Examination of witnesses (Questions 214
WEDNESDAY 13 DECEMBER 2000
and MR NICK
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 Departmentsthe
Treasury, the DSS, and the Inland Revenuehave 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
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
(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
(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 ICCif
that is what we want to doand 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.