Guardian's Allowance Up-rating (Northern Ireland) Order 2006

– in the House of Lords at 1:03 pm on 24th March 2006.

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Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip 1:03 pm, 24th March 2006

rose to move, That the draft order laid before the House on 13 February be approved [19th Report from the Joint Committee].

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, we shall debate the four related regulations and orders together. Tax credits, together with child benefit, deliver financial support to the vast majority of families with children in the UK and are vital in our commitment to tackle child poverty. I am pleased to introduce these regulations and orders, which increase certain elements and thresholds of tax credits, and raise the main rates of the child benefit and guardian's allowance. In my view, the regulations and orders are compatible with the European Convention on Human Rights.

First, I turn to the Tax Credits Up-rating Regulations 2006. Tax credits play a major role in ensuring that work pays and in helping people to move up the employment ladder. Overall, 5.9 million families containing 9.9 million children are benefiting from tax credits. These regulations increase the child element of child tax credit by £75, in line with earnings, to £1,765 a year from 6 April 2006. The tax credit has increased by £320 since its introduction in April 2003 and it benefits 6.7 million children. In addition, the regulations increase the disabled child elements of child tax credit in line with inflation.

The elements of working tax credit will also increase in line with inflation. The working tax credit provides support to low-income working families, including people who do not have children. The tax credit system has been designed to offer support to people as they move between jobs and as their circumstances change. Building on the lessons from the first two years of tax credits, the Pre-Budget Report announced a package of measures to improve the system. These measures will ensure that the system strikes the right balance between providing a stable award and maintaining the ability to respond to changes.

To reflect changes in annual income, a tax credit award can be revised during the tax year and is finalised at the end of the tax year. Currently, the first £2,500 of any rise in annual income is disregarded. However, incomes have been much more volatile than expected, with short-term fluctuations making it difficult for people to give an accurate estimate of annual income. Therefore, these tax credit regulations increase the disregard for income rises to £25,000. For almost all families, this ensures that a rise in income will not lead to a fall in tax credit entitlement in the first year of the rise. The Pre-Budget Report package has been widely welcomed, by, for example, citizens advice bureaux, the National Council for One Parent Families and the Child Poverty Action Group.

I turn to the Child Benefit (Rates) Regulations 2006 and the guardian's allowance orders. Child benefit benefits almost all families in the UK and these instruments will increase rates in line with inflation. From 10 April 2006, child benefit will be worth £17.45 per week for the first child and £11.70 for each subsequent child. For the first child, this represents a 25 per cent increase in real terms since 1997. Guardian's allowance will increase to £12.50 per week. The Child Benefit (Rates) Regulations also have the effect of replacing and consolidating the Child Benefit and Social Security (Fixing and Adjustment of Rates) Regulations 1976.

With the increases effected by these instruments, we will be delivering even more support next year. We remain committed to the Government's long-term aim of eliminating child poverty within a generation and halving it by 2010, and tax credits and child benefit will remain a key part of this. Indeed, in his Budget, my right honourable friend the Chancellor of the Exchequer made a commitment to increase the child element of the child tax credit at least in line with average earnings until the end of this Parliament. I commend these regulations and orders to the House. I beg to move.

Moved, That the draft order laid before the House on 13 February be approved [19th Report from the Joint Committee].—(Lord McKenzie of Luton.)

Photo of Baroness Noakes Baroness Noakes Shadow Minister, Treasury, Shadow Minister, Work & Pensions

My Lords, I thank the Minister for introducing these orders and regulations. I initially agreed to debate the four instruments together on the understanding that they raised similar issues. When I got into the detail, I realised that this was not entirely true, but I have only myself to blame for that, so I, too, shall speak to all four together.

I do not believe that the first three instruments—the two guardian's allowance orders and the child benefit regulations—are controversial. To the extent that they uprate existing benefits by the movement in RPI, they are routine business. I would, however, like to clarify the nature of the uprated figures. The notes for the guardian's allowance orders helpfully tell us that the rate of RPI increase is 2.7 per cent, but they do not say over what period that was measured. It is only 2.4 per cent at the latest reckoning, so will the Minister say over what period the 2.7 per cent is measured?

The child benefit regulations do not mention the RPI rate at all, but I have calculated the increases actually applied as being 2.5 per cent for the guardian's allowance and 2.6 per cent for the two levels of child benefit. Will the Minister explain the rationale for these figures and will he explain the Treasury's policy towards rounding? I believe that it is the practice of the Department for Work and Pensions to round up. We perhaps should not be surprised to find the Treasury rounding down, but it would be helpful if the Minister can clarify policy in that regard.

I have one further question on the child benefit regulations. Regulation 3 has certain transitional provisions. The Explanatory Notes explain that they are to deal with transitional protection, but do not explain in what way. What type of child benefit will be paid under these provisions? By definition, they are paid to persons not qualified under Regulation 2. How many entitlements will there be? How much will be paid, and for how long?

I turn now to the tax credits regulations, and I will start with the easy bit. I tried to find out on what basis the Treasury had amended the tax credit scheme to take account of inflation. According to the Explanatory Notes, the Treasury is supposed to lay a report before Parliament each year setting out what would be required for the tax credit scheme to retain its value. The Explanatory Notes to the regulations did not give any further information—in fact, they left a square bracket for that particular information—but one of the Minister's very helpful officials sent me a copy of the Treasury's report. It shows that the Treasury, in maintaining the value of benefits and thresholds, has used rates of between 2.7 per cent and 3 per cent, which appears to be using something slightly higher on the whole than the RPI calculations. Alternatively, it is using the RPI figure of 2.7 per cent and doing a fair bit of generous rounding-up. I hope that the Minister will explain the Treasury's approach to calculating the maintenance of the value of the benefits and thresholds in line with inflation, in particular compared with the other instruments in this group.

While the Treasury has calculated the amounts necessary to protect the value of the amounts or thresholds, the regulations do not give inflation protection on a comprehensive basis. For example, the family elements of the child tax credit are left unchanged, as are some of the thresholds. Will the Minister set out the rationale for the various changes that have been made to the amounts and thresholds in the Tax Credits Up-rating Regulations?

I now come to the more important issue: the tax credit scheme itself. We know that the Government have completely mismanaged the implementation of tax credits, with the result that billions of pounds of tax credits have been overpaid and underpaid. We also know that the insensitive way in which Her Majesty's Revenue and Customs then acted in withdrawing credits and pursuing overpayments resulted in great hardship for many who were caught up in the mess, to the extent that some even became reliant on food parcels in order to survive. The Government have never issued a word of apology for that. The Government's tax credit system has also been undermined by massive fraud; somewhat belatedly, the Government closed down the online portal.

We know that tax credits are the brainchild of the Chancellor, but when they started to go wrong he was nowhere to be seen, and it was the Paymaster General who had to appear at the Dispatch Box to try to spin her way out of the extent of failure of the scheme. Perhaps it surprises no one that the Chancellor has not yet owned up to the fact that the scheme needs a radical rethink. Instead, the Government have produced a series of sticking plasters designed to give the scheme some semblance of operability. The tax credits regulations before your Lordships' House today contain one of those sticking plasters—a very large one.

As the Minister explained, the order increases the income disregard from £2,500 to £25,000, in effect putting the tax credit scheme for most practical purposes on to a prior-year income basis. We have tried hard to find out the cost of this massive change to the construction of the scheme, but the Government have hidden behind a complete fiction—namely, that the cost of this change cannot be separated from the other changes to tax credits announced in the Pre-Budget Report. We know that it is a fiction because officials from HMRC told the Public Accounts Committee in another place that they had the calculations. Since then, though, they have been prohibited from revealing them by the Treasury. Any accountant knows that it is perfectly possible to calculate the effect of one element of a number of changes. It just requires a little logic.

The PBR changes to the tax credit scheme overall were said to cost £100 million in 2006–07, but to produce savings of £200 million in 2007–08. In the past, the Government have said that the £2,500 disregard cost £800 million. If income volatility is indeed a feature of the income groups affected by tax credits, we might conservatively guess that the new disregard of £25,000 might cost three or four times that—around £2.5 billion, say. That means that the Chancellor's other measures in the PBR—namely, the timing and the increasing checks—are expected to produce reductions in tax credits of roughly that amount. That is why this issue is important. We need to know who is affected by the changes. Will it be the poorest, who need the tax credits most, or will it be middle England, who, with the £25,000 disregard, can now be within the means-tested benefit net at income levels of over £90,000? We do not believe that there can be a sensible debate about the elements of the changes to the tax credits that were made in the PBR until the Government are honest about the cost and incidence of the individual elements of the package.

My main question to the Minister today is: will he come clean on the cost of the increased income disregard set out in these regulations, and indeed of the other elements of the changes to the tax credit package set out in the PBR? Will he also say whether the Government yet have any strategy to get themselves out of the tax credit mess?

Photo of Lord Oakeshott of Seagrove Bay Lord Oakeshott of Seagrove Bay Spokesperson in the Lords, Treasury, Spokesperson in the Lords, Work & Pensions 1:15 pm, 24th March 2006

My Lords, I will deal with these four instruments in the order in which they are set out before us. I have no objection to the first two, but I have a question. On the Guardian's Allowance Up-rating (Northern Ireland) Order, I was interested to read that,

"the Treasury have determined that the general level of prices was higher at the end of the period under review than it was at the beginning".

I could have told it that from my weekly shop at Tesco in Kennington. But the serious point, given that we talk about Great Britain and then make this order in Northern Ireland, is this: are there any separate figures available for the different rates of increase in the cost of living over the years in Northern Ireland against Great Britain, which of course does not include Northern Ireland? To put it another way, would the lady in the Belfast supermarket be having the same experience of rising prices as we have in England?

I turn to the tax credits regulations. I do not propose today to follow the noble Baroness, Lady Noakes, in her analysis of the problem. I certainly share her analysis, and my honourable friend David Laws has led the way in exposing this chaos in the House of Commons. Frankly, the way that the Government, and the Paymaster General in particular, have refused to answer perfectly reasonable questions about the breakdown of the estimates of the cost saving has been a disgrace. I have read the minutes of the Paymaster General's oral evidence to the Treasury Committee on 1 February, and I am bound to say it is one of the most embarrassing performances that I have ever seen by a Minister. She repeatedly has to say things like:

"I am going to ask Tony to do this. I am really flagging now".

She has been flagging most of the time. We then get an answer from the official on the composition of costs:

"It is roughly what we expect to happen with the different factors interacting in that package once we get to steady-state".

They just all run off into jargon. At the end, the Chairman has to say:

"In your opening statement you said the 25,000 was designed to assist the 200,000 people who move to new and better jobs. If that is the case, why is it not possible to cost the disregard, to tell us roughly how much it is going to cost?"

Again, he gets a classic non-answer.

This episode, more than anything else, shows how difficult it is—indeed, what a scandal it is—that no single Treasury Minister has any business experience at all. I am delighted that that does not apply to the noble Lord on the Government Front Bench today, but he is a Whip manning an outpost, not a Minister in the Treasury. Like the noble Baroness, Lady Noakes, I demand—I do not think that is too strong a word—a proper breakdown. If the noble Lord is not in a position to supply one today, will he take back to the Treasury the message that we in this House are not happy with the lack of proper explanations for the costings here?

Finally, the child benefit rates regulations are not significantly controversial, like the first two orders, but I wonder what the position has been. I believe that the position of second and third children was significantly de-indexed under the Conservatives. They slipped back a long way and there does not seem to have been much of a pick-up under the Labour Government. Can the noble Lord help me on the background for that?

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Labour

My Lords, like other noble Lords, I welcome the uprating statement, in particular the Budget announcements on tax credits. We know that if we are to continue our successful story in trying to beat child poverty, by definition benefits, particularly child tax credits, have to rise faster than earnings in order to go above the median 60 per cent figure. That is a tall order and the commitment of the Government to that and the willingness of the Chancellor of the Exchequer to fund it are impressive.

The big problem about tax credits has been that in the 200,000 or so movements a year that we get in tax credits, the really big move beyond the £2,500 figure was of the second parent in a relationship going back to work. I suspect, but I have no evidence for it, that the figure of £25,000 may have been aligned with median earnings, roughly speaking, to cope with the effect of the first year.

The noble Lord, Lord Oakeshott, is absolutely right about child benefit and second and third children. We are increasingly seeing that poverty is focused in larger families, often workless families, rather than in smaller families. Therefore, I hope that my noble friend will take back the noble Lord's argument that we should be strengthening payments going to second and third children to mitigate the poverty in larger families. Half of poor children now live in larger families. Some help on the structure of child benefit or in tax credits would be welcome.

I wish to comment on a small benefit that we seldom debate: guardian's allowance. I welcome the uprating. It used to be stewarded by the Department for Work and Pensions but a few years back it rightly went to the Treasury. Guardian's allowance is a modest additional allowance that is paid to a guardian—usually a grandparent, sometimes an elder sibling—to care for a qualifying child who has no parents. A parent cannot receive this allowance. The carer has the child benefit book. It was originally designed for orphans; for example, a child orphaned because his parents were killed in a car crash. Over the years, the allowance has been tweaked a little to extend it to "moral orphans"; that is children whose parents have disappeared off the landscape, usually because one parent is dead and the other is in prison or in a long-stay mental health hospital. As a result, we have been able to get a little additional money—£11 or £12 a week—in addition to tax credits and child benefit to elderly grandparents, often pensioners, who late in life take on guardianship responsibility for a child who has no parent to care for him and who would otherwise go into the official care system where fostering costs are £300 per week or more.

How many children does it affect? My figures are out of date, so my noble friend can correct me if I am wrong, but they show that this allowance helps some 3,000 children a year at a cost of about £2 million per year. It is a tiny benefit. Today, I ask my noble friend to see whether he can extend a little more widely the concept of a moral orphan—a child whose carers or guardians receive guardian's allowance—in order to provide a more generous description. I was triggered to ask him this by a letter I received a couple of days ago. I have changed the names to anonymise the people. Mr and Mrs James are in their 60s and are shortly to retire. They have a teenage grandson, Pete. Their daughter died in hospital five years ago and, following that, her partner turned to drink and drugs. He is now addicted and has lost his home. Pete went to his grandparents to be looked after rather than go into the formal care system. The grandparents receive tax credits of about £10 per week and child benefit. All together, they receive an income of about £28 per week for Pete, which by no means covers the cost of a teenager. They applied for guardian's allowance and, technically quite correctly, the decision-maker refused it because when their daughter died they knew the whereabouts of the child's father. It was a matter of timing. Had the partner disappeared at the time of their daughter's death, they could have applied for and got guardian's allowance. Had they applied for and received guardian's allowance and the partner subsequently reappeared, the guardian's allowance would not have been removed from them. They would have kept it.

As it is, they have had no contact, so far as I know, with the child's father—he has been off the landscape for three or four years. Yet, under the small print of the formula, although they are grandparents approaching pension age, already very hard-pressed looking after their grandson, who they love to bits, to avoid him being taken into care, they are financially penalised because of the way that we have drawn up the description of the guardian's allowance.

It is small beer money, £2 million a year among some 3,000 children, but it has been key to keeping many children out of the formal care system with the financial cost that brings and the huge emotional damage that it can do. We know what happens when children go into the formal care system; they seldom do as well as they would if they remained with a member of their extended family. I am not criticising the decision in the case I cited; it was technically correct. However, I ask my noble friend to take this matter away to see whether we can use guardian's allowance more widely. Before this allowance went over the Treasury, the Department for Work and Pensions was exploring whether it could be used in a more generous and sensible way to help members of an extended family care for a child when there was genuinely no parent in play. That is often because one parent has died, but may be because the parent is in prison or a long-stay hospital or because, as a result of mental health problems, substance abuse and the like, the child can no longer be cared for by the parent and the parent cannot reasonably be expected to provide financial support. The whole burden of responsibility falls on the grandparents.

I leave it to my noble friend to explore whether this requires primary legislation or whether it can be done through looking at tax credits, but I ask him to take this issue away and follow up the work that should have been done several years ago. We started to make the concept more generous, but we did not get far enough before the stewardship passed. I ask my noble friend to take up the baton today to see whether we can help to keep more children out of the care system by rethinking the role of the guardian's allowance.

Photo of Lord Biffen Lord Biffen Conservative

My Lords, I apologise to noble Lords and particularly to the Minister for not being present at the beginning of this debate. Having had an enervating morning in a hospital bed, I have come along to offer a small comment. It will not be of the same contentious nature as those offered by my noble friend Lady Noakes and the noble Lord, Lord Oakeshott, which demonstrated the great anxieties about how this policy has been executed. I will confine my remarks to the tax credits uprating regulations.

In the situation revealed in this morning's debate, there must be some anxiety over the divorce between the objectives of policy and how they are being achieved. I cannot believe that this is entirely the result of Treasury ineptitude. I therefore wonder whether use has been made of consultants in the preparation and execution of this policy. Perhaps the Minister could confirm whether that is so and, if appropriate, indicate those consultants' names. I am asking for no more than that. Of course, I do not expect it to be answered in the Minister's wind-up to this short debate, but it would be helpful to have it on the record.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip 1:30 pm, 24th March 2006

My Lords, I thank those who contributed to the debate on these orders and regulations. It has been an interesting review. I will seek to deal with each of the points raised.

The noble Lord, Lord Biffen, asked whether consultants have been involved in the construction and operation of the tax credit arrangements. There was originally IT system support from EDS; the issues surrounding that contract have been aired in the public domain, and a settlement reached. Capgemini is the current IT contractor. I am not sure, and do not have data on, whether consultants were used more extensively in the system. I will come back to the central point of why the system, as structured, will inevitably have overpayments and underpayments; it is inherent.

I acknowledge the longstanding work of my noble friend Lady Hollis in this area, and her knowledge of the subject. She will be aware that guardian's allowance was never intended to provide support for children generally. The provision of financial support for children is and remains the responsibility of parents. Where parents abandon children to the care of others, it is for local authorities to consider what additional help might be forthcoming. However, I acknowledge her important point and undertake to draw it to the attention of my right honourable friend the Paymaster General, who I am sure will get back to her on this key matter.

The noble Baroness, Lady Noakes, asked about the basis of the uprating. I hope I can satisfy her on her queries. The rise in the child element of the child tax credit is linked to earnings: 4.2 per cent. I think that is the average of the three months to July of last year. The RPI basis is the rate applicable on 1 September of last year: 2.7 per cent. The noble Baroness asked more generally whether it is policy to round up or down. I do not have anything specific on that, but I believe that it is rounded to the nearest 5p, whether that is up or down. If the position is different, I will ensure that she is informed of the principle.

The noble Lord, Lord Oakeshott, raised issues about child benefit generally, whether it was falling behind, and what has happened in relation to the second child. Child benefit is an important component of support for families with children. As I said in presenting these orders, it has increased 25 per cent in real terms for the first child since 1997. For the second and subsequent children, it has been uprated by reference to the RPI. That is in stark contrast to what happened before this Government came into office. There was a three-year freeze in child benefit between 1988 and 1990, so this Government have a good record on that.

The noble Baroness, Lady Noakes, asked about transitional provisions in the regulations. The transitional regulations continue to provide entitlement for certain lone parents who have been continuously entitled to child benefit lone parent rate since it was abolished in 1998. The transitional regulations will enable these people to receive child benefit lone parent rate if they cease to be entitled to specified benefits which currently prevent payment of child benefit lone parent rate, or they come off income support or jobseeker's allowance to start work. The child benefit lone parent rate is payable only for the first child, and has been frozen at £17.55 for the past few years. It will be extinguished when the normal enhanced rate increases above £17.55. Perhaps the noble Baroness will look at the record on that and, if she requires anything further, come back; I am sure we can satisfy her on that point.

The cost of the pre-Budget report package of measures was raised, as it has been elsewhere. I stress that there is a package of measures here with components that are a cost to the Exchequer, including the £25,000 disregard. There are also components which are a yield to the Treasury: the shortening of the renewal window; the mandatory reporting; the collection of original income estimates; the reduction in time allowed to report changes reducing entitlement; and the withholding of accrued underpayments. These have been costed as a package, because they interrelate. If you stripped away individual bits of it, the outcome would depend on the order in which you took them. I reiterate the point made by Treasury officials before the public accounts hearing: it has been costed as a package and that is the information which has been provided. I do not think I can reasonably add to that.

There was some speculation about the increase in the cost of the disregard being two to two and a half times the £800 million for the £2,500 disregard. We do not accept that assumption, as many families experience relatively small income rises over a year, and the £2,500 disregard benefits many families. Obviously, comparatively fewer families will be affected by the disregard up to £25,000.

A question was raised about why there was no uprating of some components, and why the Government are freezing the CTC family element. Obviously, there is a finite resource that can be applied to this uprating. The Government have to find the right balance, given limited resources, between supporting families with children across the whole income range, and appropriately targeting support on families with lower incomes who need it more. This is why we have concentrated on the particular increase in the component of the child tax credit, and not generally uprated those other components.

On the alleged mess of the child tax credit system and the tax credit system generally, we should acknowledge that it has been of huge benefit in helping to lift children out of poverty: some 700,000 children since 1997. The working tax credit is about encouraging people into work, facilitating their transfer into it and making it pay. That has been hugely successful across the board: some 2 million more people in employment under this Government. When the system was designed, it was acknowledged that, because it is responsive—it is not based on fixed income of a prior period, responding to changes during the year—you will inevitably end up with underpayments and overpayments at the end of the year, when a squaring-up has to be done. That is an intrinsic part of the design of the system. Yes, there were some particular challenges at the start of the system, such as a learning curve as to the number of families who would increase their income or go into employment, which were not anticipated. There were certainly also difficulties with the IT system. Each of those is being worked through and addressed. That is why the package that my noble friend introduced in May last year, looking at administrative changes and the changes in the pre-Budget report, has been so important in making sure that the system works more effectively and is reaching the people that it should.

The benefit is reaching in the first year just under 80 per cent take-up, and 90 per cent or 91 per cent of the poorest families were availing themselves of those important measures. That is making a real difference; it is transforming their lives in a very positive way. The Government stand fully behind the tax credit system. The noble Baroness said that she is looking to see it reformed; we would be interested to see in what way she considers it might be reformed. We have not heard any detail of that.

We need to make sure that we deal with issues of fraud. Particular issues arose in November last year associated with identification theft from Network Rail and from DWP. That was spotted very early on in the system, and HMRC acted to stop that. It stopped making payments, and a range of investigations are under way to deal with that. Again, this is a significant system—the annual cost of the tax credit system is £12 billion to £13 billion. It was inevitable that there would be some targeting of fraud on the system, which is why protections were put in place. We need to be ever vigilant on these matters.

I refuse to accept the assertion that things are in chaos. This is helping lots of families in a very real way, particularly families with children. I am not sure whether I have answered each of the questions that have been raised. If I have not, I am happy to have another go.

Photo of Baroness Noakes Baroness Noakes Shadow Minister, Treasury, Shadow Minister, Work & Pensions

My Lords, the Minister has repeated the refusal to give the costings of the elements of the package of changes made in the PBR, and perhaps that did not surprise us. He said that it cannot be done; of course it can be done. Before they made their decision on the package of changes, did the Government have any analysis put to them of the effect of the individual changes, in particular the incidence of the changes in numbers of tax credit recipients from the different elements of the package? What sort of analysis was made available to the Government before they decided on this so-called package?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, I do not have the precise detail of what was submitted to Ministers before me. I reiterate that these matters were looked at as a package, because the order in which you unpick the individual components could impact on the amount that you attach to each component. The work has been done, looking at it as a package, and I believe that is the correct way to do it. Those figures have been put clearly before both Houses.

Photo of Lord Oakeshott of Seagrove Bay Lord Oakeshott of Seagrove Bay Spokesperson in the Lords, Treasury, Spokesperson in the Lords, Work & Pensions

My Lords, that really will not do. No business considering a plan could possibly not look at the individual elements in that package. While one understands that there may be inter-relationships and there may be behavioural changes, it is quite ludicrous to say, as the Minister is saying, "Trust us; we are the Treasury". Frankly, we do not.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, I am not saying that. I am saying that the package of measures has been costed. That costing has been laid out in the Pre-Budget Report, and it has been extended since so there is a five-year projection of the costs, benefits and savings that come from it. It is entirely appropriate to look at the whole package of the measures that were introduced together as a development of the system.

Photo of Baroness Noakes Baroness Noakes Shadow Minister, Treasury, Shadow Minister, Work & Pensions

My Lords, if the Minister persists in the view that it has to be looked at as a package, will he nevertheless say for the package overall how many individuals suffered from the introduction of the package and how many did better from the introduction of the package?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, that depends on how people respond to the package. Obviously, those people whose incomes increase beyond £2,500 in a period who will not have that clawed back are potential beneficiaries, but the need to report income earlier and to respond to other elements of the package could have an adverse effect on such individuals. We believe that the overall impact could reduce overpayments from rises in incomes by one-third by 2007–08.

I have tried my best to deal with questions on that matter. I have been consistent with explanations given in another place and to the Public Accounts Committee. As I said in my introduction, these regulations and orders increase certain rates and thresholds and are in line with the Government's commitment to make work pay and tackle child poverty.

Tax credits provide financial support to nearly 20 million people. They play a major role in moving people into work and aid mobility of labour, helping men and women move up the employment ladder, thus achieving the Government's aim of greater employment flexibility. The policies have combined with economic stability, which has helped to increase the number of people in work by 2.4 million. In any single year, three million people change jobs and 200,000 men and women who move into new or better-paid jobs see their family income rise by more than £10,000. The tax credit system has been designed to offer support to people as they move between jobs and as their circumstances change.

Tax credits together with child benefit deliver support to virtually all families with children in the UK. They tackle family poverty, with 700,000 children lifted out of relative poverty since 1998–99 and 1.8 million lifted out of absolute poverty since 1996–97. I commend these regulations and orders to the House.

On Question, Motion agreed to.