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Transcript: Balls vs Alexander on tax credits

5 April 2012

3:06 PM

5 April 2012

3:06 PM

On the Today programme this morning, Ed Balls aired his criticisms of the government’s tax credit changes — which come in tomorrow. He was followed by Danny Alexander, who emphasised the £630 increase in the personal allowance and argued that the measures are
necessary ‘to deal with Labour’s economic mess’ and to create a tax and benefit system ‘which encourages and incentivises work’. Here’s the full transcript of both

James Naughtie: Now, in every set of tax changes there are winners and losers and after today, the end of the tax year, people will be able to assess what the government’s
changes to tax and benefits are going to mean for them.  The government claims that 15 times as many people will gain rather than lose in the forthcoming changes. Labour says that the changes
to Working Tax Credit — that’s what the party is focusing on — will mean that more than 200,000 families will lose out if they can’t increase the number of hours that they
work. Well, let’s hear that argument. In a moment we’ll talk to the Treasury Chief Secretary, Danny Alexander but first of all to the Shadow Chancellor, Ed Balls. Good morning.

Ed Balls: Good morning to you.

JN: Any government has to make choices — there are winners and losers. I assume you accept that. Do you accept the government’s figure that 15 times as many people will
be gaining rather than losing from these changes?

EB: I think the figures from the Institute for Fiscal Studies which we’re publishing today are very powerful because they actually show losers across the board: families with
children and families without children. I don’t recognise the government figures and…

JN: Just on that point, you don’t accept that as a consequence of the changes in total 15 times as many people will gain rather than lose?

EB: I don’t and the reason is I don’t think the government is taking into account the other changes coming in today, the freeze in Child Benefit, the cuts to tax
credits which means that a family with children is worse off according to the IFS by £511 from tomorrow and a million families lose all of their Tax Credits entirely. The problem with the
increase in the personal allowance which is the one thing the government tries to trumpet…

JN: To take people out of the tax bracket.

EB: To take people out of tax, is that it only applies to people on middle and upper incomes because most lower income people don’t pay tax at all but even then, it is more
money. The taxpayer gain from the increase in the personal allowance is £42 this year but the freezing of Child Benefit for one child is £59 this year so any family with a child sees
the personal allowance immediately outweighed by the Child Benefit freeze. If you are though a low income family on a minimum wage where you are being told if you don’t work eight more hours
you’ll lose all your tax credits, thousands of pounds, they stand to lose £73 a week compared to 81p in the rise of the personal allowance …

JN: Let’s focus on this because you allude there to the fact that the rules are changing and instead of working 16 hours you have got to work 24 in order to get this and you
calculate I think that something over 200,000 families, as I said, might lose. One of the things the government says is look, there’s bound to be a cut-off point here, you can’t have a
system where somebody doesn’t lose out because they’re on the cliff edge, so to speak. For example under your own government you decided that to qualify a single parent should work 16
hours but it was the same figure for a couple, 16 hours, so how does that make sense?

EB: Well the point is, Jim, if you just change the rules just like that, what are you saying? The government is saying to people, if you are a couple on 16 hours, if you increase
your hours by 8 hours you keep your Tax Credit, if not you lose it. Well they say that’s easy because there are lots of vacancies in the economy — up and down the country there are tens
and hundreds of thousands of families faced with either asking their employer to give them more hours and their employer saying I’m really sorry, we’re actually cutting hours,
unemployment’s rising in the economy or losing £73 a week and it’s worse than that, Jim, these aren’t my figures, these are the government’s figures, 200,000 families.
They can’t tell us how many will lose their tax credits, they can’t tell us how many will get more hours but what they admit is for these families, they will actually be worse off
staying in work than going on to benefit. Where is the sense in that? It reflects a deeper point, Jim. Unemployment is rising, the economy is failing and families are paying the price for the
government’s mismanagement of the economy.

JN: We will put that to Danny Alexander in a moment. I just want to put one last question to you. The bill on the tax credits under your own government went up from I think in a
period from 2003 until you left office in 2010, from £18 billion a year to £30 billion a year. Now given the need to reduce the deficit, and I know there are arguments about the scale
of it and the timing, which Ed Miliband accepts, do you think it would have been right not to try to cut that £30 billion cost?

EB: Well Jim, there are two points here. First of all, the difficult decisions we have to make depend upon the economy and in the last 18 months the economy has flatlined.
We’re borrowing more than planned, the Osborne plan is in tatters and that is why families are paying the price. But secondly, it is also a question of choices and priorities and in the first
budget George Osborne gave away to top rate tax payers — this is before the top rate tax cut — a £1.6 billion tax cut in more generous pension tax relief. He could have used that
money to help middle class and lower income families and not taking away their tax credits. David Cameron said, Jim, in the general election campaign when we said that the Tories would take away
tax credits from families, he said this is a lie. Teresa May said this is a lie. It is what they have done to one million families while they are cutting taxes for the richest. Where is the
fairness in that? A failing government and a failing economic plan.

JN: Ed Balls, thanks very much. Let’s turn to Treasury Chief Secretary, Danny Alexander. Good morning.

Danny Alexander: Good morning. 

JN: Let’s take that point directly that what has happened is what the government — at least the Conservative bit of the government — said during the election
campaign and that is a pledge that has been broken and that the burden of these changes is going to fall on families who can least afford to pay it who have children.

DA: Well I’m a Liberal Democrat and I can’t be held responsible for what Conservatives said before the election.
JN: It’s a handy get out isn’t it?

DA: It’s not only a handy get out, it’s true. We proposed as Liberal Democrats reforms through the tax credit system precisely for the reasons that you were putting to
Ed Balls: that we have seen a huge expansion in the cost of the tax credit system. We’d reached a position where nine out of ten families were in receipt of these means tested benefits and in
fact listening to Ed Balls you’d think that we were taking it back to the £18 billion figure that they started with. In fact we will still be spending this year £31.6 billion on
tax credits so effectively holding the amount of spending constant, making about £3.2 billion of savings in real terms. And that is of course part of the package of measures that we have to
take to deal with the catastrophic mess that Labour and Ed Balls left our economy and I think what we’ve heard from Ed Balls is another exposition of the economic incompetence that drives the
Labour party, who seem to think that we can carry on spending and borrowing more and more and more without making difficult decisions. I acknowledge of course that these decisions about tax credits
are difficult. Equally, through the increases in the income tax personal allowance, we will be seeing 24 million people in this country gaining tomorrow when the new tax year starts and that has to
be taken into account in any calculations of the impact of our… 

JN: Well it is taken into account, he made the point and it surely is factually correct, that the changes to the allowance there produce relatively small benefits for most of those
affected — not all but for most of those affected, relatively small benefits — and in fact the other changes are actually more serious. The IFS figures in the study, which I think was
commissioned by the Labour Party but nonetheless it comes from the IFS, says that families with children will lose an average of just over £500 a year under tax and benefit changes. Now in
times of great difficulty why is it that the family budget is being hit, people with young children who may be — and we heard the report earlier — who may be struggling, who if they
want to get what they got before are going to have to work longer, 24 hours instead of 16, in circumstances — and this was I think Ed Balls’ point — where many employers simply
cannot give them that extra work because of the state of the economy?

DA: Well just firstly to take on your point about the income tax personal allowance, of course we have got to take into account the fact that we increased it by £1000 last
year, another £630 coming through this year, another £1100 next year announced in the budget. By the time we reach the goal of the £10,000 income tax personal allowance —
the tax free amount that people will gain before they have to pay any income tax at all — that will be worth £700 a year less tax than people were paying when we came in. That’s a
significant change affecting 24 million working people. Two million of those people — by the time we reach this time next year when the budget measures come through — two million low
income workers will have been taken out of paying any income tax at all. I think that’s a very, very good. In terms of the changes to the Working Tax Credit, of course I recognise that these
are very difficult decisions that we’ve had to make, but what we have tried to do with the tax credit system is focus the resources more on people on lower incomes, so for example you can no
longer get Child Tax Credit if you are on £60,000 a year in the way that you could when Labour was in office.

JN: The consequence, finally Mr Alexander, is this: yes, you’re helping some people at the bottom of the income scale in modest ways, but the truth is that what came to be
known a few months ago as the squeezed middle is paying for it. The IFS figure is that more than 850,000 families on modest and middle incomes — the very people that you and your colleagues
in government in both parties have said you want to protect — are going to be paying, well they are going to lose credit that is worth £545 — the IFS figures — a year. The
average income we’re talking for a family with two children is £38,000.  There is absolutely no doubt surely, and you have to accept this, that they are the people who are going to

DA: Well when you look at the overall impact of the tax changes, the benefit changes and spending reductions that we’ve had to make to deal with Labour’s economic mess,
the burden of that falls most heavily on the top 20 per cent of the population. But of course the burden of that does fall across the population, less on lower incomes than on the highest incomes,
but still difficult in those situations. But I think it is right to say, in a situation where you ask a single parent, for example, to work 16 hours a weeks before they can receive Working Tax
Credits, that you ask more of two people. If you are going to ask a single parent to work two days a week before they get Working Tax Credit, I think asking a couple to work three days a week
between them is a reasonable position and when you take into account too that 24 million people are benefiting from Income Tax reductions delivered by this coalition government, that came from the
Liberal Democrat election manifesto, I think that is a fair position which encourages and incentivises work, which after all must be the purpose of the tax and benefit system.

JN: Danny Alexander, thanks very much.

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