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9.20 pm
Mr. Nick Gibb (Bognor Regis and Littlehampton): We have had a revealing debate on a deeply flawed, ill-thought-through and partially completed Bill, legislating for a deeply flawed, ill-thought-through and partially completed policy. A pattern seems to be emerging in which the Government take a highly successful policy from the previous Government and tinker with it. They add a bit of new Labour and a bit of egalitarianism and, hey presto, the policy is in a complete mess. They replaced personal equity plans and tax-exempt special savings accounts, which were very popular savings schemes, with the inadequate and flawed individual savings accounts or ISAs. Now they propose to abolish family credit, an in-work benefit that has helped and encouraged hundreds of thousands of people on low incomes to remain in work.
Little stigma is attached to claiming family credit, and 767,000 families receive it. That amounts to a 72 per cent. take-up rate by case load and an 84 per cent. take-up rate by expenditure. An in-work benefit with minimal stigma which can be claimed without one's neighbours, employer or work colleagues knowing is being replaced by one which, in respect of a working lone parent, will require the employer, the finance director and the payroll clerk to know that he or she is claiming a benefit.
Just under half of all employees in Britain work for firms employing fewer than 50 people and 99 per cent. of all businesses employ fewer than 50 people. The Federation of Small Businesses stated in evidence to the Select Committee that, as a result of working families tax credit,
The issue goes to the heart of the debate because the take-up rate of benefits is evidence of whether people feel a stigma in claiming it. Family credit, with an 84 per cent. take-up rate, is evidence of very little stigma. The risk of embarrassment by colleagues discovering that one is claiming working families tax credit could well reduce take-up.
Yvette Cooper:
The hon. Gentleman clearly prefers family credit to working families tax credit. Does that
Mr. Gibb:
The hon. Lady churns out the same old soundbites. The £1.5 billion will be wasted by spending the money right up the income scale. By the time that we get back into government, the Labour party will have spent that £1.5 billion--and many multiples of it.
Mrs. Roche:
If the hon. Gentleman's party were fortunate enough to win the next general election, would he abolish that extra £17 a week?
Mr. Gibb:
The £1.5 billion that the Government keep talking about will have been spent. This is a bad Bill--it will not work. It will leave the incoming Government with a complete mess, and it will be up to the incoming Conservative Government to clean it up--as we will have to clean up every other mess that the Government will leave.
I should like the Minister to give a clear figure of what she expects the take-up rate for the working families tax credit to be. Many lone parents who are struggling to hold down a job and bring up a family could be put in a deeply embarrassing position at work because of the Bill and the Government. That is why the Bill is deeply flawed.
The right hon. Member for Birkenhead (Mr. Field), in a thoughtful speech--as one would expect from him--raised concerns about the increased power that the Bill gives to the employers of the low paid. He talked about the difficulties that may arise if the employee loses his or her job. Despite the best intentions, the reality will be that there will be delays in the Inland Revenue re-routing payments, whereas, under the existing family credit system, there are no such problems because payments are made direct to the household.
The right hon. Gentleman referred to the real likelihood of fraud in the system. He cited the United States and the earned income tax credit, where 15 per cent. of payments are lost to fraud. He is right to say that it is absurd to design into a system the likelihood of fraud, instead of trying to design it out.
In an excellent speech, the hon. Member for Northavon (Mr. Webb) said that all the reforms to tapers and the quantity of benefits could have been made to the existing family credit system. The only distinctive part of the working families tax credit is that it is paid through the tax system and the payroll, and that is where the problems of stigma and vulnerability will arise. He was right to point out the real administrative problems that will arise following changed circumstances, and the intrusive nature of having to discuss changed circumstances--such as the wife leaving the household--with an employer. None of those problems arises under the existing family credit system.
The hon. Member for Rochdale (Lorna Fitzsimons) said that the working families tax credit targets money to women in cases of difficult relationships. How can she know what will happen when there is a dispute over who should receive the working families tax credit? We have tried to extract the information from the Minister, but we have received nothing. Perhaps the hon. Lady has heard something that we have not.
My hon. Friend the Member for Arundel and South Downs (Mr. Flight), a member of the Select Committee, pointed out that the measure will be a disaster in practice. Individuals will have to go to the Revenue to sort out problems, and companies will have to apply to the Revenue for advances when they pay out more in tax credits than they retain in PAYE or national insurance. That is cumbersome and bureaucratic.
My hon. Friend also pointed out the likely administrative chaos that will arise, in view of the complexity of the working families tax credit and the tight time scale. He raised the problem of the higher marginal withdrawal rates that will affect several hundred thousand people--always a direct consequence when one tries to extend tapering rates.
The hon. Member for Gravesham (Mr. Pond) committed himself, in a way that no Minister yet has--I hope the Financial Secretary will change that--to saying that the take-up rate for working families tax credit will be higher than that for family credit. We will watch this space. If the hon. Gentleman becomes a Minister, I believe that he will come to regret that statement.
The Chairman of the Select Committee, the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), raised his Committee's concerns about the use of negative resolution statutory instruments, and emphasised the importance of the Government having targets against which the success of the scheme can be measured.
The hon. Member for Pontefract and Castleford(Yvette Cooper) spent more time talking about the Conservative party than supporting the Bill. She churned out the soundbites but failed to address real concerns about the working families tax credit, dismissing them as merely technical.
Yvette Cooper:
The biggest concern for members of the family to whom I referred is whether they will have to pay an extra £35 a week in tax if the Conservative party is elected at the next general election. Taking into account the fact that the £1.5 billion is spent every year, not as a one-off, would the hon. Gentleman make that family pay that extra £35?
Mr. Gibb:
The average family is already paying more than £500 a year extra in taxes after 18 months of the Labour Government.
In a powerful speech, my hon. Friend the Member for Canterbury (Mr. Brazier) spoke of the intrusive nature of the working families tax credit and the fact that, as my hon. Friend the Member for Beckenham (Mrs. Lait) also said, the child care element penalises mothers who look after their own children. He said that the Government had played to all the weaknesses in the family credit system rather than to its strengths.
The hon. Member for Northampton, North (Ms Keeble) said that the Government's aim was not to encourage people to use professional child minders but simply to give women a choice. She should accept that the structuring of the new benefit will create a real incentive to use child minders and for auntie to register as a child minder.
My hon. Friend the Member for Vale of York (Miss McIntosh) spoke of the real difficulties that business will face.
The hon. Member for Stretford and Urmston (Ms Hughes) does not seem to understand that the detail of how the credit works matters and cannot simply be left until the Bill is in Committee; it matters to the companies which have to administer it and to the individuals who have to apply for it.
My hon. Friend the Member for Bromsgrove (Miss Kirkbride) said that many groups on the left had nothing positive to say about the working families tax credit in their evidence to the Select Committee. Interventions in her speech by Labour Members highlighted the fact that they simply do not understand the difference between tax and spending. That is quite extraordinary.
When Martin Taylor, who was then chief executive of Barclays bank, was appointed by the Chancellor to examine the tax and benefit system, there were high hopes and great expectations, but reality soon began to bite. He said that a working families tax credit would reduce stigma but, in his evidence to the Select Committee, he said:
"there could be the added stigma of being an employee who receives, and knowingly receives, benefit within the workplace."
Ministers have very little experience of life in the real world of business, but those are real concerns. The hon. Member for Coventry, North-East (Mr. Ainsworth), the Government Whip, laughs but, through their naivety and ignorance, the Government have devised a system that will increase stigma and not reduce it. If the Minister is so convinced that the working families tax credit will not increase stigma, will she tell the House what her target, expectation or hope is for its take-up rate? Will it be lower than the take-up rate for family credit, which is 84 per cent., or will it be higher? I hope that she will address those points in her reply. If she expects it to be higher, what percentage does she expect it to achieve?
"As far as the stigma goes, the hard and fast evidence in all these non-financial and psychological matters is hard to come by . . . The principal psychological assertion, and I agree with you it is an assertion; it is not proven."
The entire principle behind the Bill is based on no evidence. The assertion, as Martin Taylor put it, could well be true for large employers such as Barclays, but it is not true for 99 per cent. of businesses that employ fewer than 50 people.
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