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Mr. Flight: I thank my hon. Friend for reminding me of that. I shall come to the point he raises later and hope to pick up all the issues that were raised in the Select Committee. In reviewing the Select Committee report, both The Times and The Independent picked up concerns about points of principle, as well as considerable practical concern about whether the measure would be workable, especially during the next 18 months.
The works of professionals and welfare gurus that I have read all make one point: that it is dangerous to split the provision of welfare. How can one easily achieve a single gateway if different benefits are dealt with in different ways? It is pure semantics and window dressing to argue that we are not debating how family credit is paid. The Bill commences:
The bogus arguments about stigma add little to the debate. What matters is how much people get; to what extent the tax credit will act as an incentive or a disincentive to work; and how efficiently it is administered. Over the next 18 months, hundreds of thousands of people will not get their family credit benefits through the system on time. There will be much debate and dispute, with companies asking the Revenue how much the amount should be. In addition, the tax credit cannot easily be coded into income tax. Many ordinary people who are in need will suffer.
On the question of stigma, views differ. Many hon. Members will not have worked for medium-size businesses, which are major employers in this country. As one who has done so, I can tell the House that in such companies, everybody knows everybody else's business--it is not like the House of Commons.
Mr. Oliver Heald (North-East Hertfordshire):
We know quite a lot here.
Mr. Flight:
Yes, that may be true.
My point is that people will be curious about who is getting paid the credit, they will look it up on the net and they will find out. The proposals will make much more public than do the present arrangements those who are receiving family credit support. There is nothing to be gained in terms of reducing stigma and, potentially, there is much to be lost.
It is argued that the Bill will improve the problem of poverty traps and, at some levels, it may do so. However, hon. Members will know that between 469,000 and 1.2 million more people will now face marginal tax rates of 50 per cent., so disincentives may be alleviated in one part of the system, but even bigger ones will be placed elsewhere. As citizens advice bureaux and the hon. Member for Northavon have pointed out, unless mortgages and housing benefit are dealt with at the same time, there will still be major disincentives to work that the Bill does not address.
Being a little cynical and having spent 30 years working, I believe that there is a danger that the Bill will exert downward pressure on wages.
Yvette Cooper:
Does the hon. Gentleman accept that that is a good argument for introducing a minimum wage to create a floor and prevent that downward pressure on wages?
Mr. Flight:
That is one of the arguments for a minimum wage. The argument against is that it tends to price millions of people out of work. In Europe, 20 million people have been out of work because the minimum wage is too high. Let us hope that the Government have set the minimum wage so that Britain does not fall into that trap. Many employers are already well aware of the terms of family credit and are structuring pay policies to benefit from those. There will be an increasing element of the early 19th century Speenhamland legislation and deliberate subsidising of employment. If that does not constitute fraud, it will at least exert downward pressure on wages.
No one has mentioned this point, but I note that the Government have not changed the levels for disqualification, which begin at £3,000 of capital with
reductions in credit and go up to £8,000 of capital, at which point one would not qualify for any credit. I wonder how that squares with the Government's objective to persuade people to save more through the individual savings account scheme, which is intended to attract many more people who are not well off into saving. Those are self-defeating objectives.
On motivation, as the Government admitted, 470,000 more people will be dependent on welfare. The good side of that is that many of those people will be better off, but another half million people will have less incentive to work and be dragged into the problems of welfare dependency.
On expenditure, Conservative Members have made the macro-economic point that before the election, the Labour party argued that the overall social security bill would be reduced by better use of resources, which would enable there to be higher expenditure on education and health. Our major criticism is that the Government are contradicting that pledge because the bill is increasing enormously, partly due to these proposals. My additional worry is that the costs of the new arrangement could be astronomical. Instead of having a straightforward system, we may have one with substantial administrative costs. I wonder whether those have been taken into account in the estimate of the additional cost of £1.5 billion.
It has already been said that we will know the costs only when we know exactly what the proposals are, but the Institute for Fiscal Studies has suggested that if the arrangements for child care support are not tightly worded, they could add a further £4 billion. If they are tightly worded, they will not achieve the Government's aim. The proposals may, therefore, cost a further £5 billion and will not be particularly good value for money because much of that expenditure will be wasted.
As the right hon. Member for Birkenhead (Mr. Field) and others have said, the proposals contain too much that is designed to encourage fraud, including fraud by employers. That will be semi-fraud rather than wicked fraud. I am vaguely aware that many of my constituents live in a household consisting of two partners, which is structured so that it does not qualify as such and a single mother can therefore gain maximum benefits. That practice will be encouraged by the Bill because, as I shall demonstrate, there will be a major difference in what families receive, depending on whether their household consists of one or two adults.
As I have said, the Bill provides further disincentives to save. I do not understand how the Government think that they can achieve both of their objectives at once.
Miss Kirkbride:
I am interested in my hon. Friend's important point about savings, which I had not thought of despite being a member, as he is, of the Select Committee on Social Security. Will he make clear the Government's position on savings? What would happen if one gave children money to save?
Mr. Flight:
I understand that the rules will not change from those that apply to family credit. Those who have £3,000 or more of capital receive a reduced amount of family credit according to a scale that goes up to £8,000 of capital, at which point they are entitled to no credit at all. I do not know how capital will be measured or whether equity in a house would be included. First,
The Bill is anti-family according to my sense of the word "family". I brazenly take the view that a family normally consists of a mother and a father and their children, and that such a unit is best for bringing up children and enabling people to look after themselves in future. The proposals contain significant disincentives to form such units. As hon. Members have said, the main problem will arise from claiming the child care credit. A family of two parents and two children who earn £15,000 a year will receive only 25p of child care credit a week. A family of one parent and two children who qualify for the credit will receive £70.25 a week, which is a major disincentive to form a two-parent family.
Many hon. Members may have read an article by Martin Wolfe in the Financial Times earlier this year. He made the point that when one allows for the expenses of the husband or male partner, it is no longer worth having such a partner unless he earns almost £400 a week, which is the median level of pay in the country. Otherwise, he is a financial liability. The proposals will mean that more than 1 million people in two-earner couples will experience a fall in their returns from employment. That statistic was produced by the Treasury, not the Conservative party.
I remain of the view that children are best looked after by their mothers, particularly in their early years, if that is what their mothers want. Good habits and conditioning result, and children's prospects of being good citizens are greatly increased, as all studies show. It is complete madness to provide an incentive that will virtually drive wives--particularly those in decent, ordinary families in the middle of the income bracket--out to work for fiscal reasons. [Interruption.] Labour Members may laugh, but that will happen. I know many women who are extremely upset by that because they want to spend time at home looking after their children at least up to the ages of five and six.
I certainly hope that the child-minder arrangements--when we know what the Dickens they are--will include some provision to help women who want to stay at home to bring up their children. Regardless of what the Government say, this Bill encourages and supports, through welfare and fiscal incentives, the single-parent existence. It also establishes fiscal disincentives for mothers to stay at home. Both provisions are anti-family, and go against the traditions honoured by the great majority of people in this country.
The Bill is also unfriendly to children. The argument about the purse versus the wallet misses the fundamental point, which is that mothers should have the automatic right to get the money from the post office. That cannot happen with a scheme administered through the employer. For all sorts of reasons, rows will be caused or the wife will give way: as a result, the changes will mean that it will be more difficult, rather than easier, to get the money to the children. In Canada, it was concluded that the most effective way to help children was through generosity and good old-fashioned child benefit, which could easily be collected from the post office by the mother and which did not involve lots of administrative complications.
"family credit and disability working allowance to be known, respectively, as working families tax credit"--
in other words, distribution is an issue.
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