Clause 1 - Introductory

Tax Credits Bill – in a Public Bill Committee at 10:30 am on 15 January 2002.

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Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions 10:30, 15 January 2002

I beg to move amendment No. 63, in, page 1, line 7, at end insert—

'(1A) The child tax credit shall be a family benefit for the purposes of Council Regulation (EEC) No. 1408/71.'.

I hope that the brief amendment will not detain the Committee long. We must consider the status of the tax credits in the Bill under existing domestic law and European law. European law makes provision for a category of benefits known as family benefits to be treated in a particular way for people who work in one country and have children in another.

The critical element is the European Community regulation 1408/71, as I am sure the Committee will know. The two issues are whether the person comes within its scope, and whether the benefit comes within its scope. A person is covered by the regulation if he is liable to pay social insurance in one or more member states of the European Union and has exercised free movement. We are, therefore, discussing people who move to obtain work in the EU. They may be covered by the provisions if the regulation classifies the benefit as a family benefit. Clearly, the family credit used to be treated in such a way, as did the working families tax credit, which was a renaming of the family credit. That has now been split into an adult part and a child part, and the amendment is designed to make it clear whether the child part, at least, will be categorised as a

family benefit. We believe, and consistency demands, that it should. I hope that the Minister will accept the amendment.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs 10:45, 15 January 2002

The Conservatives have raised the same issue in subsequent amendments that relate to the EU. Clarity is needed both in regard to EU nationals and, possibly, Commonwealth nationals who may be resident here, on which clause 51 touches. What is the Government's policy?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

This is a very specific amendment, which I shall treat as a probing amendment. I can answer the hon. Gentleman's question, but it is not necessary for the Bill to be amended, because the provision exists anyway. The amendment is not appropriate, and if the hon. Member for Northavon were to press it to a Division, I would have to ask the Committee to oppose it.

Such provisions do not need to be included in a Bill. The European regulation to which the hon. Member for Northavon refers is, rightly, directly applicable, and it is not necessary to transpose the provisions in that regulation into domestic law. It would be much better, and it would make for a better Bill, if the hon. Member for Northavon were to withdraw his amendment.

The hon. Member for Northavon asks for clarification about how European social security law within the regulation will treat the new tax credits. A small caveat is necessary. The field is complex and evolving, and the precise treatment of the tax credits under European law may depend on some of the detailed aspects in the final design, which we are considering carefully. Our provisional view is that, as the hon. Member for Northavon said, family credit, and working families tax credit, was, like child benefit, considered to be a family benefit under the regulations. We therefore believe that the child tax credit will fall within the family benefit.

We believe that the working tax credit will fall outside the scope of the main co-ordinating instrument to which the hon. Member for Northavon referred in European law. As we conclude the Bill, we shall be able to take a view on that. However, that is our provisional view, and that will happen automatically. That implies treatments under European law, which I shall not discuss now, as later amendments relate to those issues.

I hope that my explanation has been clear and that the hon. Member for Northavon will agree that the amendment is unnecessary. It is clear and on the record which credits, under the regulations to which he refers, will be designated a family benefit and why the working tax credit would not.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

I am grateful to the Minister for the constructive way in which she has begun, which I am sure will continue, and for placing on record the Government's provisional view that the child tax credit element will be regarded as a family benefit, subject to the fine print and details. Having received

that assurance, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

I beg to move amendment No. 1, in page 1, line 15, leave out paragraph (d).

Photo of Jimmy Hood Jimmy Hood Chair, European Scrutiny Committee, Chair, European Scrutiny Committee

With this it will be convenient to take amendment No. 2, in page 1, line 20, leave out paragraph (e).

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

Clause 1 brings to an end three benefits that are not work related. It is our understanding that the working tax credits are intended to focus on work circumstances and people in work, thereby, in the main, leaving the Department for Work and Pensions to administer benefits for those not in work. In principle, it is not sensible that certain benefits that are not related to work should be administered by the Inland Revenue, rather than by the DWP, which will be administering other benefits for those not in work.

This is a probing amendment. We wish the Government to explain why this policy is being pursued. We are concerned because the working tax credits are to be delivered through bank accounts, and that will depend on the universal bank being fully operative by April 2003, which looks a little doubtful. People who are not in work are most in need of benefits, and therefore it is important that there should not be any problems with the delivery of these benefits.

In some regards, amendment No. 49, which has been tabled by the Liberal Democrats, addresses the same issue as I am raising. I want the Minister to explain what will replace these benefits, and to state whether it is Government policy to end them.

The amendment pertains to that point because the benefits covered by clause 1(3)(e) are the extra non-means-tested benefits for children that accompany incapacity benefit, invalid care allowance, severe disablement allowance and widowed mothers and parents allowance, and which amount, at present, to £11.35 per week. The clause does not make it clear whether the new arrangements are going to replace those benefits, and if that is to be the case, whether they will do so in whole or in part. Can the Government confirm that nobody will be worse off? There are 630,000 recipients of those benefits, and I have received information from the Library that suggests that about 150,000 of them will lose their £11.35 per week. If that is the case, the Government's consultation document might have stated more openly that this was their policy and intent.

I wish the Minister to confirm that I have correctly understood that, and to explain what—if anything—will replace those extra non-means-tested benefits. I understand that, technically, people will not be able to claim child dependency increases if the Bill is enacted. It will not have a financial impact on someone whose income is sufficiently low to qualify for means-tested benefits, but 150,000 people whose income is not sufficiently low will lose out.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

When I first read amendment No. 1, I could not see the point of it. The Bill is intended to sweep away existing systems of support for children and to roll them into an integrated system—which is

why we did not oppose it on Second Reading. Therefore, clause 1(3)(d) is essential; it is designed to get rid of the separate systems, and to roll them into one.

I do not support amendment No. 1 for that reason, but I agree with the hon. Gentleman's suggestion that it should be viewed as a probing amendment to explore what the Government have in mind with regard to the transition.

At present, someone who receives a contributory benefit that is in excess of the adult rates of income support but less than the combined adult and children rate would receive income support to bring them up to the poverty line. Once the adult and children elements are separated, someone whose contributory benefit is in excess of the adult element will not receive any income support, but they will receive some payment of child tax credit.

The Committee will want to know how procedures such as passporting will operate under that sort of arrangement. Income support is a passport to 100 per cent. housing benefit. If someone has a contributory benefit that takes them out of income support under the split system, will they still receive 100 per cent. housing benefit? If that will be the case, how will that operate? That is not clear. Similar questions arise with, for example, passports to free school meals. Therefore, as the hon. Member for Arundel and South Downs has suggested, amendment No. 1 should be viewed as a probing amendment that gives the Committee a chance to raise such questions.

Amendment No. 2 should be viewed differently from that. It addresses the transition for people who are currently receiving the benefits that are referred to in subsection (3)(e). There is also an issue surrounding whether new claimants should receive those benefits. A typical case might be someone on incapacity benefit, who is receiving contributory benefit above basic adult means-tested benefit rates, and therefore would not move over to integrated benefits in full, but would get a partial, or, potentially, a nil rate of child credit. The total amount of support going to those families would therefore fall, or would be lower than it would have been without this element of the Bill. Given the Government's proper objective of halving then abolishing child poverty, people on relatively modest incomes will lose out from clause 1(3)(e). People on incapacity benefit, sick people, widowed mothers and others will be made worse off by the provision. That seems to go against the Government's stated aim of reducing child poverty. Those people will not necessarily be fully compensated through integrated benefits, which is why the Conservative party and the TUC—strange bedfellows—were concerned about the measure.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

The amendments touch on several complex points, which have been addressed in the debate. First, a point was made about entitlement to dependency increases. Secondly, the issue of floating off income support was raised. Thirdly, the question of passporting—whereby income support triggers an automatic transfer to other benefits—was raised.

On the first point, the amendments would prevent the abolition of child and family premiums within income support and income-based jobseeker's allowance, as well as child dependency increases. That is contrary to the principle that the Government are rightly pursuing, and which the hon. Member for Northavon identified, of developing the child tax credit, which provides a continued stream of support to families with children, regardless of whether the parents are in or out of work. We intend the child tax credit to replace the child and family premiums within income support and jobseeker's allowance, as well as increases for some children in some other benefits. We are trying to streamline the system to make it more transparent. Individuals and couples who are out of work will continue to receive the adult element. We are therefore leaving in place the adult elements, which are determined by being in or out of work, but putting all of the child premiums into the child tax credit.

For example, if someone is unemployed and in receipt of jobseeker's allowance, his or her jobseeker's allowance would comprise the adult elements only of jobseeker's allowance for that household, but they would be transferred to the maximum child tax credit. As hon. Members will recognise, we have raised income support levels of child premiums significantly—by 70 per cent.—over a period of time.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

When I have finished this point, I shall give way to the hon. Gentleman.

In a household that is in receipt of income support or jobseeker's allowance, income for adults would be from income support or jobseeker's allowance. For the children, the child tax credit would be provided, regardless of whether the parents are in or out of work, thereby removing the stigma and recognising the Government's objective to tackle child poverty. We have therefore moved the relevant allowances. It would be bizarre to remove the stigma in relation to being in and out of work, but to return to the system whereby all child premiums are within income support or JSA.

Photo of Mark Hoban Mark Hoban Conservative, Fareham

The Minister referred to two streams of income in relation to people who are unemployed—the adult element of jobseeker's allowance and child tax credits. Will people who are unemployed receive two separate payments or just one, and with what frequency will the payments be made?

Mr. Flight rose—

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I shall give way to the hon. Gentleman before I answer that point because that is the procedure.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs 11:00, 15 January 2002

Further to that point, will claimants need to go to two separate portals: the Inland Revenue for the child part, and the Department for Work and Pensions for the adult part?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

The intention is that individuals will apply directly through the Jobcentre Plus offices. They would make one application at that point, which

would trigger income support or JSA payments to adults and, if they have children, it would also trigger child tax credit payments. Those individuals would receive two separate payments because child tax credit is paid directly to the main carer, as is child benefit. In the case of income support or JSA, it is conceivable that that payment would not go to the main carer. When we debate later clauses, we will see the crucial importance of paying to the main carer as part of the Government's anti-poverty strategy. We reject the amendment because it would leave in place the current system for those out of work, which undermines the principle of the children's tax credit.

I would like to comment on dependency increases, and then move on to the question of those who may float off income support. I am sure that the hon. Members do not intend the actual outcome of their amendments, which would leave the current system in place for those unemployed. The introduction of the new credit will rationalise the Government's financed income streams for children. Families' needs have changed over the years, particularly since the child dependency increase was introduced. I remind Conservative Members that the Social Security Administration Act 1992 provided for the withering on the vine of child dependency increases, which reduce in line with increases in child benefit. I know that the previous Government did not like child benefit, and did not increase it much, but our Government do not agree. We perceive child benefit as being important and increased it by 26 per cent. in the previous Parliament.

Because families' needs have changed, we must make the new system easier to understand. If we make the system more transparent by integrating provisions for families in and out of work, it would seem odd to perpetuate the distinction between families receiving contributory benefits and those who are not. That would simply cut the same problem a different way. The value of child dependency increases has diminished and existing social security legislation allows for them to reduce, although payments are still made. Rather than allowing dependency increases to run out of the system as child benefits increase, we have considered families' real needs and supported them in a more strategic way. Most families who receive child dependency increases will benefit financially from the new tax credits, particularly those on low incomes. I know that Conservative Members will say that we cannot settle that precisely until the thresholds and tapers are determined. That is true for the whole population. However, that group will be financially better off. Approximately half the families with child dependency increases cannot receive income support or jobseeker's allowance, as they have other income but are not in work. Their extra income will be generated when the child tax credit is introduced.

We recognise that such families are used to the current system. Changes to benefits can be disruptive to family budgeting. We therefore want to make the transition from the CDIs to the child tax credit as

smooth as possible. That is why we propose to preserve the entitlement for existing recipients. It is always an issue when one benefit replaces another. When the transition is complete, those who already have the entitlement will be in a better position.

Photo of Hugo Swire Hugo Swire Conservative, East Devon

Does the Minister have any idea how long the transition will take?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I know the answer to that question. It will come to me in a moment of inspiration, and I will return to it. Before the hon. Gentleman intervened, I was discussing the position of those who may float off income support, but he should prompt me if I do not give an answer.

The issues are complex. The Government seek to assist people who receive benefits. The child tax credit will ensure that there is no loss. There will be considerable benefit for some, and we are consulting on how we manage that transition. It is important that all those who will be affected know what the changes are, are kept informed as the changes are gradually made, and are fully aware of their position vis-a-vis their benefit entitlement. I have learned as a Minister that when people are used to budgeting in a particular way, they still have to make the transition even though what they are moving to may be better. We are attempting to address that issue by introducing the child tax credit.

Photo of James Clappison James Clappison Shadow Spokesperson (Treasury)

The Minister has not yet answered the question, which several hon. Members have asked her, about those who become entitled to a child dependency increase, for example by becoming entitled to incapacity or other benefits. Will some people who would have received the child dependency increase if the present system had continued, not be entitled to the child tax credit?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I will first answer the question from the hon. Member for East Devon (Mr. Swire). The answer is obvious and I wish that I had realised that. Because it tapers away, the transition lasts for as long as it takes the increase in child benefit to reduce and cancel the child dependency income. One cannot say that the transition will last for five, six or seven years, as it depends on the interaction with the provisions that were introduced in 1992 by the Conservative Government. As child benefit increases, the child dependency allowance goes down.

With regard to the intervention made by the hon. Member for Hertsmere (Mr. Clappison), some people who receive child dependency increases are not entitled to income support, but will receive more from the child tax credit. Such people are not entitled to income support because they may have other forms of income.

When we discuss other clauses it will become clear that, because of the way that child tax credit is structured, it lasts longer. That would be true even if the tapers were the same as those of working families tax credit, because those tapers are lower. Obviously, all those who currently receive such benefit would continue to do so. Provision for industrial injuries and war pensions are dealt with under separate legislation that we do not consider it appropriate to remove at this time. Those are different types of payment. They are more about compensation than social security and

would therefore be treated separately. I agree with the child dependence increases, and hope that I have made what is a complex area as clear as possible.

There is also the issue of people who will float off income support. When child tax credit creates an income for the family—either in its own right or with other income—it could possibly take a person beyond income support levels. The hon. Member for Hertsmere will understand that I do not want to go down that route at the moment, because the issue will depend on thresholds and tapers.

That leads to passporting. Because the working families tax credit was far more generous, we were unable to use the credit payment as the flag for passporting. We worked out a value that protected all those who were in receipt of passporting at that time. We are discussing how to make passporting work in the simplest way within the new tax credit system—it is complicated because there are many issues, whether it is milk or more straightforward matters such as prescriptions—given that the new tax credit will support families further up the income scale when automatic passporting would not be appropriate. We want to protect the position of those on income support. Passporting issues have more to do with those who are higher up the income scale and we have to decide on an appropriate figure at which to put the flag. That is a matter that, as I said, we are discussing with several Departments.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

I am grateful to the Minister for giving way. She said the Government intend to preserve passporting for those on income support. Will that include people who floated off income support? Given the way that such matters are split, under the present system, income support would remain subject to passporting. Is that what the Government is trying achieve? Would a person who is entitled to income support under the present system still receive 100 per cent. housing benefit and the passports, regardless of the mechanism by which they receive money under the new system?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I do not wish to mislead the Committee, but nor do I want to put doubt in the minds of hon. Gentlemen about our intention. We want to ensure that the appropriate packages of support are provided for those families in greatest need and for families that are eligible for them. To achieve that, we have to discuss the issues with other Government Departments. For example, the Department for Education and Skills has proposed an amendment to the Education Bill to allow an entitlement for free school meals to be attached to appropriate criteria within the new tax credit. That is under discussion. It is a highly complex matter and we shall have the opportunity to return to it in Committee and during later stages of the Bill. At present, the Government expect to be able to give a clear explanation before we finish our proceedings in Committee, as hon. Members discussing the Bill on the Floor of the House and those the other place will need to know such details.

I have tried to deal with these complex issues in as straightforward a manner as I can. If amendments Nos. 1 and 2 are not withdrawn, I shall ask the Committee to oppose them. Amendment No. 1 would undermine the principle of there being a continuous stream to the family. I hope that I have clarified how that will work and that I have demonstrated that there will be a suitable transition, particularly for the child dependency increases.

Passporting is being addressed. Obviously the Committee will return to the matter, and I hope to be in the position to give some answers. However, I cannot make any promises at the moment. People think that Treasury Ministers are all-powerful, but we have to discuss and negotiate with other Departments. It would be improper for me to say something now without having made it clear that my colleagues in other Departments support my views. I have explained the position as delicately as I can. I hope that the Committee considers that I have been as helpful as possible so far and that the hon. Gentleman will withdraw the amendment.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions 11:15, 15 January 2002

I am grateful to the Minister for the clarification that she was able to give. She said that the precedent in respect of passporting when a benefit system changes was the use of a cash sum to replace a passport to benefit. I hope that the Government are not about to replace benefits with cash sums, whenever possible. For example, I hope that a cash sum will not be given instead of free school meals. I wish to place on record my concern if the Government were to go down that route.

Amendment No. 1 has enabled the Committee to probe into the matter, so I shall not pursue it. The background to amendment No. 2 still worries me, however, because the Minister has not said that there will not be families who will worse off as a result of the abolition of child dependency increases. I accept her point about transition, but because of the abolition of increases under subsection (3)(e), new claimants will not receive additions to their capacity benefit nor full recompense. They will be worse off and will set back the Government's goal of reducing child poverty. I still consider that amendment No. 2 raises some important issues.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

I thank the Minister for her response to amendment No. 1, with which we are satisfied. We are pleased to note the Government's conversion to our argument to pay benefits to the carer.

I am not satisfied with hon. Lady's response to amendment No. 2. I refer first to a legal point. The Government said in the regulatory impact assessment to the Bill that they would continue the benefits under clause 1(3)(e) to those who receive them at present. However, those benefits are to be abolished by the Bill, so how can people legally continue to receive benefits that have been abolished?

Secondly—I echo the comments of my hon. Friend the Member for Hertsmere—the Minister said that, unless the incomes of new claimants are low enough to qualify for means-tested benefits, those just above that level will be £11.35 lighter. If not, will the Minister

make it clear that the Government intend that people will not be worse off under the complex new arrangements?

On passporting, I confess that I was not fully clear about what the Paymaster General was saying. However, it seemed that the same point obtained—for those who are on income support, there would be no change in passported benefits, but if their income was not low enough, they might be worse off. Whether or not we press amendment No. 2 to a vote depends on a clear understanding as to whether people will be worse off under the new arrangements in relation to CDIs and passporting.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

In response to the hon. Member for Northavon, I was not referring to replacing benefit with cash. As working families tax credit is more generous, I was commenting on the fact that, instead of just flagging up that those in receipt of it will be passported on to other benefits, we set a cash point—£12,000, I think, although I cannot remember the precise figure. That ensured that everybody who was passported remained passported if they had had an extra gain, but not if their income level was such that that would be inappropriate.

On the points made by the hon. Member for Arundel and South Downs, I explained that, in relation to those who are already in receipt of benefit, with the exception of the two benefits that I identified, the process that has been going on since 1992 will continue: provision will reduce as child benefit increases. On new claims from 2003—this is subject to decisions on rates—we would expect most families who were previously eligible for CDI to receive a more substantial tax credit award, with the exception of families who are already enjoying relatively high incomes, or those who are living overseas. That caveat is working its way through the system.

On replacement of CDIs, the child tax credit will become available to many families who do not fulfil the qualification conditions for income support or JSA, or, currently, for working families tax credit. That is a further boost. The general extension will therefore benefit many families who are currently receiving non-means-tested benefits. Tax credit rates will be determined by the Budget process, and, within those constraints, I am trying to give the Committee the strongest steer that I can.

The final point made by the hon. Member for Arundel and South Downs was on the transitional arrangement. I understand the legal point about whether it will work, but the regulations will spell out the way in which it will operate. I am advised confidently that that is correct, and that we can continue with the provisions. I therefore ask the Committee to oppose the amendments if they are pressed to the vote.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

I repeat that we are satisfied regarding amendment No. 1. On amendment No. 2, I am sure that the Minister said that although many people will be better off, some will lose out and some will lose

altogether. If that is the case, the amendment should be pressed.

I forget the technicalities of the procedure. May we vote on amendment No. 2 but not amendment No. 1?

Photo of Jimmy Hood Jimmy Hood Chair, European Scrutiny Committee, Chair, European Scrutiny Committee

The hon. Gentleman may forget the technicalities, but the Chairman cannot. May I guide the Committee? If the hon. Gentleman wishes to withdraw amendment No. 1 and press amendment No. 2, I will allow a vote on amendment No. 2. However, he must withdraw amendment No. 1.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: No. 2, in page 1, line 20, leave out paragraph (e).—[Mr. Flight.]

Question put, That the amendment be made:—

The Committee divided: Ayes 7, Noes 8.

Division number 2 Adults Abused in Childhood — Clause 1 - Introductory

Aye: 7 MPs

No: 8 MPs

Aye: A-Z by last name

No: A-Z by last name

Question accordingly negatived.

Clause 1 ordered to stand part of the Bill.