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6.39 pm
Yvette Cooper (Pontefract and Castleford): I welcome the opportunity to speak in the debate, because I believe that the working families tax credit embodies several important principles. It is not just about a small, detailed mechanism to change the workings of the tax and benefit system. There are principles at stake: first, about making the system fairer; secondly, about directing more support to children; and thirdly, about encouraging work. Yes, it would be possible to go further in pursuit of all three principles, and I believe that, in the long term, we should do so, but this is a right first step in that direction.
Interestingly, many technical and practical issues have been raised tonight--primarily by the Liberal Democrats--but the debate has also revealed deep differences of principle between the Government and the Opposition. I am astonished that the Conservatives so strongly oppose not only the Bill, but the additional £1.5 billion for low-income families. I qualify that by saying that I assume that that is still their position, because a U-turn seemed to be taking place at the Dispatch Box earlier this afternoon. [Interruption.] Perhaps the hon. Member for Brentwood and Ongar (Mr. Pickles) or the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) would like to qualify that. Unfortunately, they are obviously not prepared to state their exact position on that additional £1.5 billion. That seems to be the critical issue at stake.
Mr. Gibb:
Does the hon. Lady accept that much of that £1.5 billion will be wasted because it is spread way up the income scale, to people on £28,000, £30,000 or £35,000--even people on 38,000? Does she accept that point?
Yvette Cooper:
No, I do not accept that point. Undoubtedly, most of that additional money will go to low-income families in the bottom two deciles of the income distribution. A few families higher in the income scale will get additional money because they have child care costs. If a family on £38,000 have five children needing child care, good luck to them--they will probably need the help. However, there are very few of those families, and the real additional help is being concentrated in the pockets of low-income families.
It is interesting that the hon. Member for Bognor Regis and Littlehampton obviously objects to additional child care help for those families on £28,000. I shall return to that subject later.
Mr. Owen Paterson (North Shropshire):
Will the hon. Lady give way?
Yvette Cooper:
I shall give way later; I want to make progress first.
A family in my constituency approached me about their financial situation, and I wrote to the Paymaster General about it. The couple are working more than 60 hours a week between them, and they told me that they reckoned
that they were about a tenner better off in work than they would have been on benefit. That is not fair, and it is not a good incentive for the couple to stay in those jobs.
I received the following answer from my hon. Friend the present Paymaster General. With the minimum wage, and with the working families tax credit combined with the child care tax credit--because the couple have one child in part-time child care--the family's existing income of £228 per week after tax will increase to £263 per week. That is an increase of £35 per week--a 15 per cent. increase. Effectively, the Conservative Opposition, by opposing the Bill and saying that they want to abolish that additional spending, are saying that they want a 15 per cent. increase in that family's tax bill. They want to present that family with a huge tax bombshell, instead of giving them the help which I think that they need.
It tells us a lot about the Conservative party that, throughout the passage of the Bill that became the Finance Act 1998, the Conservatives tried to block any closure of tax loopholes--which, effectively, are tax breaks for the rich--and yet they are determined to block tax breaks for low-income families.
The working families tax credit has two main functions--to support children and to support work. Measures to support children, increase their well-being and get them out of poverty have often acted as disincentives to work. Equally, measures to try to help people into work have penalised families and pushed them further into poverty. The important thing about the working families tax credit is that it targets both measures.
I believe that the help that the working familiestax credit will give low-income families--especially children--to get them out of poverty should be sufficient reason to support the Bill, and to support the extra £1.5 billion that will go into that tax credit. Thirty-two per cent. of children grow up in poverty, in households on less than half the average income; that means less than about £185 a week for a couple with two children. However, childhood poverty is even more damaging.
We should take into account not only the number of children in poverty today, but the impact that that poverty will have throughout those children's lives. Research by Paul Gregg and Steve Machin shows that the children of families who face financial difficulties are far more likely to leave school early, to end up in crime, to have contact with the police and to be less healthy throughout their lives. The legacy of that poverty will linger. We have an obligation to tackle poverty now, not only because of the situation today, but because of the inter-generational inequalities that will persist for decades. Therefore, raising the income of so many families by, on average, £17 per week makes a difference. It will improve children's health, and adults' health in 10 or 20 years' time.
The second aim of the working families tax credit is to support work. That matters, partly because the greatest cause of poverty among children is unemployment among their parents. That gives us a strong reason to help parents into jobs--not only so that they can set a good example for their children, but so that they can bring more money into the household.
We have had a few contributions about the lack of evidence on work incentives, and whether raising people's income by giving tax credits will make a difference to work incentives and encourage more people into work. I understand that the Institute for Fiscal Studies, in soon-to-be-published work--mentioned by the hon. Member for Northavon (Mr. Webb)--suggests that between 30,000 and 40,000 more women will be encouraged into the work force as a result of the working families tax credit. I believe that the IFS simply considered the impact on women, especially lone parents, but I understand that a success rate like that would have the added bonus of saving about 15 per cent. of the extra costs of implementing the working families tax credit.
However, that estimate is conservative compared with those that result from other academic work. I have not read that piece of research yet, but I understand that it has some econometric limitations, which would make it not as reliable--
Mr. Gibb:
Perhaps I may help the hon. Lady. The IFS says that, on its estimates, only between 30,000 and 45,000 individuals will enter work as a result of the measure. It is costing £1.5 billion to put 45,000 people into work; that is £33,000 a job. Does she consider that that is taxpayer's money well spent?
Yvette Cooper:
I have argued from the start that this measure is primarily about helping children, but that it has the added bonus of creating work incentives. The IFS estimate is very conservative, so I do not accept those figures as they stand.
Mr. Webb:
The hon. Lady has made a powerful case for spending the money, and for supporting children. I presume that the IFS model takes into account only lone parents, which is where the plus 40,000 figure comes from. I presume that the IFS has not considered woman second earners who are married. Does she accept that, almost certainly, the marginal effect of the tax credit on all those who are currently receiving it will be to reduce their work incentives?
Yvette Cooper:
I do not know whether the IFS has included second earners. The hon. Gentleman is right to say that it would be easier not to. I believe that the impact on second earners is unclear because of the child care tax credit. There has never been any modelling of the impact of that type of child care tax credit, and that type of child care help--for which those second earners would be eligible if they went out to work. There is a complete lack of information on the subject.
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