Clause 29 - Termination of tax credit awards

Childcare Payments Bill – in a Public Bill Committee at 2:15 pm on 23rd October 2014.

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Photo of Alex Cunningham Alex Cunningham Labour, Stockton North 2:15 pm, 23rd October 2014

I beg to move amendment 34, in clause 29, page 16, line 25, leave out

“an award of tax credit is or has been made” and insert

“an award of tax credit which includes the childcare element is or has been made”.

Photo of Anne Main Anne Main Conservative, St Albans

With this it will be convenient to discuss the following:

Amendment 35, in clause 29, page 16, line 40, after “tax credit”, insert

“which includes the childcare element”.

Amendment 36, in clause 29, page 17, line 2, after “tax credit”, insert

“which includes the childcare element”.

Amendment 37, in clause 29, page 17, line 10, after “tax credit”, insert

“which includes the childcare element”.

Amendment 38, in clause 31, page 18, line 43, after “tax credit”, insert

“which includes the childcare element”.

Amendment 39, in clause 34, page 21, line 3, after “tax credit”, insert

“which includes the childcare element”.

Amendment 40, in clause 34, page 21, line 14, after “tax credit”, insert

“which includes the childcare element”.

Amendment 41, in clause 35, page 21, line 38, after “tax credit”, insert

“which includes the childcare element”.

Amendment 42, in clause 35, page 22, line 4, after “tax credit”, insert

“which includes the childcare element”.

Photo of Alex Cunningham Alex Cunningham Labour, Stockton North

The core purpose of this group of amendments is to broaden the provisions of the Bill to allow households in receipt of tax credits, but not receiving any support whatever for their child care costs in their tax credit award, to receive support from the tax-free child care scheme. Achieving that goal would entail several minor changes to the clauses dealing with the special rules affecting tax credits and universal credit claimants—specifically clauses 29, 31, 34 and 35. As members of the Committee will be aware, the purpose of the tax-free child care scheme is to provide support for child care costs to those who are not eligible for help from elsewhere.

To recap briefly, since the 2004 child care strategy, an infrastructure of support has been developed to help parents meet the costs associated with child care and access to early education. All children are entitled to a free early education offer, which in England is 570 hours annually, or just 15 hours a week over 38 weeks of the year, for three and four-year-olds.

Support also comes in the shape of assistance with child care costs, through the child care element of working tax credit. Working parents on low income are eligible to receive up to 70% of their child care costs through tax credits, up to a maximum cost of £175 a week for one child and £300 a week for two or more children.

If we are serious about encouraging people back into work or to stay in work, we have to deal with the anomaly in the Bill relating to those in our society on the lowest earned incomes. In a peculiar sort of way, the Bill says, “We recognise that you do not get any help through your tax credits, but I will not do anything else to help you either.” I am sure that that is not what the Minister intends.

Many who claim tax credits are working and incurring child care costs, but are not entitled to claim the child care element because, for example, they do not meet the minimum number of working hours per week to qualify. Clause 29 makes it clear that any tax credits award will  be terminated when a valid claim for the tax-free child care scheme is made, regardless of whether the child care element of working tax credit is received. Put into context, that means that households in which one parent is working full time while the other works 12 hours a week will not be entitled to receive the child care element of tax credits to support them in the payment of child care costs. Similarly, single parents working less than 16 hours a week on average will not be entitled to the child care element of working tax credit.

As I have mentioned, many parents will be aware that they do not receive help with child care costs from tax credits. Some are therefore likely to be confused by the message that the tax-free child care scheme is to provide support for child care costs to those who are not eligible for help from other state-funded sources. I for one would not consider it unreasonable or unforeseeable that parents in such circumstances may expect that they can claim tax-free child care in addition to tax credits. However, as I have said before, if they claim tax-free child care, their claim for tax credits will be stopped.

Many people who benefit from the tax credit system already find that the various regulations are complicated enough as they are. I am sure the Minister shares my concern that some parents simply will not realise that there is this additional intricacy and will risk losing the support, which may be the difference between remaining above the breadline and falling below it. It is therefore entirely right to ask the Minister, on their behalf, how she will ensure that families in receipt of tax credit, but not of the child care element of working tax credit, are entitled to receive some support with their child care costs. The Minister will know that families with disabled children are particularly likely to be affected by that anomaly. How will she ensure that families with disabled children in the same circumstances do not lose out?

I know that correcting that anomaly will cost some money, so it will be interesting to know what research the Minister has carried out to determine the costs associated with such a move. I doubt that it will be a huge sum. I am talking about families who are at the very low end of the earned income scale but do not receive any help to pay for child care. They will certainly not be forking out the sums paid by those with salaries of £100,000 a year. Instead, I am asking the Minister today to pay a 20% top-up on small contributions to child care by some of our poorest working people, who are otherwise at risk of slipping through the safety net. I hope that she examines carefully what she could achieve by accepting the amendments: providing some very limited support for those who need it most, and at relatively little cost.

Photo of Priti Patel Priti Patel The Exchequer Secretary

Clause 29 is the first of the provisions dealing with those who claim tax credits. It prevents someone from receiving support under the scheme while they or their partner, if they have one, are receiving tax credits. It does that by automatically ending a tax credit award as soon as they make a valid declaration of eligibility under the new scheme. I remind the Committee that many families who qualify for tax credits are already in receipt of generous support for their child care costs—they can get 70% of those costs paid by the Government, up to a maximum of approximately £15,600 a year for those who have two or more children. The new scheme will provide support to families as they increase their income and move off tax credits.

The clause sets out the way in which a tax credit award will be ended. When a person opens a new child care account, the tax credit award will terminate on the day before their first entitlement period. When a person already has a child care account and acquires a new partner who is on tax credits, the partner’s tax credit award will terminate immediately before the next entitlement period for which a declaration of eligibility is made.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

Going back to the Minister’s comments about the generous support that many recipients of tax credits get for their child care costs, my hon. Friend the Member for Stockton North set out clearly why he believes the amendment should apply specifically to those who are in receipt of the child care element of tax credit and why there are concerns about removing all tax credit support immediately from those who do not have any help with their child care. Will the Minister deal with that point?

Photo of Priti Patel Priti Patel The Exchequer Secretary

I thank the hon. Lady for her contribution. The clause sets out the way in which a tax credit award will be ended, and I will come to that point.

The clause sets out the rules that will apply when a person has applied for a review, or appealed against a decision by HMRC to not award, or to end their entitlement to tax credits. In such cases, the review or the appeal process can continue even if a parent makes a declaration of eligibility to the scheme. That ensures that the person has support with their child care costs while their review or appeal is being considered.

An award under tax credits is normally made on an annual basis, but the effect of the clause is to bring it to an end at any point in the year. That will make moving on to the new scheme simple and straightforward for the parents. They will not need to do anything in relation to their tax credit award because it will end automatically as soon as they enter the scheme. The parent will still be able to return to tax credits at a later time if, for example, their circumstances change and tax credits again provide them with better support. What is considered a change in personal circumstances will be set out in regulations. It will include life events such as becoming responsible for children, losing a job or moving in with a new partner. As the changes occur, parents can move to tax credits or universal credit without having to end their entitlement period.

We also recognise the importance of providing information and support to help parents make informed choices about which scheme they should access. Alongside wider guidance and information, we will provide an easy-to-use online tool for parents choosing between tax credits and the scheme. Parents will be able to enter details about their personal circumstances to see quickly what support they might be entitled to and how much they could get. HMRC has already published its first version of draft guidance, well ahead of the introduction of the new scheme. It will work with parents and other users to ensure the guidance is as helpful and easy to use as possible, so that parents can understand some of the phrases and terminology being used and work out the support that they need.

Photo of Nicholas Dakin Nicholas Dakin Opposition Whip (Commons)

The Minister is spelling things out reasonably clearly, as she has throughout Committee. Some of the witnesses giving evidence last week expressed a concern that the scheme was rather hard on people who applied  in error. Is there a facility to deal with that, so that people do not find themselves in further financial difficulties through misunderstandings and error?

Photo of Priti Patel Priti Patel The Exchequer Secretary

I think language is important here. Through guidance and working with HMRC, stakeholders and parents, we want to ensure that the information is accurate, factual and correct, and that we provide the right information, guidance and advice to parents. This is not about penalising people who might have made a mistake; absolutely not. Recognising changes in circumstances is complex, as we previously discussed, and we need to ensure that we are working alongside parents on that. This is not about disproportionately hurting anybody; it is about ensuring that the scheme does the right thing.

I turn to amendment 34 and the consequential amendments 35 to 42. They would allow families in receipt of tax credits, but not the child care element, to receive support under the new scheme. The child care element of tax credits is just one component of the package of support designed to help lower-income households with the cost of raising their families, and to ensure that work pays for those who need support the most.

As we have discussed and I have explained, the different components of the tax credit award are not ring-fenced, and awards are paid in cash. That means that a parent can have maximum flexibility in how they use their financial support to meet their household expenses. The child care element is paid to parents who work a set number of hours. That is part of the welfare system designed to encourage progression into work—specifically into working a minimum number of hours to get the child care element—and allow parents to move off benefits altogether. The new scheme should not interfere with those financial incentives. The last thing we want to do is create perverse incentives. What is more, the amendments would create confusion for parents and administrative complexity between schemes. As earnings increase, tax credit payments are gradually reduced, including any child care element a parent may be eligible for, but that is factored into the calculation of the award.

The reduction of benefit payments as incomes increase is fundamental to progression in work. As I have said, we will provide an online tool to support parents in deciding which scheme will best meet their needs, especially as their incomes increase. It is therefore right that a parent in receipt of the child care element of tax credits cannot receive support under the new scheme; but as their income increases, they may choose to access the new scheme instead. For the first time, families can be sure that support will continue to be available when they move off tax credits. We are also extending child care support under universal credit, as we have discussed. That will be available regardless of the number of hours worked.

I am sure that members of the Committee will agree that the clause provides parents with clarity and a simple way to end their tax credit award if they decide to move into the new scheme. I therefore ask the hon. Member for Stockton North to withdraw his amendment.

Photo of Alex Cunningham Alex Cunningham Labour, Stockton North 2:30 pm, 23rd October 2014

I understand what the Minister is saying, but the bottom line is still that the people in the categories I described do not receive anything additional from the Government under this scheme. They are some of the most vulnerable people in our society, with the lowest incomes. They do not qualify for any child care element whatsoever under any of the regimes we are discussing.

If the Government are really committed to helping everyone with child care costs, and those on low incomes in particular, this needs to be thought through again. I invite the Minister to do that, because I will come back to this won Report, but for now I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 29 ordered to stand part of the Bill.