Select Committee on Social Security Minutes of Evidence

Examination of witnesses (Questions 214 - 219)




  214. Good morning, ladies and gentlemen. May I call the public evidence session to order and welcome witnesses from the Department of Social Security, the Treasury, and the Inland Revenue; effectively, the implementation team for Integrated Child Credit. We are very grateful to you for taking the time to submit the written memoranda. We have had the advantage of taking evidence from Nick Macpherson and Tony Orhnial before. Nick, could you start by introducing your colleagues and saying a little bit about where they will fit into the process before we go into questions.
  (Mr Macpherson) I am Nick Macpherson. I am Director of Welfare Reform in the Treasury. From my left—
  (Ms Pattison) I am Mary Pattison. I head up the Department of Social Security (DSS) Tax Credits Programme team.
  (Ms Ghosh) I am Helen Ghosh. I am Director of the Children's Group within the DSS, which has responsibility for Child Benefit, Child Support, child poverty issues, and the Tax Credit Team that Mary leads.
  (Mr Orhnial) I am Tony Orhnial from the Inland Revenue. I am Director of Personal Tax, which includes policy on tax credits.
  (Mr Lodge) I am Nick Lodge. I am also from the Inland Revenue. I am the Tax Credits Programme Director.
  (Mr Macpherson) It may be helpful if I set out very briefly how we have been working. The three Departments—the Treasury, the DSS, and the Inland Revenue—have been working very closely on the development of tax credits, really since 1997 with the development of the Working Families Tax Credit. In terms of developing the policy on the Integrated Child Credit, Helen, Tony, myself, and others have been meeting regularly to consider policy development over the last year to 18 months. With the announcement in the Budget, we are now moving beyond the policy development phase to considering how we would implement these tax credits. So, at this point, the DSS and Inland Revenue are working very closely on the implementation and, inevitably, the Treasury, which has been more involved from the strategic perspective, is tending to take more of a back seat.

  215. So, basically, you are still speaking to one other at this stage. That is encouraging. The evidence that you supplied to us suggested that there were some objectives and targets. It seems to me that there are different ways of looking at the policy objectives. As you say, if I understand what you have just said, from policy objectives you have begun moving on to implementation. I am sure that is right. The problems will be more about implementation than about policy perhaps. But before we leave policy, some of the other witnesses, from whom we have had evidence, expressed themselves unclear as to what the key and paramount objective is here. We could look at Integrated Child Credit as a way of trying to alleviate child poverty on the one hand. On the other hand, we could look at it as a way of raising the income available to parents and households raising children. Or, finally, you could actually look at it on the basis of increasing people's incentives to work for their families. If I was forcing you to pick one of the three as the real target, I would like to know what you would collectively believe to be the underlying philosophy. Obviously you do not have to be a rocket scientist to work out that if, for example, it was in the Government's mind to use this as a way of increasing work incentives, people would look at it slightly differently. What would you say to that? You set out some of the objectives in your evidence but if you had to pick between those three, what do you think is the key central target objective in this policy change?
  (Mr Macpherson) I do not think that the Government, when it comes to these various objectives, has been in the business of creating league tables in terms of which objective is the most important. You have identified three important objectives here. First, the commitment to abolish child poverty in a generation, with a subsidiary Public Service Agreement (PSA) target to reduce it by a quarter by 2004. Then there is the very important objective of increasing employment. That is not necessarily an end in itself. Often employment is an important way of increasing income and leading people out of poverty. At the risk of using what has almost become a cliche, work is the best route out of poverty. As you say, there is also a third objective here, which is to ensure that families benefit as much from tax and benefit changes as individuals and couples without children. It is very striking that during the 1980s and much of the 1990s, incomes of families with children did lag behind households without children. There is a horizontal equity issue here. I would be reluctant to say that one objective is paramount. Clearly there are different instruments to deal with these objectives. You could argue that the philosophy underlying the employment tax credit is more concerned with work incentives than the Integrated Child Credit, which is primarily about getting money to children. You could equally argue that there are aspects, concerning the ICC, in particular relating to portability, as you move from welfare to work which will actually encourage work incentives.
  (Ms Ghosh) And an additional objective, which in a sense underlies quite a lot of the points Nick was making, is this one about improving customer service. In other words, it is a way of making the whole benefit and tax system much more transparent to families which supports, in particular, the portability issue. Certainly, as this Committee well knows, one of the key issues for, say, a lone parent considering going back to work, is that they simply do not understand what the situation will be, what support they can get if they move back into work. So a simple benefit, which the customer can understand and carry with them from one situation into another, which they can apply for all in one go, as it were, is another key objective of the system.

  216. So is that what is meant by "integrated"? "Integrated" means different things to different people, as we have learned from our witnesses. What do you understand is being "integrated"?
  (Mr Macpherson) I would say that the key things which are being integrated are the elements of support for children within the tax system, in the form of the new children's tax credit, which is coming on-stream from April, the child elements within the Working Families Tax Credit and the child elements within Income Support and Jobseeker's Allowance. It is those child payments which are being integrated.

  217. But you have still got different forms; you still have different periods of assessment; a whole set of different criteria. You are trying to knock the benefit system and the tax system together in a way that is still pretty superficial. If you look at some of the international comparatives that we have been looking at in terms of systems, they have much more integrated systems, have they not?
  (Mr Macpherson) That is indeed true. You have obviously got to start with where we are in Britain. Britain has its own tax and benefit system. It has evolved in its own unique way. So that is the starting point. What we are trying to do here is to bring the tax and benefit systems closer together, so that the new Integrated Child Credit will be assessed on a common basis. There will not be some separate basis for those on Income Support; for those on Working Families Tax Credit; for those on a higher income. So we are creating a common framework which will bring the best aspects of the tax and benefit system together.
  (Ms Ghosh) If you look at the Canadian example, of course it is integrated in one respect at the federal level, but at the provincial level it is probably a lot less integrated than what we are proposing. Our applicant for Income Support will make a single application for their Income Support, their adult safety net, and their Child Support, at the same time. So in that sense it is more integrated than the Canadian model.

  218. So this is the first step in a longish journey?
  (Mr Macpherson) As I say, the Government is committed to bringing the tax and benefit system closer together. It has taken measures in a number of areas, going back first to the Working Families Tax Credit; and, also more recently, the announcements around the pension credit. I would not say that there is some blueprint in terms of where this gradual process of tax and benefit integration will end up. There is not some magic tax credit scheme of the sort which theorists like to write about, and, indeed, on which the Health Government produced a Green Paper in the early 1970s.
  (Mr Orhnial) What we have done here, and the way people need to understand the concept of "integrated", is to sharpen up our policy tools by pulling together various elements of Child Support. Whereas we start with the Working Families Tax Credit, which has two distinct set of objectives operated on with one policy tool, with the new system we are going to be able to focus quite sharply on child objectives with the ICC—if that is what we want to do—and on employment objectives with the Employment Tax Credit (ETC). So we will have more sharply focussed policy tools. That is essentially what the enterprise is at this stage. Looked at from the point of view of the customer, of course, as we were saying earlier, it does offer a more integrated system of payment.

  219. A final question from me and then we will turn to the work you are doing in preparation. We are trying to tidy up and consolidate benefits and allowances for children, but what about ICA and Incapacity Benefit? Are there still not allowances, in both of these benefit chimneys, which are left in a somewhat untidy position?
  (Ms Pattison) Yes, you are right to say that across a number of benefits there are child dependency increases. We are clear that what the ICC does is to bring together the support, as Nick was saying, into a new structure of support. We do need to look across at the benefit system, to look at the other elements of support that we give for children and how they might fit, revisiting some of the objectives of those systems. For example, around child dependency increases there are issues about its complexity and its difficulty to administer. There is an element of means-testing. There is a significant element of overlapping the income-related benefit. So we have to be thinking about those things in the context of the new tax credit and seeing how they fit together. There is other support for children: clearly, support in the disabled premiums in Income Support and Jobseeker's Allowance and indeed Working Families Tax Credit. In those cases it might make sense to include those also as part of an Integrated Child Credit.

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