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Session 1999-2000
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Delegated Legislation Committee Debates

Draft Tax Credits Up-Rating Order 2000

Sixth Standing Committee on Delegated Legislation

Wednesday 15 March 2000

[Mr. Andrew Welsh in the Chair]

Draft Tax Credits Up-rating Order 2000

4.30 pm

The Paymaster General (Dawn Primarolo): I beg to move,

    That the Committee has considered the draft Tax Credits Up-dating Order 2000.

The order increases the rates and thresholds of working families tax credit and disabled persons tax credit from 11 April 2000 by 1.6 per cent. in line with the increase in the Rossi index. To fulfil a commitment made in the Budget, it increases child credit for the under-11s by an extra £1.10 above indexation, thus aligning it with child credit for 11 to 16-year-olds. Together, those increases will boost the income of about 1.4 million hard-working low-paid families and disabled people.

The order increases the amount of credits for an adult and for each child or young person as well as the extra 30-hour tax credit received by a family when one earner works at least 30 hours a week. Those credits determine the maximum working families tax credit or disabled persons tax credit available.

The order also increases the income threshold for working families tax credit and the thresholds for the disabled persons tax credit. The thresholds—or applicable amounts—are the levels above which income begins to taper away the maximum award of tax credits. Following the transfer of functions under the Tax Credits Act 1999, we have taken the opportunity to combine the relevant annual changes to the tax credits for England, Wales, Scotland and Northern Ireland in a single order.

The Government are promoting opportunity and fairness for all through their continuing tax and benefit reforms. For the first time ever in this country, work really does pay for everyone, thanks to the working families tax credit and the disabled persons tax credit.

The order ensures that the differentials between in-work tax credits and out-of-work benefits are maintained. It also provides extra help—above indexation—for young people. I therefore commend it to the Committee.

4.33 pm

Mr. Richard Ottaway (Croydon, South): The Conservative party made clear criticisms of the operation of working families tax credit during the passage of the Tax Credits Act 1999. As presented, the cost of the credit has been fiddled, a matter that came up in Prime Minister's Questions today. Our first objection, therefore, is that the cost has been misrepresented vis-à-vis the social security budget and the comprehensive spending review.

Secondly, the working families tax credit increases welfare dependency, dragging some 27 per cent. more families into the welfare net. A similar view was expressed by the right hon. Member for Birkenhead (Mr. Field), the former Minister for Welfare Reform, who was asked to think the unthinkable, but when he did was sacked for his pains. He said that such a measure would encourage fraud and lead to conspiracies between employers and employees on earning. Indeed, that is the position in Canada.

Thirdly, it is a matter of serious concern that the credit is based on the recommendation of Mr. Martin Taylor, the author of the Taylor report, who confessed to the Select Committee on Social Security that he had not considered the Canadian situation.

Fourthly, the working families tax credit is primarily anti-family. [Interruption.] The hon. Member for Gravesham (Mr. Pond) laughs. I suggest that he reads the figures; it is clear that one-parent families do better than those of married people. It is absolutely clear that there is discrimination in favour of lone parents.

Finally, the business community has to handle the credit. In the run-up to the Budget, the Minister will be aware that the business community has made it clear that it considers that it is being used as the Government's unpaid tax collector, which adds to the regulatory burden. That burden is significant for small businesses, especially those employing perhaps a handful of people. None the less, this is an uprating order. The Minister is right that it has some significance in the changeover to a new system, and it is not the role of the Conservative party to oppose what is, frankly, a perfectly sensible uprating.

4.36 pm

Mr. Edward Davey (Kingston and Surbiton): It is a pleasure, Mr. Welsh, to serve under your chairmanship. This is the first Committee in which I have had that privilege, so I welcome you to the Chair.

On behalf of the Liberal Democrats, I welcome this uprating order. The order was promised; it is no surprise to anyone. It will provide benefits to those who can claim working families tax credit. The Minister is well aware that, in considering the new proposals in other Committees, my hon. Friends have voiced concern, not about the objectives of the working families tax credit or about the fact that money will go to those who need such help, but about the system. My hon. Friend the Member for Northavon (Mr. Webb) has proposed other ways in which the money that the Government are setting aside to assist low paid families could be channelled so that the problems to which the hon. Member for Croydon, South (Mr. Ottaway) alluded, such as the danger of fraud, would not necessarily be created. That has been debated elsewhere, so I shall not revisit it in detail today.

I assure the Minister that I welcome the order. Given Conservative Members' recent speeches, I wonder whether the Minister will speculate on whether this is a moral tax change. However, if I go further down that route, Mr. Welsh, you will call me to order. The Liberal Democrats do not believe that the order will increase welfare dependency; it will reduce welfare dependency by encouraging people back to work, which is one of its major benefits.

Ending the problems of poverty and unemployment traps was part of the motive behind the new system, but the order will do so only partially. In my constituency, housing costs are high in the rented and the owner-occupied sectors. Those high housing costs are the real barrier to getting people into work. I know that the Government have considered that matter, which is relevant to the order because high housing costs mean that the working families tax credit cannot finish the job by itself. In my constituency, many people who want to work, even those who would benefit from the working families tax credit, find that doing so is not worth while because of the loss of housing benefits that that would entail. I hope that the Government will address that problem in future.

I take this opportunity to raise an issue that was brought to my attention by one of my constituents, Olivia Peak, who runs the Surbiton Hill nursery centre on the Alpha Road estate, which is part of my constituency. She has written to the Under-Secretary of State at the Department for Education and Employment because the local education authority in the borough of Kingston has asked her to stop admitting new families who receive working families tax credit because it is not allowed to subsidise such places by law. I do not know whether the Minister is aware of that legislation.

Dawn Primarolo indicated assent.

Mr. Davey: The Minister nods, and I am grateful to her for that. I understand from the letter that I received from my constituent that the Government are considering tackling that legislation, but it has created problems in the short term. Surbiton Hill nursery centre is thriving. The staff have worked hard to build it up, the parents are supportive and it fulfils an important role in my constituency. However, as a result of this temporary problem, the nursery is turning parents away, which is causing financial difficulties. The LEA is trying to fill the gap but, as the Minister probably knows, it is stretched financially and cannot afford to subsidise the children who need support.

I hope that the Minister can reassure my constituents and me that the Government will tackle that legal problem by introducing the appropriate legislation as soon as possible, so that the LEA and the nursery will not experience financial difficulties, and parents and children can benefit from the support that Surbiton Hill nursery centre can provide. I should also be grateful if the Minister would say when the legislation will be introduced.

As I have said, the order is essentially fine from the Liberal Democrats' point of view. We hope that it will channel money to low-income families, so that they can return to work.

The Chairman: I realise that Committee members are anxious to raise issues, but I hope that we shall not stray too far from the order.

4.41 pm

Mr. Christopher Gill (Ludlow): I am grateful for the opportunity to say a few words about the order. My hon. Friend the Member for Croydon, South said that the Conservative party has five main objections to the measure, and he referred to the working families tax credit. I shall concentrate on one aspect of that credit: the burden that it imposes on the employer. Regardless of what it will cost, the business community is far from happy about having to endure that burden. The order does not set a precedent, but, in my opinion and that of the vast majority of the business community, it is an unfortunate development.

I want to ask the Minister about issues relating to the mobility of labour. She will be aware that there is greater mobility of labour than ever before: employees join and leave companies more frequently than in former times. Clearly, that imposes increased burdens and administrative difficulties on employers. What will happen in respect of employees who provide false information? On occasion, employers are hard pressed to establish the accuracy of information that employees provide on matters such as their address, marital status, and number of children or dependants. Whereas the state, through the medium of the Department of Social Security, may have the facilities and resources to establish whether an employee has given the correct information, an employer, particularly a small employer, is unlikely to have such facilities and resources. When an employer acts in good faith on information that proves to be false, where will the burden of responsibility lie? What penalties will the employer incur as a result of accepting such information for the purposes of the working families tax credit?

4.44 pm

 
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