Clause 10 - The income of the person and his or her partner must not exceed limit

Childcare Payments Bill – in a Public Bill Committee at 2:00 pm on 21st October 2014.

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Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury) 2:00 pm, 21st October 2014

I beg to move amendment 4, in clause 10, page 6,  ine 24, at end insert—

“(6) The Chancellor of the Exchequer shall, within three months of the passing of this Act undertake a review of the impact of the income requirements introduced under this section.

(7) The report referred to in subsection (6) must in particular consider—

(a) the appropriateness of the limit specified in regulations under section 10;

(b) the estimated average value of top-up per child;

(c) the proportion of parents paying for childcare who are expected to be beneficiaries; and

(d) a distributional analysis of the beneficiaries.

(8) The Chancellor of the Exchequer must publish the report of the review and lay the report before the House of Commons.”

It is a pleasure to serve under your chairmanship this afternoon, Mrs Main.

Clause 10 sets out the fifth eligibility condition of this group of clauses. It provides for regulations that set the maximum income limit, over which parents will become ineligible for child care. Regulation 15 of the draft Childcare Payments (Eligibility) Regulations 2015 provides that persons not expecting to pay the additional rate of income tax—that is, not earning more than £150,000 a year—will be eligible for the scheme, meaning that households with a joint income of £300,000 a year could be eligible for tax support for child care costs. That is the point on which the Opposition would like to focus.

With amendment 4, we are seeking to probe the Government on the reasoning behind the income limit and the effect of that limit on who benefits most from the Bill. The question that must be asked is this: will the Bill really help those parents who need the support the most? Last week, the Committee heard concerns from a number of witnesses about the way in which the benefits of top-up payments will be spread across the income distribution. Indeed, along with other Opposition Members, I have raised the issue with Ministers through written questions and on Second Reading. We have been asking for the full facts and figures on who exactly will be better off under the new scheme and whether any particular income groups will benefit. So far, the Government have not been forthcoming with the information, so we have tabled the amendment 4.

The Resolution Foundation is the only group that seems to have published any detailed work on the Bill’s distributional effects. According to Vidhya Alakeson, who gave evidence last week, the Resolution Foundation’s analysis suggests that 80% of the families who will benefit from the top-up payments are in the top 40% of the income distribution, and even the remaining 20% will go to those in the middle of the distribution scale. Those stark figures form the basis of the amendment. If we accept that the two key aims of the Bill are to support parents with the costs of child care and to help more parents to get back into work by making work an  economically viable option, the Resolution Foundation figures raise serious questions about whether those aims will be achieved.

We should bear in mind the Resolution Foundation’s work when we think about the 2013 report by the Government’s advisory group on child poverty, Alan Milburn’s Social Mobility and Child Poverty Commission. That report recommended that the Government address the concerns I have just outlined. It warned that the original proposals on child care payments would subsidise the better-off and create a two-tier system. In January 2014, the commission recommended that the Government introduce a lower cap of £120,000 on the joint income of dual earner families, with the money saved to be transferred to working families on low incomes. Will the Minister address that issue and explain what consideration the Government have given to the commission’s recommendations?

When she gave evidence last week, Alison Garnham from the Child Poverty Action Group told us that she believes that most of the funding for the scheme will go to the top 60% of earners. Katie O'Donovan, the head of communications and partnership at Mumsnet, also gave evidence last week. She has previously criticised the Government’s decision to open up child care subsidies to high-income parents with household incomes of up to £300,000. In August 2013, she said that

“there is concern that single-parent households might lose out whilst some very high earning two-parent households will benefit. A couple could earn £300,000 a year and still benefit. That doesn’t seem sensible and is inconsistent with other cuts, such as those to child benefit and to childcare tax credit.”

Following the March 2014 announcement of the changes to the scheme, Citizens Advice welcomed the changes to the universal credit provisions in particular, but made it clear that the Government could still do much more to support those on the lowest incomes, rather than

“giving additional help to high earners”.

The Institute for Public Policy Research, which also gave evidence to the Committee, has previously suggested that top-up payments will be

“skewed towards benefiting higher income families”,

while still not necessarily securing lower costs for parents or the Government.

The Committee also heard from Kitty Stewart, from the London School of Economics, who drew comparisons between employer-supported child care and top-up payments. She explained that, under employer-supported vouchers,

“if a basic rate taxpayer spent £2,913 on child care, they would benefit by £930 a year.”––[Official Report, Childcare Payments Public Bill Committee, 16 October 2014; c. 86, Q170.]

To get the same support from the new top-up payments, that parent would need to spend £4,650 on child care. That is quite a staggering difference.

Photo of Lucy Powell Lucy Powell Shadow Minister (Education) 2:15 pm, 21st October 2014

Did my hon. Friend see the information that Kitty Stewart subsequently sent to the Committee, which showed that  lower earners spend a lot less on child care than the highest earners? That point was starkly made in her evidence.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

Yes, and a lot of the evidence we received pointed to these questions being raised with and hopefully at least considered by the Government, if not responded to. We need to ensure that this additional tax expenditure achieves the maximum possible. The Government’s own stated aim is to ensure that it makes a difference to parents for whom, at the moment, it simply does not add up for both of them work. Families on lower incomes—particularly those just above the universal credit income distribution—need to be supported with their child care costs.

Many organisations seem to agree that the majority of the benefit from top-up payments will go to those on higher incomes. However, the Government have so far remained silent on the matter. They have not yet published their own analysis, which we can only presume was undertaken when they devised the policy, and they have yet to set out the facts. Many questions have been raised about whether public money being spent on top-up payments could, in fact, be better spent on other schemes that target those on the lowest incomes, who most need the help. Some witnesses proposed lowering the income cap—which, in itself, would presumably save the Government money—and matching that with an increase in the rate of top-up payment for those on the lowest incomes. What consideration has been given to those proposals? They would not require extra expenditure by the Government but would perhaps require the current envelope of funding to be distributed in a different way.

Other witnesses mentioned extending the free entitlement offer, as the Opposition have committed to do. That is another example of something that could support families on lower incomes much more effectively. The Minister told the Committee in last Thursday’s evidence session that the Government plan to carry out a standard post-implementation review two years down the line. Amendment 4 asks for that work to be undertaken now. It asks the Government to look properly at the distributional impact of top-up payments and to publish that information for the benefit of the Committee, the House and the public.

Photo of Nicholas Dakin Nicholas Dakin Opposition Whip (Commons)

I am pleased to serve under your chairing, Mrs Main.

The case for distributional analysis is even stronger than it was before in the light of the evidence given to us last week. Therefore, my hon. Friend is making a strong point, to which I am sure the Minister will want to respond carefully.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I thank my hon. Friend. I agree that distributional analysis is key in relation to the new expenditure on child care costs, and I am sure that the Government have considered the issues raised. At this stage it would be helpful if the Minister were to share some of that thinking with the Committee, so that we may all have a clearer view of the distribution of impact.

The review suggested in the amendment would be intended to answer a number of questions. For example, what kind of income groups will benefit most? What will be the income of the average beneficiary of a  top-up payment? Will the money disproportionately benefit high-earning parents, and therefore not contribute to the vital aim of ensuring that more parents, particularly women, are enabled to get into work when they might otherwise not be able to afford to do so? Will the Minister set out for the Committee whether her Department has carried out any analysis of the distributional impact? If not, is it something that the Department will look at before the scheme is rolled out, instead of waiting until two years after the roll-out to see whether the impact has been as great as the Government might hope?

Another key aim of the Bill is to enable more parents either to work longer hours or to get back into work. As witnesses have told us, however, there appears to be little evidence to suggest that offering top-up payments to families on incomes of up to £300,000 will have an impact on increasing labour market participation. When the Minister responds, perhaps she will be helpful and set out the Government’s justification for setting the maximum limit at £150,000 per year, or a combined household income of £300,000 per year. I appreciate that there might be a good explanation—perhaps simplicity—but will the Minister clarify the thinking behind the limits?

The bottom line is that since the scheme was announced in March this year, it has remained completely unclear to average working parents with average expenditure on child care costs how much they can expect to receive under the new scheme. Under the employer voucher scheme, parents know that they can expect to receive a set amount per week depending on their income. That support does not depend on the amount that they spend on their child care and, arguably, it is therefore far more reliable for parents to plan for the future. In contrast, we still do not know what the average top-up payment will be, which is why the amendment calls for the Government to make it clear exactly what they expect it to be. That is better than stating that if people spend £10,000 a year on child care, they will save x amount of money, which according to independent estimates is clearly not the average.

The amendment is intended to get answers to a number of questions about the effectiveness and targeting of the support, about which stakeholders and Committee members have expressed a number of concerns. I urge the Government to respond to the issues that I have raised or, failing that, to do the analysis needed to help Committee members and the House better to understand the impact of the Bill on work incentives and on helping the families who need help the most.

Photo of Priti Patel Priti Patel The Exchequer Secretary

Amendment 4 would amend clause 10 to require a review of the new scheme within three months of the Bill receiving Royal Assent. That would cover the impact of the upper income limit, the average value of top-up per child, the proportion of parents paying for child care who are expected to be beneficiaries, and distributional analysis.

It may be helpful if I remind hon. Members that the scheme will ensure that, for the first time, parents can be certain that support will be available as they move into work or increase their income. The new scheme is much more fairly targeted than the current employer-supported child care system. All working families who meet the eligibility criteria will be able to apply, whereas employer-supported child care does not work that way—parents  get the opportunity only if the employer chooses to offer it. As was made clear by witnesses at the evidence sessions, only one in 20 employers make such an offer, leaving more than 50% of employees, and all self-employed parents, unable to access that support with their child care costs. Tax-free child care will therefore distribute benefits far wider than the previous scheme. Importantly, it will ensure that all working families will be able to access support with their child care costs.

On the points made by the hon. Member for Newcastle upon Tyne North, which also came out during last week’s evidence sessions, predominantly from the Resolution Foundation, I reiterate that the overall system of support, including tax-free child care, will remain focused on those on lower incomes. Families in receipt of tax credits already receive more generous support with child care costs. Under universal credit, support is being extended to cover up to 85% of child care costs, regardless of the number of hours worked. The scheme is not at all about helping the wealthy; it is about ensuring that all families can qualify for support with their child care costs, subject to meeting the eligibility criteria. It is valid to point out that many households and people are struggling with the high costs of child care, and that the problem is not limited to low earners.

Aligning the scheme with the established additional rate parameter will also make it simpler for parents to understand and easier to administer, building on parents’ awareness of their tax status and the rate of tax that they pay and making it straightforward for them to assess their eligibility for the scheme. I spoke this morning about the purpose of making the scheme simple and clear for all eligible families and parents.

On the distributional analysis of tax-free child care, such analysis alone does not capture the full picture, because it misses the point about the wider overall system of child care support, which remains focused on those on lower incomes. As I have already said, those on tax credits already receive more generous support. In addition, there have been other changes regarding personal income tax thresholds. Capturing distributional analysis right now therefore does not give the full picture of the level of child care support.

Officials are discussing with colleagues across Government the possibility of considering the matter in more detail and of carrying out distributional analysis of all Government child care support. Much child care support is outside the Treasury’s remit and lies with the Department for Education, and many of the schemes that exist have been touched on in the Committee.

Photo of Nicholas Dakin Nicholas Dakin Opposition Whip (Commons)

I very much welcome the Minister’s comments about a wholesale look at the matter, including distributional effect.

I want to ask about the group of parents who are just above universal credit access, and will therefore fall into the support set out in the Bill. Does the Minister have any concerns about that group getting fair access to support?

Photo of Priti Patel Priti Patel The Exchequer Secretary

No, but I thank the hon. Gentleman for his comment.

Returning to the scheme’s objective and how it is designed, it is absolutely about ensuring that those who are eligible meet the criteria and have access to the  scheme. It is not about people falling through. It is not like previous schemes, under which people have missed out or missed opportunities for reasons such as complexity or the need to reporting changes in their circumstances. As I emphasised this morning, the Bill is not about that. Under universal credit, the support is there regardless of the hours worked.

Supporting hard-working families to secure a better future for their children is the purpose of the Bill and the objective of the Government’s child care plans and policies.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury) 2:30 pm, 21st October 2014

I did not want to interrupt the Minister, but I got a sense that she was about to wrap up her comments. Before she does so, will she comment on the queries about the upper income limit, which has been set at £150,000 for an individual earner or £300,000 for the household? That was a key concern that was raised by a number of stakeholders during evidence sessions.

Photo of Priti Patel Priti Patel The Exchequer Secretary

I reiterate my earlier point: the scheme is targeted at those on low incomes. As for supporting families on the higher incomes that the hon. Lady highlights, we took the decision to align the scheme with the established additional rate parameter, to make it simple and straightforward. It is about raising awareness of the scheme and making it simple when people access it, as well as not complicating it from a tax point of view. We are also trying to keep it straightforward for parents to assess their eligibility for the scheme. However, I emphasise that the focus is on those on lower incomes. We have announced that families eligible for universal credit will benefit from additional support at 85% rather than 70%, in addition to other measures—outside the Treasury’s remit, but supported by the Department for Education—on extended free early-years provision for two-year-olds for those on lower incomes.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I appreciate the Minister’s explanation about simplicity. However, given the concerns that have been raised, what consideration have the Government given to alternative formats? For example, one suggestion was to increase the amount available for those on the basic tax rate and taper it for those on the higher tax rate. Other alternatives have also been put forward. Have the Government considered those, or have they not even considered integrating them into the Bill?

Photo of Priti Patel Priti Patel The Exchequer Secretary

It is fair to say that all aspects have been looked at and deliberated upon in the development and design of the Bill. In my view, we are doing the right thing by setting the upper limit at the income band for the additional rate. It is fair to say that previous schemes have not had that upper earning level. The scheme will be reviewed in two years, as has been clearly stated. Part of our objective is to make it simple and straightforward for families and parents to access the scheme within the current tax parameters. We have focused the right and  proper amount of provision on those on low incomes. I assure the hon. Lady that the issues have been considered sufficiently.

As I emphasised earlier, the new scheme is about providing hard-working families with the necessary support for their child care costs, within the wider overall child care offering that the Government are providing to help every working family across the United Kingdom. Evaluating the scheme is important, and, as I set out in our evidence session last week and have touched on today, we are planning the standard post-implementation review at the two-year mark after full implementation. That will set out the benefits of the scheme and what it has delivered. We take the view that that is an appropriate period for such a review; by that stage the scheme will have bedded down and we will have had more engagement with eligible parents, more contact and more feedback. Producing a report three months after Royal Assent that looked at distribution analysis alone and excluded all other child care support measures would not be appropriate. I therefore ask the hon. Lady to withdraw her amendment.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I am partially reassured by the Minister’s comments, particularly in relation to the fact that the Government will look at the distributional impact of the Government’s child care offer across the board. That is an important piece of information to put out there. I assume that if the Government are confident that they are distributing support fairly, some transparency around that would be welcomed, both by the Government and, obviously, by stakeholders and Opposition Members. At this stage we will not press the amendment to a vote, but we will look to hold the Government to account for their promises that information will become publicly available in due course. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 10 ordered to stand part of the Bill.