Poverty Trap

Oral Answers to Questions — Social. Services – in the House of Commons at 12:00 am on 27th January 1976.

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Photo of Peter Bottomley Peter Bottomley , Greenwich Woolwich West 12:00 am, 27th January 1976

asked the Secretary of State for Social Services what is the number of families with children who are theoretically subject to a marginal tax rate of 75 per cent. and over, bearing in mind loss of entitlement to FIS, rent allowances, rate rebates and other means tested benefits upon any increase in income.

Photo of Michael Meacher Michael Meacher Parliamentary Under-Secretary (Department of Health and Social Security)

In August 1974, the latest date for which figures are available, the number of families with children which were theoretically subject to a marginal tax rate of 75 per cent. or over on a pay rise of £1 was about 200,000. This is about 3 per cent. of such families.

Photo of Peter Bottomley Peter Bottomley , Greenwich Woolwich West

Are the Government aware that this is purely the result of their inability to take on board the importance of the tax credit scheme and of putting off the child benefit action for two years and probably for another four years? Are they further aware that we shall not get out of this appalling situation, which gives no incentives to many families—1 million people are involved in the 200,000 families to whom the Minister referred—until we have a new Beveridge Report and take firm action?

Lastly, will the Minister comment on how long we shall go on having incomes policies totally unrelated to people's family responsibilities? The sort of incomes policy that we now have—

Photo of Mr Selwyn Lloyd Mr Selwyn Lloyd , Wirral

Order. This is becoming argument.

Photo of Michael Meacher Michael Meacher Parliamentary Under-Secretary (Department of Health and Social Security)

If the hon. Gentleman is seeking tax credits as a way out of this admitted dilemma, he should be aware that the cost in current price terms is about £3 billion. The Tory Government's scheme of a few years ago had a cost tag on it of £1·3 billion. They did not tell us then how they proposed to pay for it and they have not yet told us how they would pay for the present cost of £3 billion. I do not see how they would pay for it when the Leader of the Opposition seems hell bent on increasing defence expenditure on tanks and rockets.

The root cause of this problem lies in the interaction between means tests and the low tax threshold. As to means tests, the hon. Gentleman should bear in mind that the Conservative Government introduced the two main causes of the poverty trap—the family income supplement and the big increase in means-tested rents under the Housing Finance Act 1972.

Photo of Mr Ralph Howell Mr Ralph Howell , North Norfolk

What action do the Government intend to take to remedy the poverty trap? Is the hon. Gentleman aware that families are being taxed at levels below the social security benefit level and that in some instances the same amount is being taken in tax as is being paid in FIS? That is a totally absurd situation. May I remind the hon. Gentleman how vocal he was on the subject when in opposition and how quiet he is at the moment?

Photo of Michael Meacher Michael Meacher Parliamentary Under-Secretary (Department of Health and Social Security)

The tax threshold is a matter for my right hon. Friend the Chancellor of the Exchequer. We have not introduced any new means tests since we have been in office compared with the two significant means tests introduced by the Conservative Government. We have relied on the new non-means tested benefits that we have introduced—the non-contributory invalidity benefit, the mobility allowance, the child benefit and the child interim benefit. Far from being silent, that is a very vocal testimony to our belief that the way out of the poverty trap is to avoid means testing.