The Committee consisted of the following Members:
Seventh Standing Committee on Delegated Legislation
Tuesday 20 March 2001
[Mr. Bill O'Brien in the Chair]
Draft Tax Credits Up-rating Order 2001
The Paymaster General (Dawn Primarolo): I beg to move,
That the Committee has considered the draft Tax Credits Up-rating Order 2001.
I welcome you, Mr. O'Brien, to our proceedings.
The order increases the rates and thresholds of working families tax credit and disabled person's tax credit from 10 April this year by 1.6 per cent., in line with the increase in the Rossi index. In addition, it increases the disabled child tax credit within working families tax credit and disabled person's tax credit by an extra £7.40 above indexation. Those increases will boost the incomes of over 1.1 million low income working families and disabled people who work.
The order increases the amount of credit for an adult, child or young personincluding the extra 30-hour tax credit, which a family gets when one earner works at least 30 hours a weekand the credit for disabled children. Those creditstogether with the new enhanced disability tax credit, which is being introduced in working families tax credit and disabled person's tax credit by separate statutory instruments, and will come into effect on the same day as the up-rating orderdetermine the maximum working families tax credit or disabled person's tax credit that the family or disabled person may receive.
The order also increases the income threshold for working families tax credit and the thresholds for disabled person's tax credit. The thresholdsor applicable amountsare the levels over and above which income begins to taper away the maximum award of the tax credits.
The increases will provide a minimum income guarantee of £214 a week for a family with one child in receipt of working families tax credit, £161 a week for a single person on disabled person's tax credit and £246 a week for a couple with one child on disabled person's tax credit. Those figures are based on one earner in full-time work, working 35 hours a week and earning the national minimum wage. The minimum income guarantees will, of course, go up again from June as a result of the further increase of £5 a week in the basic adult credits in working families tax credit and disabled person's tax credit announced by the Chancellor on 7 March.
The order ensures that the differentials between in-work tax credits and out-of-work benefits are maintained, and it provides extra help, over and above indexation, for disabled children. I therefore commend the order to the Committee.
Mr. James Clappison (Hertsmere): It is a great pleasure to serve under your chairmanship this morning, Mr. O'Brien. The matters before us may be dealt with briefly, but we have several questions to ask.
As the Paymaster General said, the order increases most of the relevant amounts in working families and disabled person's tax credits in line with the Rossi index, which is the amount by which income-related benefits are usually increased. I understand that the index has grown by 1.6 per cent. in the year to September 2000 and that the increases will take effect from 10 April.
The Paymaster General mentioned that the Chancellor had announced further increases in working families tax credit on top of the uprating in this order. I noticed that the increase met with the approbation of Labour Members; they did not seem to give the same approbation to her later remarks about the £5 increase, but there we are. There will be a £5 increase in working families tax credit, taking it from £54 to £59, which the Chancellor announced would take effect from June. A number of questions must be asked about who will benefit from that increase.
First, however, it is interesting and cannot have escaped anyone's attention that the Government are timing the increases so as to generate separate announcements in April and June this year. At first sight, one might be tempted to ask why the announcements will be made so close together. A cynic might be tempted to ask what on earth the Government are planning to happen between April and June. Why do we need separate announcements? Does the Chancellor not know what he is doing from one year to the next? Why is all this largesse being distributed in such a short space of time? In the unfortunate event of this Government being re-electedwhich I do not believe will happenshould we expect similar increases every April and June over the lifetime of the next Parliament, or are they a one-off for this Parliament? Is it not more likely that, in future, we will see not further increases and largesse, but tax increases, most of which will hit those who are supposed to benefit from such credits?
I have a number of questions about the order, the combined effect of it and the June increases. Incidentally, the order does nothing to address one of the main problems associated with tax credits, particularly working families tax credit, which is the administrative burden that they place on employers. Employers who must calculate tax credits for a pay period from a daily rate notified by the Inland Revenue will certainly receive no assistance, and further complication will arise from the fact that the changes will take place in such a short time. Employers may have to get to grips with extra complexity for the political convenience of the Chancellor.
However, it is not just a question of the burden and cost for the employer; there may also be an adverse effect on employees. The recent National Association of Citizens Advice Bureaux report ``Work in Progress'' shows that payment through employers can result in acute financial hardship for individuals when the transfer of payment to employers is not smooth. In the worst cases, some people who claim working families tax credit have had their hours reduced or have even been dismissed. NACAB documents such cases in different parts of the country.
Article 3 sets out the framework of working families tax credit, as the Paymaster General described. First, we would like to know the Government's estimate of how many families are eligible to receive working families tax credit. On take-up, the Chancellor originally predicted in 1998 that, by 2001, about 1.5 million families would be receiving working families tax credit. However, I think that the Paymaster General has said today that 1.1 million people benefit from working families tax credit, which, if my arithmetic is right, means that 400,000 people have not taken up the benefit as the Government originally believed that they would. We would therefore be grateful to hear the most recent figure for the number of working families tax credit awards. What is the figure as a percentage of all families eligible to receive working families tax credit and as compared with the maximum possible level of expenditure? In August last year there were some 1,129,000 working families tax credit awards. We should have received further statistics on 13 March but they have not been made available. Is that because the figures for take-up are so disappointing? Can the Paymaster General give us more up-to-date figures and explain why the take-up has fallen so far short of the Government's original claims?
Can the Paymaster General also tell us how much expenditure on working families tax credit will increase as a result of the changes in the order and of the June 2001 increase to which we have adverted? Does the Paymaster General agree that an important feature of working families tax credit is the extent to which it extends up the earnings scale? Will not the order and the June increase have the effect of extending working families tax credit even higher up the earnings scale because they increase the basic amount of tax credit that can be received, which is then subject to a taper above the applicable amount?
Chart 5.3 on page 86 of the Red Book shows the effects of the Government's changes in personal tax and benefits, including the announcements that we are debating. The chart illustrates the changes in terms of gains by income decile for households of working age. It is interesting to noteI do not know if it has caught the Paymaster General's attentionthat that chart shows that working-age households in the fifth, sixth, seventh, and even a tiny number in the eighth, deciles gain from working families tax credit. Can the Minister confirm that households in the eighth decile of income are in receipt of working families tax credit? If so, how many are there and what range of income is covered by the eighth decile? Will the Minister also confirm that higher rate taxpayers can receive the tax credit in some circumstances? If so, has the Minister a figure on the numbers involved?
The Chairman: Order. I draw the hon. Gentleman's attention to the fact that we are discussing the uprating of the tax credit. The hon. Gentleman is broadening the topic in a manner not in keeping with the standard that we set.
Mr. Clappison: You are absolutely correct, Mr. O'Brien. I was about to bring myself back into order by explaining how the increases, including that in June, will result in an increase further up the earnings scale. That is a legitimate matter of public interest. It is important to know how many higher-rate taxpayers receive the tax credit and how many more will receive it as a result of the order. I have had some calculations on the effect of the proposed increases, and it appears that quite a number of high-rate taxpayers will benefit from them. To take one example, will the Minister confirm
Mr. Mark Hendrick (Preston): Will the hon. Gentleman give way?
Mr. Clappison: I will give way, although the hon. Gentleman might want to hear the example first. He may have an answer to it if he listens carefully.
Can the Minister confirm that a lone parent with three children, who has eligible child care costs of £200 a week and gross annual earnings of £34,000making him or her a higher-rate tax payerwill benefit from working families tax credit to the tune of £67 each week? That is not an extraordinary example. Will the Minister also confirm that the upratings in today's order, together with the June increase, will mean that a person in those circumstances will continue to receive working families tax credit until their gross earnings reach £45,500 each year? That is how far the order will extend working families tax credit[Interruption.] The hon. Member for Gravesham (Mr. Pond) might view that with approbation, but others will believe that it is a strange system that recycles money to give to taxpayers in the higher rate bracket, while describing its measures as tax credits.
I will give way to the hon. Member for Preston (Mr. Hendrick). He has waited patiently, and I know that he has taken on board my example. Perhaps he will tell me if it is wrong and save the Minister from having to confirm it later.