Schedule 36 - Foster carers

Finance Bill – in a Public Bill Committee at 3:00 pm on 17th June 2003.

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Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary to the Treasury 3:00 pm, 17th June 2003

I beg to move amendment No. 203, in

schedule 36, page 408, line 23, at end insert—

'(7) The Treasury may by order substitute, for the fixed amount in subparagraph (1), a higher figure in relation to a residence in a high-cost area designated by them for the purposes of this paragraph.'.

The amendment gives the Treasury the power to increase the fixed amount per resident, which is particularly relevant to high-cost areas. As the Bill stands, there is no specific recognition of the considerably different costs of living, and in particular of housing, in different parts of the country. I understand that the £10,000 figure has been determined at the highest possible level, but I am sure that the Paymaster General will agree that living costs are rising and, with an extra £27 billion of tax to pay, they will rise even faster. If the formula is to be used, it is appropriate to include provision for adjustment. I repeat my earlier point that the amount of tax generated will be tiny, if anything, and a lot of paperwork will produce little in tax revenues.

Will foster carers and adult carers be under any obligation to complete some form of return? I presume that it will not be an income tax return, as the money is not treated as income. Are they to report the money on a suitable form, or will they be assumed to come within the £10,000 threshold?

Photo of David Laws David Laws Shadow Chief Secretary to the Treasury 3:15 pm, 17th June 2003

Amendment No. 203 is interesting, not least in the light of the Government's policy, as set out in the Budget, of trying to respond more flexibly to regional pressures on prices, including house prices, and wages. Although I do not want to encourage the Paymaster General to go too wide of the amendment, the hon. Member for Arundel and South Downs was

helping to flush out whether the Government have any intention of following through on the logic of introducing greater flexibility to regional pay and house prices into the tax system. As long as I do not cause the Paymaster General to stray, will she say whether she has sympathy not only with the amendment, but with the idea of introducing some sensitivity to local pay and conditions into the tax system?

Photo of Jonathan Djanogly Jonathan Djanogly Conservative, Huntingdon

I support this important amendment. There is a general lack of carers and foster parents throughout the country, particularly in high-cost areas, and the problem is exacerbated in high-density areas. That makes it a particular problem for councils in the London area, where I have had first-hand experience of the problem. Although the problem is sometimes that there is a lack of willing people, it is more often that there is a lack of suitable housing. Such people generally need a bigger house for their children, but if they are in an inner-city area with high-cost housing, there is a lack of space. The amendment would help to address that problem.

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

I accept that the amendment is well intentioned, but it is unnecessary. The fixed amount is intended broadly to represent the additional fixed expenses of providing foster care, including a larger house and car, domestic equipment and so on. Some of those expenses vary in price by area.

The figure was set at £10,000 per residence on the basis of data for the highest-cost areas. The amendment assumes mistakenly that regional variations have not been considered in fixing the amount, but the Department of Health research, on which the £10,000 limit was based, found that the capital cost of providing foster care in January 2002 was just under £9,000 a year in London. The average was £6,000 elsewhere, so the £10,000 limit is generous for the lower-cost areas. Although that is the case, we believed that it was preferable to have one fixed rate, rather than a multiplicity of rates that would introduce complexity and scope for disagreement about which areas should be designated high-cost areas. Given the valuable work done by foster carers and the difficulties in recruitment that the hon. Gentleman pointed out, we believed that the provision was the simplest and best way forward. Our intention is that any adjustment of the rates will be on the same basis.

The hon. Member for Arundel and South Downs asked about completion of tax returns. If foster carers are exempt, they will not have to complete the self-employment pages of a self-assessment tax return, unless they are required to do so for some other purpose. If they are required to fill in a tax return for other purposes, they will have to record in the self-assessment pages the fact that they are exempt. That will be explained in the Inland Revenue guidance and notes issued with the tax returns, which will be made as simple as possible.

The Inland Revenue intends to write shortly to carers who already receive returns to establish whether they continue to need to be part of the self-assessment system. On that basis, we have tried to go for reasonable cost. We recognise the pressures, want to remove complexity and hope to address the questions

raised by the hon. Member for Arundel and South Downs regarding completion of tax returns by removing them from the system if necessary. Given those observations, I hope that the hon. Gentleman will agree that we have struck the best balance that can be expected and will not press his amendment to the vote. If he does, I shall ask my hon. Friends to oppose it.

Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary to the Treasury

I think that the Paymaster General said that the assessment was carried out for London in 2002, and that it was under £10,000. Since then, people living in London have had large council tax increases.

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

I said that it was under £9,000.

Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary to the Treasury

Since that time, if we add up council tax increases, congestion charges and cost of living increases, the Paymaster General might be surprised to find that there has been a big increase in the cost of living in London. The computation, if done today, would be pretty close to £10,000. If the arrangements are going to be on a single figure basis for the most expensive part of the country, what will be the arrangements to adjust that figure over time?

Even if, to keep things simple, the Government do not want to follow the route of having the power to specify different residents' sums for different areas—I can see the argument for that—the £10,000 limit is already not enough for London from a practical point of view. If it is not enough today, it certainly will not be enough in a year's time. Subject to some understanding as to how the limit will be adjusted to keep it adequate for more expensive areas, I will withdraw the amendment.

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

We estimate that in 2003–04, more than 90 per cent. of foster carers will be exempt from income tax on their income for providing care, notwithstanding the hon. Gentleman's points. With regard to his comments on rising costs, I said that we would increase the single amount in line with the highest-cost areas. The annual process of ensuring that the amount keeps pace will be dealt with in the Budget. We hope that, at £10,000, it is set far enough ahead of the cost, as outlined by the Department of Health, to give us considerable room in the year of its introduction.

Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary to the Treasury

I thank the Minister. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 36 agreed to.

Clause 176 ordered to stand part of the Bill.