Clause 11 - Maximum rate

Tax Credits Bill – in a Public Bill Committee at 4:15 pm on 17 January 2002.

Alert me about debates like this

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs 4:15, 17 January 2002

I beg to move amendment No. 32, in page 8, line 19, at end add—

'(8) The prescribed manner of determination must take account of the needs of all the members of a married couple or an unmarried couple by comparison with those of a single person'.

The amendment would ensure that couples in which one partner or spouse does not work are not unfairly treated.

I referred to that issue earlier. The Minister pointed out that it was less suitable to raise it with regard to child tax credit than to working tax credit. With regard to the definitions of entitlement to working tax credit, do the Government intend to address the point that I and the hon. Member for Northavon made earlier about the difference between people who are a decent margin above the poverty line who are lone parents with two children, and people being below it when they are in partnerships in which one spouse is not working? The amendment would make provision for them to address that.

The Minister did not refer to the work of Martin Wolfe. That is a serious issue. We do not want a tax credit system that gives significant fiscal advantage to

one person not to partner up or marry another when children are involved. It is ridiculous that there should be a disincentive to partner up until the partner has earnings that are 170 per cent. of average income. As she said, that needs to be dealt with. Her prior comments suggested that the Government did not feel like doing that. They may do so marginally, but not in a way that will truly level out the problem. She requested, however, that we focus on such issues now rather than when we discuss the child tax credits, so I look forward eagerly to her giving me comfort that such matters will be addressed adequately.

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

The Minister argued that there were two reasons not to give equivalent support to a two-parent family and a one-parent family. Work incentives were essentially the issues involved. If the working tax credit were not about children but about adults, such arguments would not be so strong. If there is a problem with child care incentives, we should deal with that under a child care tax credit and other mechanisms. However, if it concerns poverty, the argument about the inequality between a one-parent family and a two-parent family is much less acute in the case of childless families. The case for penalising a two-parent family, not a one-parent family, seems harder to make in light of childless families.

The Minister said that income support, housing benefit and working tax credit constituted one benefit, while measures for children were another benefit. Well, if housing benefit, income support and working tax credit are of a kind, and housing benefit and income support recognise second adults, why is working tax credit not included? If she is categorising such benefits as those that support adults and two out of three of them give something with which to feed the extra mouth, why should not the system under the Bill do the same? I cannot see the reason for such a distinction.

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

The amendment would ensure that couples who are awarded working tax credit always receive a higher award than single people in similar financial circumstances. I do not disagree in principle with such a proposition. However, the amendment is unnecessary because clause 11 provides under subsection (6)(b) for a second adult element in addition to the basic element that all recipients of the working tax credit will receive.

As we have discussed at length, the working tax credit is a work incentive measure. We are well aware that both lone parents and couples are likely to face greater barriers to work than single people with no children. The living costs of couples, whether or not they are responsible for children, will be greater than those of single persons. If the hon. Members who support the amendment are angling for a commitment on the relative rates of the second adult element and the lone parent element, what a surprise, I cannot give them one. However, I do not believe that they are.

Setting the rates of all the elements of both the new tax credits is a matter for the Budget, and we shall not debate it today. However, I assure hon. Members that we fully intend to include in the working tax credit all the elements in clause 11.

Work is already well under way on the regulations to be made under the clause, which will provide for an additional element for claims in respect of both lone parents and couples. The maximum rate of the working tax credit payable to those categories of households that claim will, therefore, always be higher than the maximum for the single. That covers the point made by the hon. Members for Northavon and for Arundel and South Downs. Now that I have made it absolutely clear that we intend to use all the elements in the clause, I hope that they will appreciate that the amendment is unnecessary and that, rather than making the Bill longer, the hon. Member for Arundel and South Downs will agree to withdraw it.

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

That is a tremendously welcome announcement. I suppose, considering the matter, that that should have been obvious, but it did not jump out, and until today we did not have the assurance that the power in the Bill would be used.

Did the Paymaster General say that there would be a second adult element in respect of couples? I believe that she mentioned lone parents in the same breath. Was she effectively saying that lone parents would be deemed to be couples for the purpose of the working credit? What did she mean by that? We are separating children and adults—the clause relates to adults, not children—but are saying that couples will receive an extra amount for the second adult regardless of whether they have kids, but single people who have kids will receive an extra amount through the working credit. I hope that she understands why I am slightly confused by, although delighted with, what she has just said. What did she mean?

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

I may inadvertently, in trying to clarify, have first clarified and then confused the matter. The essential point that the hon. Members for Arundel and South Downs and for Northavon make relates to single people or couples without children and the additional adult allowance. The clause provides for an element to be added. Two elements are involved, for both of which the rate would have to be set. The first relates to a second adult. The other relates to lone parents and would recognise that some costs are fixed, regardless of whether there are two adults or one in the household.

The point that the hon. Gentlemen make relates to whether there is an additional adult allowance for couples without children. What the amendment would provide is already provided for in the clause. I presume that the hon. Member for Arundel and South Downs knew about the intention behind the amendment.

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

With respect, and as I thought that I had made clear in discussing amendment No. 31, which dealt with the same subject as amendment No. 32, the issue does not relate to couples without children. In simple language, under the present working families tax credit and children's tax credit, if one parent in a couple is not working, for reasons such as young children to care for or the place in which the couple live, there is no recognition of the economic needs of the non-working person.

The illustration to which the hon. Member for Northavon and I referred shows the effect of that on families on, say, £150 a week, with two children. A lone parent would end up £35 above the poverty level and a couple in which one spouse does not work would end up £20 below the poverty level. That is a £55 material difference. The same issues were raised when the working families tax credit was introduced. A different way to make the point is to say that there are tax credit disincentives to partnering up for the single person with children.

When we suggested that the matter should be addressed as a special element in the child tax credit, the Minister said that we should address it in relation to working tax credit. Our amendment is broadly drafted. We want a commitment from the Minister that the arrangements for working tax credit will contain an element that takes specific account of the non-working spouse's economic needs. That could be achieved by adopting the amendment or it could be covered under subsection (6), as the Minister said. Our welfare objective is to ensure that there is not considerably greater assistance to lone parents compared with couples in which one person does not work.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury) 4:30, 17 January 2002

I cannot follow the hon. Gentleman's logic with regard to the second adult element. I have assured him that the issue is whether a lone parent would be at an advantage compared with a couple in which one person did not go into paid employment. I said that we must address greater barriers to lone parents than their ability to work.

The structure of the elements in the clause provides for additional optional elements. Certain elements form the absolute base of the working tax credit, but optional elements should provide extra financial support to increase the incentive for work. The elements take account of greater living costs that are incurred by certain categories of claimant. The second adult element falls into that category.

The hon. Gentleman makes a slightly different point that is more about household structure and people's choices on that. He implied that people would choose to be lone parents because they would be better off than if they were in a two-parent household, and that the Bill will provide an incentive for that. I reject his first proposition that people choose to be lone parents because they would be a few quid better off. Anybody who knows about the experience of lone parents will know that, unfortunately, the overwhelmingly majority become lone parents because of often tragic and difficult personal circumstances, which they did not choose. Being a lone parent is considerably harder than being in a two-parent household. In the end, the hon. Gentleman and I have a different view. I do not believe that people choose to be a lone parent because they will be financially better off, and the Bill does not provide for that.

The hon. Gentleman's point is about the interaction

of those elements. He is right that when those elements are balanced, and a level is set, the position of two-parent households in which one parent is not in paid employment should not be skewed dramatically. He is mixing up a case for its being better to be in a two-parent or married household than in a lone parent household, and asking whether the Bill is a piece of social engineering that pushes people to being in one-parent households. I assure him that that is not the case.

The hon. Gentleman's point about the second adult element is dealt with clearly in the Bill. I have explained that twice, and it has been accepted that it is clear. His views on what is a better household type—single or married—are not a matter for the Bill, which tackles poverty traps, unemployment traps and work incentives, and responds to the barriers that exist in those circumstances.

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

The Minister has somewhat misrepresented what I said. My point was that none of us would want a situation in which a lone parent was discouraged from partnering up with someone because the net effect, if that person was not working, would be a £50 fall in disposable income. It would be crazy for that to be the case, although at certain levels that is how working families tax credit operates. Although I am grateful for what she said, the Opposition are looking for an assurance, in common-sense language, that if the situation is not catered for under working tax credit, the Government will make arrangements to ensure that that does not happen.

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

The debate on the amendment has been helpful. Subsection (6)(b) gives the Government the power to provide a second adult credit in respect of a person who is married or in a couple, whether or not there are children. It also gives a power to provide extra sums to a lone parent. Therefore, the only people who are not covered are those who are single and childless. That is a welcome step in the direction of the spirit of the amendments.

I cannot help feeling that the matter has been dealt with and, having received an assurance that the Government will use the power, that the amendment is no longer necessary. However, I am still slightly puzzled as to why the question of whether someone has a child is being muddled with the working tax credit, given that we were told this morning that it was not about children. It therefore seems a strange place to deal with that issue. However, I am sure that there are reasons for that, which will perhaps be discussed outside the Committee. I want to put it on the record that I welcome the progress that the Government have made on the issue, and the amendment is therefore unnecessary.

Amendment negatived

Question proposed, That the clause stand part of the Bill.

Photo of Mark Hoban Mark Hoban Conservative, Fareham

I take this opportunity to raise an issue that I mentioned on Second Reading. Subsection (6)(a) deals with the hours that can be worked by single persons and those living together as a couple. A

couple could aggregate their hours to meet the 16 and 30-hour limits that we have discussed, but a single person would have to work either 16 or 30 hours. That puts lone parents at a disadvantage. Couples could manage their time to achieve 30 hours between them. Lone parents would have to work harder to meet the same limit and qualify for additional premiums. I raise that as more of a question than a speech, and I am open to clarification from the Minister as to whether my interpretation is correct.

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

The interpretation is that a couple would be able to combine their hours to complete the 30-hour element as long as at least one partner worked 16 hours or more. The 16-hour limit is still there, but we are allowing couples to aggregate their hours, instead of requiring one parent to work 30 hours, if both parents are working.

In the case of lone parents, the 16-hour rule applies. We thought it fair that if both parents work, but neither works a 30-hour week, they should be allowed to get 30 hours in the same way as lone parents. That is an equalisation, not a disadvantage. It is a benefit to households in which couples work part time.

Photo of Mark Hoban Mark Hoban Conservative, Fareham

I understood the Minister to say that a two-parent household can aggregate its hours to get 30 hours as long as one person works at least 16 hours and the other perhaps 14 hours. I am slightly concerned that it is easier for a two-parent household to reach that 30-hour threshold by working together than it would be for a single person, as a couple could manage child-care arrangements so that one person worked while the other looked after the children, and they swapped over to complete the 30 hours. A lone parent might need to find child care for the full 30 hours. It would be easier for a two-parent household to mix and match, and they would find it far easier to achieve the hours. The Minister, by trying to equalise provisions for couples, may have inadvertently made life more difficult for lone parents who must work 30 hours.

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

No, this concerns a change in rules from those that applied to the working families tax credit, under which one of a couple—but not lone parents—had to work 30 hours. There is no change to the position of lone parents. They already have the advantageous position. The change in position helps two-parent households, and equalises the provisions. The circumstances about which the hon. Gentleman is concerned would not occur. The benefit that is being introduced is an improvement on the 30-hour rule for two-parent households.

Photo of James Clappison James Clappison Shadow Spokesperson (Treasury)

I rise briefly to put a point to the Minister, who has been courteous in responding to so many interventions.

I seek clarification from the Minister, as her response to my hon. Friend's question about the disincentive to couples to partner up was unclear to me. She addressed the circumstances in which people become lone parents. I want her to address what happens when a couple take the decision to form a joint household, because that is the subject that my hon. Friend raised.

The hon. Member for Northavon drew attention to the risks that are run in such circumstances as a result of the intermingling of the child tax credit and the working tax credit. I want the Minister to address the matter again, so that I can be clear about her position.

Subsection (6)(c) establishes that, as part of the working tax credit, a lone parent will receive an additional element for being a lone parent who has care of a child. In addition to that, under subsection (6)(b), if that lone parent takes a decision to form a household with somebody else, they will receive an element to reflect that they are part of a couple. The lone parent will gain that extra element for being a couple, because they will face the extra costs involved, but is it not the case that the single parent will lose the element that they received under subsection (6)(c)? They will no longer be receiving the element that they would have received in respect of their child. They will still have to bear the costs of the child, but they will not be getting the element to help them to afford to do so.

All of those elements are independent of the child tax credit: they are part of the working tax credit, and I want the Minister to explain why there is no disincentive.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury) 4:45, 17 January 2002

I shall try once more, but my back hurts, because I have had to keep rising to my feet.

The working tax credit needs to cover a single person who has no children and no disability; they will get the basic credit. The other area that needs to be covered is the question of who will get the extras—whatever they are. Lone parents, couples and individuals with disabilities will get extra, in recognition of their extra costs. For instance, a lone parent does not get a reduction on their rent, gas or electricity; there are certain costs that can be shared between people.

If a lone parent household were extended so that there were two parents—two adults in the household—the lone parent would lose the lone parent element but gain the couple element. As I suggested to the Committee, the variation is so tiny that it would not act as an incentive. If an individual were deciding whether to live with another person, they would not be greatly influenced by the marginal difference between lone and couple elements.

There are lone parent, couple and disability premiums that recognise extra costs. A person could not get them all: they could be a lone parent, or a couple, and have the disability premium, but they could not have lone parent, couple and disability premiums.

I am confident that the balance will not suddenly encourage families all over the country to decide that they should be lone parents, and if they thought about making that choice the position should certainly be explained. People would have to manipulate their households in a spectacular fashion to get more out of the system, and that will be revealed under later clauses on enforcement and the correctness of details and applications.

I hope that that clarifies the matter and that the hon. Gentleman feels slightly more at ease with the proposal. I understand his point: a dramatic change in household structure needs to be notified, because a second income might dramatically affect the household income and trigger a reassessment in the current year. There are several ways through the problem. The household may end up with more because of the way in which the system works, and because of the inter-relation of child credit and working tax credit.

Question put and agreed to.

Clause 11 ordered to stand part of the Bill.