APPENDIX
Letter to the Chairman of the Committee
from the Chancellor of the Exchequer
The Social Security Committee published its Third
Report of the 1997-98 session, "Tax and Benefits: Pre-Budget
Report" (HC 423) on 11 March. I am writing with the Government's
response.
I welcome your Committee's report. We found this
to be a useful and valuable contribution to the debate.
As almost all the report's recommendations concern
the Working Families Tax Credit, which is the responsibility of
my Department, Harriet Harman has asked me to reply.
Since the Select Committee published its report,
I announced in the Budget that the Government would introduce
a Working Families Tax Credit (WFTC). The WFTC will begin in October
1999, and will be administered by the Inland Revenue. Many of
the features of the WFTC are in line with your Committee's recommendations.
For example, the WFTC will, as recommended, have a six-month fixed
entitlement period and be assessed on the basis of the household.
The WFTC poses no threat whatsoever to independent taxation. And
the WFTC will not result in a compulsory transfer of resources
from women to men: couples will be able to choose which partner
received the Working Families Tax Credit. And the new childcare
tax credit within the WFTC will greatly improve the help with
childcare costs available to low- and middle-income parents. Further
details of the WFTC appear in two documents published on Budget
day: the Red Book and "The Working Families Tax Credit and
work incentives", which was number 3 in the series of Government
papers on "The Modernisation of Britain's Tax and Benefit
System".
A number of recommendations deal with issues surrounding
the implementation of the WFTC. The Inland Revenue is consulting
with employers and others about how to implement the WFTC. The
Government's strategy to maximise take-up of the WFTC will be
developed in the coming months, along with other details of the
scheme, including the arrangements for delivering the WFTC to
the self-employed. We appreciate the importance of keeping Parliament
informed about the Exchequer cost of the WFTC: the Government
intends that figures for tax forgone will be made available in
the same way as the cost of other tax reliefs.
Government policies also go with the grain of several
of the Committee's other recommendations. The Government is committed
to a more open and consultative procedure for taking Budget decisions.
The Pre-Budget Report is central to this commitment. My officials
and I will continue to participate in the involvement of the Select
Committees in the Pre-Budget Report process, which we welcome.
I made plain in the Budget my determination to bring
about reforms to improve the incentives and rewards for those
who work on relatively low wages. I also welcome the Committee's
intention to examine further the role of National Insurance Contributions.
The Budget contained radical reforms in this area which will improve
incentives to work and incentives for employers to hire. The Government
recognises the importance of Housing Benefit as part of its strategy
of Welfare to Work and in the context of wider social security
reform. The Welfare Reform Green Paper ("New ambitions for
our country: A new Contract for Welfare") made clear that
Housing Benefit is being reviewed with the aim of providing a
benefit that is easy to understand, simple to administer, and
minimises work disincentives and the risk of fraud. Finally, the
Government is grateful for the Committee's support for a new 10p
tax rate. As you know, the Government intends to introduce a 10p
tax rate to improve work incentives still further, but only when
it is economically right to do so.
14 May 1998
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