Select Committee on Social Security Second Report

Key features of ICC

7. The introduction of ICC is planned to take place in 2003. It is essentially a change in the structure of benefits for children, bringing together into one system of payment the different strands of income-related support for children: from Income Support and income-related Jobseeker's allowance (which are paid to families where there is no wage earner or where less than 16 hours is being worked); and from Working Families' Tax Credit and Disabled Person's Tax Credit (DPTC) (paid to people in low-paid employment). ICC will also incorporate the new Children's Tax Credit, being introduced in April 2001. The proposed structural change will mean that children of unemployed parents will receive support in the same way as children whose parents are working. The Credit will be paid to the main carer and will be administered by the Inland Revenue.

8. The intention is to provide a "seamless mechanism" for channelling support to children as part of the Government's commitment to abolish child poverty.[7] The aim is to provide a more transparent system of support for children; to provide a portable and secure bridge between welfare and work; to give a common framework for assessment and payment for families regardless of income; and to improve efficiency both for Government and parents.[8]

9. No decision has yet been taken about the level of ICC.[9] The Treasury document suggests that the greater transparency of ICC 'will facilitate public debate about the appropriate level of support in the context of the Government's commitment to abolish child poverty within a generation'.[10] An illustrative structure in the Treasury document[11] suggests a higher band of ICC for families on low incomes spanning the welfare/work divide, tapering off to a lower band of ICC which would continue up to the higher tax threshold.

What is being integrated?

10. When discussing the term 'integrated,' as applied to ICC, we have noted that different people have meant different things. Indeed, Andrew Dilnot, Director of the Institute for Fiscal Studies (IFS) went so far as to say, " 'integration' is a word used with respect to tax and benefit changes which has now been used to describe so many different things that it has almost become empty. It is so overcrowded, it is almost meaningless."[12] The different views on what is - and is not - being integrated shed important light on aspects of ICC.

The work/no-work divide

11. A key area of integration is the bringing together of financial support for children in families out of work with that for children in working families. Not only are all families - both low-income and middle-income - brought into one system, but families moving across the 'work/no-work' divide will no longer have to reapply for support for children. This feature of ICC - its 'portability'- was described by Professor Jane Millar of Bristol University as "the main gain" of ICC: "what I think is particularly important about it is this fact that it integrates in and out of work. It is this barrier that we create between the two systems - when you are out of work that you are under one system and when you are in work you have to leave all that behind and make another claim."[13]

Integration of Government support for children?

12. The ICC does not integrate Government support for children, as a number of organisations have pointed out.[14] The details known so far suggest ICC will incorporate only those parts of Government support for children which are income-related.[15] No decisions have been taken at this stage on the incorporation within ICC of the various non-means-tested benefits for children, including children's allowances paid with certain contributory benefits and benefits for children with disabilities. The DSS told us "We do need to look across at the benefits system, to look at the other elements of support we give to children and how they might fit."[16]

Tax and benefits

13. The development of ICC also takes place within the context of the Government's attempts more closely to integrate tax and benefits. Whereas in Australia the integration of support for children in low income families across the work/no-work divide led (between the mid-seventies and mid-nineties) to the complete removal of benefits for children from the tax system,[17] in the UK the decision has been taken to move income-related benefits for children into the tax system. Why use the tax system, rather than the benefits system, to construct a single administrative mechanism to pay people out of work, people in work on low incomes, and people with higher incomes? In Canada, where an integrated child credit is delivered through the tax system, the explanation appears to lie in the fact that the child credit is a federal initiative, replacing a variety of social assistance offered at provincial level. The tax system is the national system available to the Canadian federal government to deliver its reforms.[18] Since the mid-nineties in Australia, there has been a move to transfer support for children back into the tax system. However, the reasons for this appear largely to do with the introduction of Value Added Tax in Australia and the Australian government's desire to compensate families with children, who, without extra tax assistance, stood to be disproportionately worse off.[19] In the UK, IFS suggested that one reason for using the tax system to deliver unified support for children rather than the benefits system was that less stigma attached to claiming tax reductions than claiming means-tested benefits.[20] Andrew Dilnot of IFS also agreed that "it is a plausible thing to argue that it is easier to get popular support for tax reductions than it is for social security spending increases the extent that the Integrated Tax Credit is seen as part of the tax system it may make it easier for governments of either political persuasion...more easily to direct resources."[21]

14. Compared to the system of integrated child credits which we examined in Canada, the UK proposals represent only a partial integration of tax and benefits. In Canada, once an eligible child has been identified, the assessment for Canada Child Tax Benefit is done automatically each year using information collected for income tax purposes and payment is made through the tax system. In the UK, obtaining ICC will require a specific application, and the assessment of ICC, although done by the Inland Revenue, will be separate from the collection of income information for income tax purposes. The Low Incomes Tax Reform Group (LITRG), established by the Chartered Institute of Taxation, has drawn attention to the lack of integration of the rules, terminology, processes, forms, and computers between the current WFTC and Disabled Person's Tax Credit (DPTC) (formerly benefits) and the income tax system, a situation which appears likely to continue with ICC.[22] The point was put to the Treasury that, seen from a Canadian view point, the integration of tax and benefits in the UK was, in practice, pretty superficial. The response was that integration of tax and benefits was an evolving process. ICC represented a further step along the way, beyond WFTC and DPTC. Mr Macpherson, Director of Welfare Reform at the Treasury, told us "I would not say that there is some blueprint in terms of where this gradual process of tax and benefit integration will end up."[23]

The splitting of family benefits into adult and child components

15. The integration of means-tested financial support for children does lead, conversely, to the splitting of Income Support/Jobseeker's Allowance and WFTC/DPTC into separate adult and child components. Adults who are out of work will continue to receive Income Support or Jobseeker's Allowance, paid through the new Working Age Agency. For adults in low-paid work, an Employment Tax Credit paid through the Inland Revenue will replace WFTC or DPTC. Unlike WFTC, as we have noted above, the ETC will be available to people who do not have dependent children. This 'disintegration' of a family's benefit was seen as a positive step by the policy team charged with the development of ICC. Mr Tony Orhnial, Director of Personal Tax at the Inland Revenue, explained:

"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 sets 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 within the ICC- if that is what we want to do - and on employment objectives with the Employment Tax Credit. So we will have more sharply focussed policy tools."[24]

16. It was precisely this separation of 'child' and 'employment' objectives which worried the Child Poverty Action Group. Martin Barnes said "The relevance for Integrated Child Credit is if you sell this as, 'This is the payment for the child', does this make it easier to push forward a regime of sanctions for the parents? Our concern is that it may do so."[25]

17. Some witnesses raised concerns that, when viewed by those on the receiving end, the splitting of Income Support/Jobseeker's Allowance, and WFTC/DPTC into separate components could be perceived as a greater fragmentation of their financial support rather than a move towards a more integrated approach. This is discussed in more detail at paragraph 85 below.

7   HMT 2000, para 2.25. Back

8   Ibid. Back

9   HMT 2000, para 2.27. Back

10   HMT 2000, para 2.25. Back

11   HMT 2000, Chart 2.6 page 14. Back

12   IFS, Q 172. Back

13   Q 35 and 36. Back

14   See evidence from Disability Alliance (Appendix 2) and Child Poverty Action Group (Ev. p .50, para 7.11). Back

15   Although no decisions have been announced concerning income-related allowances for children with disabilities, see para 32. Back

16   Q 219. Back

17   See Peter Whiteford, Q 51 and 55. Back

18   See Jane Millar, Q 2. Back

19   See Peter Whiteford, Q 55. Back

20   Q 173. Back

21   Q 174. Back

22   Appendix 1, para 10.  Back

23   Q 218. Back

24   Q 218. Back

25   Q 120. Back

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