Clause 9 - Maximum rate

Tax Credits Bill – in a Public Bill Committee at on 17 January 2002.

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Amendment moved [this day]: No. 50, in page 6, line 32, at end insert


(c) an element in respect of any second adult in the benefit unit'.

Photo of Mr Nigel Beard Mr Nigel Beard Labour, Bexleyheath and Crayford 2:30, 17 January 2002

I remind the Committee that with this we are considering amendment No. 31, in page 6, line 40, after 'according', insert

'to the number of adults in the family and'.

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

Thank you, Mr. Beard. I cannot help noticing that we have already driven out two Chairmen, and I hope that that does not reflect anything about the quality of the debate.

Amendment No. 50 would remove a discrimination against two-parent families compared with one-parent families on the same income level. My argument is that the two-parent family on the same income level as the one-parent family has the added burden of an extra mouth to feed, to put it at its simplest. Most of the social security system, such as income support and housing benefit, recognises that fact through an amount for the second adult—it is not the same as that for the first adult, but perhaps a 60 per cent. addition—but tax credits will not do that, and working families tax credit does not currently do it. My question is, why not?

I guess that there could be two reasons. One might be about poverty, of which there is a far higher incidence among lone parents. However, we are talking about people on the same income. If there are two families, one with one parent and one with two, both on £150 a week, we cannot argue that we should give more to the one-parent than to the two-parent family because the one-parent family is somehow poorer. Their incomes are the same.

The second reason could be an argument of child care, and that the two-parent family has the advantage of ''free'' child care, but that does not really stack up either. First, there is substantial help available in the system with child care costs, and secondly, many lone parents rely on informal child care, for example from grandparents. It is far from universally true that lone parents do not have access to either free or subsidised child care. There are limits to that, but I am not sure that that is a good enough justification for the distinction. Without specifying any particular level—although the Minister will try, I shall not be drawn on specific figures—we want to establish the principle that there might be some allowance for a second adult.

I give one example, of a couple on £150 a week with a two-year-old child. The figure has been given to me that a one-parent family on that income, relative to the official poverty line of 60 per cent. median equivalent income, would be £35 above the poverty line. The two-parent family on the same income would be £20 below it, using equivalent income, which is what the Government tend to use when measuring poverty. The simple question is, as there is an extra mouth to feed, should not the tax credit system recognise it, as the social security system does?

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

I welcome you to the Chair, Mr. Beard. I only miss the opportunity of debating with you.

Amendment No. 31 is in essence the same as amendment No. 50, but termed slightly differently. I have to confess that my hon. Friend—the hon. Gentleman, I should perhaps say—has stolen the example that I was going to raise. It is clear that there is a potential for unfair treatment of couples under the existing children's tax credit and working families tax credit. I hope that the Government do not intend to continue that under the new arrangements, especially, as has been pointed out, because that is not the case with social security benefits.

Couples in work are now less likely to get themselves and their children out of poverty than are single parents. Couples with children still form the largest group of families in poverty—about two thirds of the total.

Martin Wolfe made an in-depth analysis of the working families tax credit three or four years ago and found another aspect of the same point: that it was financially disadvantageous for a lone parent to acquire a partner or spouse with two children unless their income was below about £350 a week. That cannot be the intention of the support and help. The main issue is that the arrangements do not recognise the income needs of the other adult for straightforward maintenance, clothing, food and so on. The argument that that is matched by the saving in child care is not valid. The issue concerns not just informal care but the help with child care that is now available.

Amendment No. 31 would open the door to deal with that, but my main point is to ask the Minister not for the amount to be specified but whether the Government intend to address the point concerning the new child tax credit and the child element of the working tax credit.

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

Good afternoon, Mr. Beard, and welcome to our proceedings. You have probably noticed that, unusually in a Standing Committee, thus far we have scrutinised the Bill in a civilised way, even to the extent that the hon. Member for Arundel and South Downs (Mr. Flight) referred to the hon. Member for Northavon (Mr. Webb), who is a member of a different political party, as his hon. Friend. I am in greatly in favour of the Tax Credits Bill and claim that it achieves a great deal, but I had no idea that I can now add the proper functioning of a Standing Committee in a friendly and civilised way. However,

perhaps that is more a reflection of the members of the Committee. The Government Whip is as delightful as ever; I am pleased to see him in his place and perhaps he could stay there.

There is a fundamental misunderstanding about what exactly the child tax credit will provide as opposed to the working families tax credit, income support and the jobseeker's allowance. That misunderstanding revolves around recognition of the second adult. Hon. Members' comments referred to the cost of the adult to the household budget. The child tax credit is and should be independent of the status of the adults in the family. We are trying to ensure that the calculation is based on the children in that household. The child tax credit focuses on the children regardless of the status of the parents or the number of parents in or out of work. The right place to look at the level of support available to the adults in the household is the working tax credit or the benefit system as a whole and it may be more appropriate to discuss the matter when we come to clause 11.

Currently, there is no support system for children that provides an additional element for a second adult in the family, and no such provision has been offered since about 1988. In looking at ways to design and develop rules for the child tax credit, we used child benefit as our starting point—I should point out that we excluded the principle of universality—because it is very popular and well understood and there is high take-up. The elements of child benefit apply to children, and adults are disregarded.

Income support and jobseeker's allowance currently consist of an adult element and child elements. We are removing the child elements and including them in the child tax credit, but the adult elements will remain. The adult elements contain an additional element where there is, and will remain, a second adult in the family. Working families tax credit and disabled person's tax credit provide support for working families with children. They have fulfilled more than one purpose, in that they contain a mix of child elements and adult elements, and we are taking steps to pull out the child elements. The clause deals with the child tax credit only.

On the adult additional payment, I should point out that the child tax credit is directed solely at the needs of children and does not relate to the circumstances of adults until the tapers—the basic qualification—start. It contains elements for each child, and for any associated responsibilities—I shall avoid using the word ''burden'', as I do not consider children a burden—that families must shoulder in caring for children.

The working tax credit, with which subsequent clauses deal, will support families in work, and is counterbalanced by the support provided to families not in paid work. The support recognises that element and will be directed at adults at the relevant point in the process. I should point out to the hon. Member for Northavon that the child tax credit does not need to take adults into account. It is clean, direct and for children, and it is very important that there be no

confusion about the way in which we expect families to spend that money. Adult support should be considered in the context of the working tax credit, income support and JSA.

I hope that that answers the question that the hon. Gentleman and the hon. Member for Teignbridge (Richard Younger-Ross) have asked through the amendment. Given that I have worked on the Bill for a long time, such matters seem straightforward to me, but for many they are not and I understand why they asked that question. I hope that they accept my clarification, and that the provision constitutes a better way of designing policy. As I have said, support for adults and families is dealt with through the working tax credit, income support and JSA. Although the hon. Member for Northavon might want to return to the matter another time, I hope that he is willing to withdraw the amendment in the light of my comments. If he is not, I must ask my hon. Friends to vote against it.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs 2:45, 17 January 2002

I had thought that amendments Nos. 31 and 32 might be taken together, given that the latter deals with this issue in relation to the working tax credit under clause 11. The Paymaster General did not say whether the Government intend to address the issue in full through the child credit or the working tax credit. For example, it would seem quite wrong for a lone parent with an income of £150 a week to be considered significantly above the poverty line, while a two-parent family with two children on the same income is considered significantly below it.

It is fine to put the issue into the neat boxes that the Paymaster General has described, but that does not explain how it will be dealt with. In some senses, it could be addressed through not only the child tax credit but the working tax credit. I realise that she will not want to give the numbers, but can she say whether the issue has been recognised and quantified along the lines that we have described? Assuming that it will not be dealt with under the child tax credit, will it be dealt with under the working tax credit?

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

Stepping back from the design of the tax credits, the issue is the Government's policy objectives of eradicating poverty, making work pay, encouraging people to move into paid work and attempting to remove the barriers to returning to work. As we know, those barriers are greatest for lone parents, who still face significant obstacles to work. Although the child care tax credit provides generous help with child care, like everyone else a lone parent must find 30 per cent. of the costs. The facts show that lone parents are still much less likely to move into work. Although there have been considerable improvements, some 50 per cent. of lone parents are still out of work.

We want to combine the provision with a work incentive, but it is not our intention to discriminate between families. We are addressing the drain on the family income through the moneys that are going in. Experience of working families tax credit in particular shows that such a measure is necessary to bring everybody up to the starting point, so that they can

move into work. Of course, the Government have other mechanisms for dealing with the barriers that lone parents face.

The question of how we will deal with the second adult is an important one, in that there must not be too great a distance between different household types. We must ensure that lone parents can move into work, but the distance must not be so great that the circumstances of two-parent households are worse. I hesitate to say it, but such factors must be taken into account in the final calculation, when all the thresholds, tapers and income disregards are put on the table, so that we can enter the income distributions and establish the effect on different household types.

I am afraid that I cannot give the hon. Member for Arundel and South Downs the confirmation that he seeks, but I see his point and it depends on settling the figures. We do not want inadvertently to increase the barriers to work for lone parents. The question of defining a household and recognising the number of adults therein is important.

I apologise to the hon. Member for Arundel and South Downs for not being able to be as clear and precise as he would have liked. However, it would have been easier for me to give any answer, knowing that it was not correct, and I have not done that. Rather, I have tried to be honest by saying that his point must be considered in the context of work incentives and of ensuring that we give help to lone parents, who suffer the greatest barriers to work and who, with their children, suffer the greatest concentration of poverty.

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

The Minister has been helpful in putting on record the Government approach, and I take her point on whether the issue should be dealt with under clause 11. Amendment No. 32 will take us on to that territory, so I will pursue it no longer.

The Minister described a neat separation between support for the child and for adults, but it is not that clear cut. There is also a family element—an amount per family. If that were not important, there would simply be an amount per child. The family element of the support for children attempts to reflect something—perhaps economies of scale—other than the number of children in the household. One could argue that economies of scale relate to multiple children and are nothing to do with adults, but it is not as clear cut as she suggests.

I accept the Minister's point about work incentives. It is true that lone parents have bigger barriers to work. It would be harder to argue a case for a lone parent with a 14-year-old, than for a lone parent with a one-year-old. For families with older children, a case for differentiating between one-parent and two-parent families is rather weaker. However, I take the point about finding the right place in the Bill so that we can address the issue in the context of the working tax credit. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

I beg to move amendment No. 49, in page 7, line 7, at end insert—

'(d) must include provision for the combined value of the child tax credit for a benefit unit in receipt of Income Support or Jobseeker's Allowance and the value of Child Benefit for

such a family to be greater than or equal to the value of support in respect of dependent children available to a family of the same composition receiving Working Families Tax Credit, Children's Tax Credit and Child Benefit immediately prior to the coming into force of this Act.'.

The amendment is related to levelling up or down and we may not have not got it right. At present, there are two forms of support for the children of families out of work. There is child benefit, but that is netted off income support. Essentially, there are family premiums, child personal allowances and income support, which are received per child when a person is not working. If working, a person receives child benefit, children's tax credit and, potentially, an amount per child or family through the working families tax credit. Those amounts are similar, but not the same. There is a difference between the two of roughly £4 for the first child, and £3.50 for subsequent children.

Given that the Government want to streamline the system and give an amount per child whether the parents are working or not, they must clearly pick a single figure. Many families in low-paid work will want to be reassured that the Government do not plan to level down their incomes so that they are given the same as that given for children whose parents are out of work. They will want to know that levelling up is planned. Rates and thresholds are issues for the Chancellor, but the principle is whether there will be real-terms losers among low-paid families. Many will wait for the Minister's response with bated breath.

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

I refer the hon. Gentleman to the remarks that I made previously. He wants me to state the absolute principle that there will be no losers or gainers. That principle is not linked to the Bill, but it is none the less a matter of great importance.

The amount of expenditure on the proposals relating to the new tax credit will depend on the overall policy package, the framework for which is provided in the Bill, and on the rates and thresholds of the tax credits, which will be based on the values for 2003.

On the hon. Gentleman's second point, the level of support that is available will be determined by the Chancellor when he makes his overall decisions in the course of the Budget process of 2002. The principle to which the hon. Gentleman referred is crucially linked to the rates and tapers, not to the framework of the Bill. The appropriate time to discuss the matter is therefore at the time of the 2002 Budget. I can see that he is revving up now, and I hope that he is not in overdrive by the time we reach that point. I understand the point that he is making, and I am not complaining about his continuing to raise it, but he knows in his heart of hearts that it goes beyond what I am able to say to the Committee, given that the Chancellor has not yet taken the necessary decisions.

If the hon. Gentleman really wants to press the amendment, I shall have to ask my hon. Friends to oppose it. I am gratified that Opposition Members feel that the Committee process is enabling them to understand much more clearly how the Bill will operate. That is how it should be. I am thankful for small mercies, although I am unable to respond to the hon. Gentleman's specific point.

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

The serious point underlying the amendment is that more than 1 million, perhaps 1.5 million, families may feel some anxiety when they hear that everything is to be streamlined and that some people with similar family structures will get less than others.

It would have been welcome if the Paymaster General could have ended some of the uncertainty about whether the Government believe in taking money away from low-waged families. Given the spirit of their proposals, I hoped that that would require only a modest assurance from her, and it is alarming that she could not even go that far.

On reflection, this is a specific amendment about current rates and thresholds, so it probably does not belong in primary legislation. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 9 ordered to stand part of the Bill.