Select Committee on Liaison First Report

Committee Recommendations: Progress

Fourth Report: Child Benefit (HC 114) Published: 4 March 1999

Committee Recommendations: Progress
Sessions 1998-1999
Fourth Report: Child Benefit (HC 114) Published: 4 March 1999

Government Reply: SoS letter to Chairman 26 April 1999 not published
RecommendationGovernment Response Committee Response/Follow upFurther Government Action Notes
We acknowledge and endorse the 'multi-purpose' role of Child Benefit in supporting families and welcome the Government's commitment to retain it as a universal benefit and as the foundation for the future support of children. This Government is committed to supporting families and to ensuring children are given the best start in life which is so vital to their future progress. It is the Government's intention to put children's interests first and, as the Chancellor of the Exchequer stated in the Budget, to reform the tax and benefit system to strengthen the family by putting children first.

We therefore welcome the Committee's endorsement of the role Child Benefit plays in supporting families and the Committee's acknowledgement of our commitment to retaining Child Benefit as the foundation of support for children in the future.
  Above inflation increases to Child Benefit from April 2000 and 2001 have increased the rate to £15.50 for the first child and £10.35 for all other children. This is a substantial contribution towards the cost of bringing up children that underlines the Government's continuing commitment to Child Benefit and the role that it plays in tackling child poverty.   
We commend the work of the Department in reviewing the extent of fraud and abuse within Child Benefit and we recommend that the detection and prevention of Child Benefit fraud should be a priority for the Benefit Fraud Inspectorate . a.The Benefit Fraud Inspectorate (BFI) was set up under powers in the Social Security Administration (Fraud) Act 1997, to "maximise counter fraud performance and minimise the risk of fraud throughout the social security system" (BFI mission statement). It does this by carrying out inspections of local authorities and central government agencies involved in benefits administration, and reporting its findings to the Secretary of State. The BFI does not investigate benefit fraud; this role is carried out by local authorities and the Benefits Agency. It plays its part by promoting good practice and driving up standards in those organisations charged with the duty of combating fraud.

b.The detection, investigation and prevention of Child Benefit fraud is the responsibility of the Benefits Agency, and for detection and investigation specifically, the Benefit Fraud Investigation Service (BFIS), who deal with the bulk of small and medium scale fraud against the benefit system, and the Benefits Agency Security Investigation Service (BASIS), who deal with serious and organised fraud.

c.The Government has set out its strategy in "A new contract for welfare: SAFEGUARDING SOCIAL SECURITY" (Cm 4276, March 1999). Our vision entails better measurement, improved incentives, smarter security and commitment across the Department. We shall achieve it by a sustained and detailed effort across four fronts:

getting it right - benefit payments should be correct from day one:

keeping it right - ensuring payments are adjusted as circumstances change;

putting it right - detecting when payments go wrong and taking prompt action to correct them with appropriate penalties to prevent a recurrence; and

making sure our strategy works - by monitoring progress, evaluating the strength of our defence and adjusting them in the light of experience.

d.Our emphasis is on secure administrative processes which minimise the risk of fraud, rather than on detecting fraud which has already happened. But the need to investigate and detect criminal activities will always remain, because there are people who will continue to steal from the social security system, and who will find new ways of doing so.

e.The Benefits Agency recognise that there is a need to protect all benefits, including Child benefit, and every BA Area is responsible for delivering a plan to protect the whole of their programme. To underpin the new strategy, the Benefits Agency has introduced a Performance Management regime which removes the emphasis on inflexible monetary savings and activity targets. The new regime will allow managers to target their resources where they are most needed, using local indicators and risk management techniques, to securely and accurately deliver all benefits.
  The Government continues to place a high priority on the reduction of all aspects of fraud and abuse of the benefit system, including Child Benefit. Extending the requirement to prove identity, by obtaining a National Insurance Number, to Child Benefit from May 2000 has tightened the gateway to the receipt of Child Benefit.

The DSS through Programme Protection is continuously reviewing existing mechanisms to establish their usefulness and validity with the intention of ensuring improvements are practical and necessary.
We consider that there remains a need on the part of Government for a more thorough review of the investment this country makes in its children. Such a review should involve interested parties outside government as well as the public at large and should include the commissioning of research, where necessary, into key questions such as the adequacy of benefits for children. In launching the consultation document "Supporting Families" in November 1998 the Government has made clear its intention to consult widely on the issues affecting families and children, including family prosperity and developing a tax/benefit system that acknowledges the costs of raising children. The annual report on reducing poverty will further open the debate on this important issue.

On the 18 February I announced the Government's plans for an annual report on its strategy for reducing over the long term the causes of poverty and social exclusion. We aim to publish the first report later this year. The report will include a range of indicators which will cover the multi-dimensional nature of the causes of poverty and social exclusion. Subsequent reports will chart progress against these indicators.

As part of the preparation for the report, DSS officials expect to meet with various interested organisations including the Social Security Consortium and the local government associations.

The Government's view is that investment in our children should be approached on a number of coherent fronts, principally through education, health and practical support for parents to meet their responsibilities for their children. We aim to achieve the latter by helping parents back into work, lowering the barriers to work and making sure work pays. Improving access to affordable childcare, and putting resources into families through a combination of the tax and benefit systems will help us move toward this aim.

As you know, in 1998 a review was undertaken to look at the policies and resources devoted to children aged 7 and under, in order to ensure effectiveness in providing preventative action and the necessary support to bring about the development of their full potential throughout their lives. The review particularly considered whether the multiple causes of social exclusion affecting young children could be more effectively tackled at the family and community level using a more integrated approach to service provision, taking account of policy developments in initiatives being taken forward in other fora.

As a direct result of this review £540 million is being invested in Sure Start programmes over the next three years, £452 million in England. Sure Start is a vital element in the Government's work to increase opportunity and create equal chances for young children and their families in disadvantaged areas. In identifying the first 60 trailblazer districts in January 1999 account has been taken of evidence of significant local deprivation and existing good practice. The first successful high-quality trailblazer programmes were announced on 9 April and many more Sure Start programmes will follow in the months and years ahead.

A Green Paper published last year set out our proposals for a new, simpler and more transparent system of child support to ensure that more lone parents receive the maintenance their children are due.

In his latest Budget the Chancellor of the Exchequer announced:
further increases to Child Benefit from April 2000, raising it to at least £15 for the first child and £10 for all other children;
increases for children under 11 in the income-related benefits in two stages which will remove a differential of payment by age. This recognises that evidence on whether younger or older children require more financial support is inconclusive by giving the same level of support to all children under 16 in the income related benefits and the Working Families Tax Credit.
the introduction of a child tax credit in April 2001 worth up to £416 each year to families.

This will mean a maximum support for the first child of £40 a week.

The Chancellor also stated that the "long term goal is to bring together the different strands of our support for children in the working families tax credit, in income support, in our children's tax credit and so create an integrated and seamless system of child financial support paid to the mother, building on the foundation of universal child benefit." This will be informed by research and consultation.

  a. Since the publication of the "Supporting Families" document the Government has taken action to improve the support for families with children on a number of fronts.

b. and c. We have published both the first and second reports in our annual series on poverty and social exclusion. The reports are called 'Opportunity for All", the first being published in September 1999, the second on 21st September 2000. DSS are responsible for drafting and publication, but the report is a government-wide one, and includes indicators against which our measures to reduce poverty are being judged. In preparing the reports DSS officials have worked closely with interested organisations.

d. The Government has improved the support for children by introducing -
Child Tax Credit - from April 2001, will be worth up to £442 a year for taxpaying families with children. Will benefit 4.5 million families.

Sure Start Maternity Grant - from April 2000, payments doubled from £100 to £200 and from October 2000 rises again to £300, it replaces Social Fund Maternity Grant.

Working Families Tax Credit and Childcare Tax Credit from October 1999. Together with National Minimum Wage, will help to make work pay. 1.1 million families are now claiming WFTC and are receiving, on average, around £31 per week more than under Family Credit.
WFTC and National Minimum Wage guarantees families with children with one person in full time work, a minimum income of £208pw from October 2000, £214 from April 2001;

WFTC Includes a new allowance for disabled children - an extra £21.90 on top of other child allowances.

Childcare Tax Credit - part of WFTC. Help with 70% of eligible childcare costs, up to a maximum of £100 for one child, and £150 for two or more children.

Disability Income Guarantee: extra money for severely disabled children in the income-related benefits, from April 2001.

e. and f.
Sure Start programmes are now helping to strengthen families and local communities with a range of support services for children living in deprived areas.

With £540m investment in Sure Start (£452 for England) over this Parliament, 194 programmes are being set up or under development, well on way to meeting the target of 250 by end of 2001, reaching 18% of poor children. The Spending Review included provision for a major geographical expansion of Sure Start - doubling the number of programmes from 250 to at least 500 by 2004. Funds for Sure Start will increase from £184 million in 2000-01 to nearly £500m by 2003-04, an average growth in real terms of over 36% a year.

g. The Child Support Act came into force in July 2000, implementing reforms to the Child Support Agency that will ensure that parents who live apart meet their responsibilities to pay maintenance for their children, will also ensure more families keep more of their benefit when they receive maintenance.

A new measure in the Child Support Act, Child Support Maintenance disregard, allows parents with care to keep up to £10 a week of their benefit when they receive child support maintenance.

h. As a result of the changes announced, families with children will be better off by, on average, £850pa, and:
couples on Income Support with two children under 11 will be better off by nearly £30pw (£1,500 a year) compared to 1997;
Families on WFTC are receiving, on average, £31 pw more than on FC, which it replaced;
over a half a million lone parents are, on average, receiving around £30pw more on WFTC than those who received FC;
HMT and independent analysts estimate that the impact of tax and benefit measures announced in the last four budgets will be to lift 1.2 million children out of poverty.

i. In this year's budget, the Chancellor announced the introduction, from 2003, of an integrated and seamless system of financial support for children, building upon the foundation of universal Child Benefit. It will integrate the children's tax credit, the child elements of working families tax credit and income support/jobseeker's allowance into one single credit.
We consider it would be unfortunate if existing standard rate taxpayers were brought into higher rate tax by virtue of receipt of Child Benefit. We recognise that there is often a trade-off between fairness and simplicity in taxation, but we caution against unnecessary complexity. In our view, any tax changes should be capable of being understood by those affected . On all recommendations relating to taxation of Child Benefit it was stated that this is a matter for the Chancellor   None   
We have reviewed the arguments for and against taxing Child Benefit. Should the Chancellor decide to propose the taxation of Child Benefit for higher rate taxpayers, we would suggest careful consideration of the following points:
- complexity should be kept to the minimum consistent with fairness;
- taxation should be introduced in such a way that it does not breach the principle of independent taxation;
- increased priority should be given to tackling fraud within the Child Benefit system;
- the issue of potential evasion amongst cohabiting couples should be seriously addressed;
- the revenue raised should be used to provide further increases in Child Benefit .
On all recommendations relating to taxation of Child Benefit it was stated that this is a matter for the Chancellor   None   
It will be for the House itself to decide whether the disadvantages and complexities of taxing Child Benefit would be outweighed by the advantages to all families if there were significant future increases in the level of Child Benefit. On all recommendations relating to taxation of Child Benefit it was stated that this is a matter for the Chancellor   None   

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