a tax on jobs—is what really mattered in making the difficult choices about where to prioritise tax measures so as to get our economy going again. These are painful choices, but it was our partial reversal of that tax on jobs, which noble Lords opposite did not mention, that was key to getting the economy going again. We took particular care to reduce the impacts on family budgets. In relation to fuel poverty and rising fuel prices—a very important subject raised by the noble Baroness, Lady Smith of Basildon, my noble friend Lord Stoneham and the noble Baroness, Lady Pitkeathley—we have to acknowledge first of all the reality of rising world oil prices. We cannot be insulated from that. But what has this Government’s response been? We cancelled the previous Government’s fuel duty escalator and cut fuel prices. We have taken action on fuel duty, which has resulted in average pump prices being about six pence a litre lower than if we had continued with the previous Government’s fuel duty plans. A typical Ford Focus driver will be paying about £56 less this year than he or she otherwise would have been doing. We have introduced the fair fuel stabiliser so that when oil prices are high, and oil profits are higher, fuel duty will increase by inflation only. This will ensure that the burden of high oil prices is better shared between oil companies and motorists. I say again that energy price increases are never welcome for consumers and we recognise that. It is important that these are limited to the costs and risks borne and are not about energy companies making excessive profits. That is why we strongly support Ofgem’s work in ensuring competition in the energy industry, including the recent proposals stemming from the retail market review launched in November last year. That is why we are taking a range of other actions to increase people’s control over—and help them reduce—their energy bills. We are setting up the Green Deal for energy efficiency and the supporting energy company obligations. We are rolling out smart meters that will enable consumers to manage their energy use better and introducing the warm house discount to provide cash rebates for around 2 million vulnerable households by 2014-15. So, yes, we share the concern but I reject the charge that we are not going about it in a sensitive and proportionate way. Taking some of our other measures to help families, we have made significant above-indexation increases in the child tax credit for the next two years, increasing it by £255 and benefiting 2.4 million low to middle-income families. This will also ensure that modelled tax and welfare policy introduced by this Government will have no adverse impact on child poverty for the next two years. I say that directly to the noble Lord, Lord Knight of Weymouth. He shakes his head but, again, we now have the benefit of the introduction by this Government of the independent Office for Budget Responsibility so that we can no longer make up such claims; all these things have to be independently assessed. We made changes to the personal allowances to provide support for hard-working families on low and middle incomes, and increased the rewards for work. The increases in the personal allowances announced at the 2010 and 2011 Budgets will benefit 25 million individuals in 2012-13 and take 1.1 million of the lowest-income tax payers out of tax altogether. Our aim is to ensure that no one earning less than £10,000 will be caught in the income tax net. My noble friend was completely right to draw attention to this policy.