Examination of witnesses (Questions 340 - 359)
WEDNESDAY 28 OCTOBER 1998
MR GABS
MAKHLOUF, MR
TONY ORHNIAL,
MR GEORGE
ROWING and MS
SUE WALSH
340. Sure, I do understand that, but we
are in an area of joined-up thinking, which is becoming just about
the most over-used cliché in Britain, but it is also terribly
important, and I am, for example, concerned that as of today local
authorities responsible for early years development plans and
for implementing DfEE guidance do some very, very imaginative
thinking. As far as I can see, you will search for the rest of
the year to find any reference in any early years development
plans to the childcare knock-on effects of the introduction of
the Working Families Tax Credit, so what you have got is this
fantastic opportunity, I think, to lever up standards by putting
unregistered childcare into the training circuit and improving
their standards and in getting basically some money cascading
down into very poor communities through the childcare process,
but who is doing that? Now, I know that that is not your job,
I know that is not your job, but in terms of your anti-poverty
strategy, it is somebody's job. I am really not at all convinced
that at this critical point, a year on, and there will be at least
a year lead-in time for this, that somebody is not really running
with the opportunities and the demands of the childcare tax credit
and linking this into some of the DfEE work enough to get people
actually making the decisions acting on it.
(Mr Orhnial) Well, we are certainly talking to
colleagues at DfEE and DSS. We also have our own lines open to
a number of organisations, the Daycare Trust, Kids Club Network,
the National Association of Child-minders, et cetera, so we are
being as proactive as we can in trying to understand the issues
and how we can address them.
341. But has every local authority been
written to?
(Mr Orhnial) No, we have not done that, but we
are meeting some local authorities and one of the organisations
has organised a seminar and discussion session with them next
month, so we are moving forward.
342. I am sure they are good organisations
and I do not doubt that is happening, but early years development
plans are all being written now and they are being lodged now
and they are planning now for next year and the next two years
training, childcare training, childcare provision, and it just
surprises me and I think we have missed a trick. Why was there
not a circular issued this summer?
(Mr Rowing) I think there are three things. First
of all, I think it is chapter 3 of the Green Paper which actually
has a major portion within it about the childcare tax credit.
We have certainly been liaising very closely with the DfEE about
things that they could say to help people in these situations,
so that is an avenue that we have been co-operating with DfEE
on to make sure that information is available, although we have
not written to local authorities ourselves. Lastly, I remember
that the Financial Secretary wrote to a selection of organisations
representing carers and providers and telling them about the childcare
tax credit, so there has been some proactive work.
343. I am sure there has, but I have been
doing a lot of work in my local patch, which may be the exception,
on the development of the childcare training provision and the
new childcare providers, and it is just not on the ground. It
really is not on the ground. If it is not on the ground now, we
are not going to get the provision in place or training schemes
in place or all those opportunities starting to be fulfilled in
18 months' time and really time is the premium. The last question:
is there a possibility, as the Institute of Directors have flagged
up, of abuse, effectively fixing, with the childcare tax credit,
that you will lever up to the ceiling automatically what is available
regardless of the real price?
(Mr Orhnial) I think that in this kind of situation
always exists the possibility. In any market there will exist
that possibility.
344. Quite, but what will you do about it?
(Mr Orhnial) What the probability of it is I have
absolutely no idea, but one cannot rule out the possibility.
345. It is back to the question we had before,
that somebody now should be thinking about what kind of checking
process is going to be in place.
(Mr Orhnial) Certainly issues about how the credit
can be manipulated and indeed how it might be fraudulently used
are in our thinking. Now, there is a point that Gabs made earlier
on about what one can do in the short term leading up to 1999
and what one might do with the credit as we move through time.
I think the important thing is to be able to deliver the money
into people's pockets by whatever means on time so that they do
not suffer as a result of the changeover from Family Credit to
Working Families Tax Credit. There are a lot of other things one
can do over a slightly longer time period. I am not trying to
buy time at this point, but I think one needs to understand that
there is a longer process that will lead to improvements.
(Mr Makhlouf) Perhaps I could just add two small
points to that. One is on the IOD issue, which is the fact that
the credit does require the claimant to make some contribution
so that that acts as a natural ceiling on extremes. On the wider
issue about local authority communication, and you mentioned the
anti-poverty strategy, which again is one of my areas of responsibility
over the next half-hour or so, I think that there are actually
things happening, but I will make sure that I take that away and
alert the people around the place.
Ms Buck: We need a
bit more.
Miss Kirkbride
346. Just on this point because I think
there is a potential for behavioural changes which any new welfare
benefit introduces which can also have an impact on the way people
behave as well as the opportunities for fraud, how much is the
childcare tax credit deemed to cost or what have you assumed it
is going to cost?
(Mr Orhnial) Around £200 million in 2000/01.
347. And what is the participation rate
on that cost?
(Mr Orhnial) It is very difficult to break it
down in that way and simply try to work the figure from the bottom
up because simply you can get to it in a variety of different
cost combinations and charge combinations and behavioural change
combinations.
348. And if everybody who could be eligible
for it took it up, how much would it cost?
(Mr Orhnial) If it was every child in a family?
349. Yes, just supposing.
(Mr Orhnial) I do not think we have done that
estimate.
(Mr Makhlouf) Do you want us to quote you the
IFS estimate, which we do not actually believe is reliable?
350. Well, please do carry on because they
are a pretty reputable body and they could not have been completely
off the wall when they mentioned it.
(Mr Orhnial) What they gave was a range of estimates
of which that was the most extreme.
(Mr Makhlouf) I do not know if Chris Giles is
here, but our view is that it will cost around £200 million.
351. And the IFS, if you do not have a figure,
what was their wildest estimate?
(Mr Makhlouf) I think their wildest estimate was
in the £4 billion sort of area which I just think is unrealistic.
Ms Buck
352. And the family credit/childcare disregard
is costing how much today?
(Mr Makhlouf) It is about tuppence ha'penny.
353. Can we quote you on that?
(Mr Makhlouf) I think it is about £10 million,
but I do not know the answer. It is a very low number.
(Mr Orhnial) And we can correct that number later
if necessary.
(Mr Rowing) I do not know that it can be computed
because of the way the disregard works by knocking out income
and because it is not calculated in the same way that the tax
credit will be calculated, I do not know that even if we went
back to the database we could get that number.[12]
Miss Kirkbride
354. But you said that it will be £200
million which is perhaps on the lower side if IFS have any credibility
at all, nevertheless, it is a good deal more than what is being
spent at the moment. You said that it took account of behavioural
effect. What does the Inland Revenue deem to be a behavioural
effect of this?
(Mr Orhnial) First of all, I think the IFS figures
ran from something like £50 million at the low end up to
this extreme, so it was a range of which the most dramatic is
the one that stuck in the mind. What the £200 million is
based on essentially are some estimates of the extent to which
people would move into paid childcare.
355. What did you mean by the behavioural
effect?
(Mr Orhnial) Well, that is the behavioural effect.
356. Just that they would take it up?
(Mr Orhnial) Yes.
357. Not that they would arrange their living
standards in order to take it up or perhaps ask mum to become
a registered child-minder?
(Mr Orhnial) That is certainly an option. There
is nothing——
358. There is nothing to stop mum becoming
a registered child-minder?
(Mr Orhnial) There is nothing to stop anyone,
if they can meet the conditions, and it is not for us to make
a judgment on that, if they passed the conditions in previous
years.
Chairman
359. I would like to ask you two technical
questions about the presentation in government accounts. I know
that there was some evidence given to the Treasury Select Committee
about this, but can I ask you to confirm how payments of Working
Families Tax Credit to people whose tax liability is actually
less than their credit, how is that going to be covered in government
accounts?
(Mr Makhlouf) That ultimately is a question for
the Office of National Statistics because they are the people
responsible for the accounting standards, and I know Tim Holt
has just written to, I think it was, the Treasury Select Committee
on Monday on this.[13]
12 Note by Witness: The latest information we
have is that the cost is around £33.3 million (in 1997/98). Back
13
See Eighth Special Report, Session 1997-98. Back
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