THE BLOG
29/10/2015 13:14 GMT | Updated 29/10/2016 06:12 BST

Time to Make Work Pay, Mr Osborne

The Chancellor's flawed and ill-thought out cuts to tax credits were put on ice by the House of Lords this week. Now he has to bring new proposals forward. There are 3.3million families, 5,300 of them in my constituency, worrying about what he will do.

In doing so he should reflect on the purpose of tax credits. The story really begins in 1997. When Labour came to power, the only help for families was child benefit, a married person's tax allowance, and a child personal allowance as part of income support and income based JSA. A small number of people with disabilities also received a disability working allowance.

But the Government found high rates of poverty were among families with children. These more far reaching tax credits and the introduction of help with childcare costs transformed the prospects for millions of families. For example, the lone parent employment rate rose to 65.7% by 2014, the highest rate on record.

Tax credits reduced child poverty. DWP confirm that in the first decade of tax credits, 1.1 million children were lifted out of poverty up to 2010. Since 2010, the number of children in absolute poverty has increased by 0.5 million.

Tax credits benefit employees. They are not simply a state hand out to low-paying employers as interestingly many Tories and some on the left have tried to claim.

When most employers are setting wages, they are blind to the private tax credit details of their employees. They cannot pay one worker one wage, and another a different rate because they claim tax credits. In most cases, the employer does not know.

He also needs to be honest about the figures. This summer, the Chancellor claimed that the cost of tax credits have risen from £1billion to £30billion today. This claim is simply bogus. Declan Gaffney and others have shown that the £1.1billion relates to only the first reforms, which only began in October 1999 - half way through the tax year and only covering 3 months of tax credit payment for a typical claimant. Indeed, in its first full year, 2000-2001, the cost of tax credits was more like £10.5billion; not £1.1billion.

So why has the tax credit bill increased?

Tax credits include a number of previously separate benefits and were more generous. The tax credits we refer to today include childcare costs, introduced in 2003, which no previous Government had ever met. This extended help to a wide range of families, but all of them working families. Another factor, is that the total tax credits families receive relates to their income. The recession of 2008-9, had a dramatic effect on wages. As wages fell, many of those families either qualified for tax credits or saw their tax credits rise. During the Major recession, unemployment rose to 10.7% by 1993. Yet, in the deep recession of 2008-9, many employers reduced hours or didn't increase pay in order to keep staff in work. As a result, unemployment rose to a lower figure of 8.5%. Recent figures show the number of employees earning less than the living wage has risen by 45% since 2009.

So what should the Chancellor do?

First, provide a proper assessment of the impact of any new proposals on incentives and disincentives to work. The Chancellor, who claims to stand up for working people, didn't publish this. Why? Because he did not want to hear the answer to that question.

Second, the Chancellor needs to ask what impact any new proposals will have on child poverty. The Resolution Foundation reported that child poverty is set to rise by 200,000 in 2016. Is he going to ignore this or do something about it?

Finally, he can look at what else Government could do to help people get into and stay in work and make progress. Government departments need to break out of their silos to ensure that policies on skills, housing, childcare, transport, and family intervention programmes support work.

These are some of the questions I have asked on behalf of 5,300 working families in Don Valley worried about the future of their tax credits and their ability to hold their heads up high and say 'I am in work. Help me to support my children.'

If the Chancellor listens, and helps to make work pay, millions of worried families will sigh with relief.

Caroline Flint is the Member of Parliament for Don Valley and a former Minister for Employment and Welfare Reform