Previous SectionIndexHome Page

Hywel Williams (Caernarfon): Does the hon. Gentleman realise that the point that he is discussing merely replicates the very worst aspects of the previous system and that that is a disincentive to returning to work, not only in London but in constituencies such as mine

7 Feb 2002 : Column 1058

where many people claim the working families tax credit, are paid low wages and are in part-time or short-time work?

Mr. Webb: I am grateful to the hon. Gentleman for that intervention. Although high rents and council taxes in London are important, the issue is more about the interaction between high housing costs, high local taxes and low wages. Where all those factors combine, the problem will be particularly acute.

The principle of what we want to achieve under new clause 4 is relatively straightforward. We are sure that the Government want to encourage people to take the low-paid jobs that are available, but if the money that the Government give them is taken away from them partly or wholly because of another benefit system, that goes against what the Government want to achieve. We seek to protect existing claimants and to help the Government achieve their goals of encouraging low-paid work, and we believe that new clauses 1 and 4 would help to achieve those objectives.

Mr. Howard Flight (Arundel and South Downs): This group of new clauses and amendments essentially covers territory that there was insufficient time to cover in Committee. Yet again, that is evidence of the unsatisfactory nature of Bill programming.

Amendment No. 1, tabled by the Liberal Democrats, raises an important point of principle and, as has been stated, it grandfathers claimants' benefits under the existing children's tax credit. It was the consistent policy of Conservative Governments in changing social welfare, in essence, to grandfather existing claimants and to ensure that people were not disadvantaged by legislative changes. Therefore, amendment No. 1 is, in part, a probing amendment—it is important for the House to know what the Government intend to do. As the hon. Member for Northavon (Mr. Webb) said, the intention is not to discover what the rates will be across the board, but to address a point of principle, so I look forward to hearing what the Paymaster General has to say.

New clauses 7 and 8, with amendment No. 5, broadly address overlapping territory. Under new clause 4, the Liberal Democrats would apply a disregard principle, designed to address problems that arise in areas where housing is expensive, such as London. Under new clauses 7 and 8, we raise a much wider issue. The Bill does not explicitly state how passporting to the social fund and the various other crucial benefits—housing benefits, school meal benefits and council tax benefits—will be dealt with as a result of ending income support and income-based jobseeker's allowance, which provided crucial passports to qualify for those benefits.

The Bill therefore leaves major uncertainties about the arrangements for people who are presently passported by the existing qualifications under the working families tax credit, disabled person's tax credit, income support and jobseeker's allowance. The Bill will float some families off income support and income-based jobseeker's allowance, and they will lose access to the social fund unless specific provisions are made.

We want the Government to set out what their proposals are, as they should have done in the first place in the Bill. Perhaps those proposals will be satisfactory, but, unless that issue is properly addressed, the House

7 Feb 2002 : Column 1059

should divide on the new clause because the most needy in society will face a major flaw if the issue is not addressed.

The Paymaster General (Dawn Primarolo): Notwithstanding the fact that the hon. Member for Arundel and South Downs (Mr. Flight) has already declared that he intends to vote for the new clause before he has even heard what I have to say—I shall endeavour to be my normal persuasive self—several important issues are raised in this group of new clauses and amendments, and I should like briefly to deal with each principle. The hon. Member for Northavon (Mr. Webb) has moved a new clause that deals with one set of changes, but the hon. Gentlemen have spoken about something unconnected to the new clauses and amendments that they have tabled. That causes some difficulty, but let me give an explanation.

This group of new clauses and amendments deals with the relationship between the new tax credits and the existing forms of support. They cover three main issues—the children's tax credit, the interaction with housing and council tax benefits, and the passporting issue. I want to deal with each issue in turn because they are very important, as the hon. Gentlemen have said.

2.15 pm

In speaking to new clause 1 and amendment No. 1, the hon. Member for Northavon returns to a point that we considered in Committee, even though he tries to explain that he is not doing so. I disappointed him in Committee, and I am afraid I shall do so again now. In dealing with what he claimed was a principle, he suggested some solutions. He said that the Chancellor could let thresholds remain the same, or he could change the threshold to address the point that the hon. Gentleman was making. As I have repeatedly said, the rates and tapers will be announced in the Budget by my right hon. Friend the Chancellor of the Exchequer.

New clause 1 refers to the children's tax credit and to people who are currently entitled to it. Under that new clause, the hon. Gentleman continues to try to extract a commitment from the Government about how a particular group of people may be affected. He then tries to extrapolate from that the type of decisions that my right hon. Friend the Chancellor will want to announce in his Budget statement.

The children's tax credit was one of a series of measures that we introduced in the previous Parliament to improve support for families with children. The measures that we introduced in our first term in office were constrained, as was the working families tax credit, by the system that then existed. The children's tax credit works in the framework imposed by independent taxation. It is therefore based on individual claimants and their individual incomes. That territory is fairly well understood in the House. The children's tax credit had to work in that way because of the income tax system.

One of the consequences of that has been that couples with the same aggregate income may receive different amounts of the children's tax credit, depending on how the income is distributed between them. Hon. Members and organisations have lobbied us extensively to tell us

7 Feb 2002 : Column 1060

that that simply was not fair and that we needed to address it. That issue has been addressed in the child tax credit, and the hon. Gentleman would like me to tell him exactly how the rates and tapers will affect people as they transfer, but I am not about to do so. I have not seen any serious suggestion that the Government are at fault in trying to resolve that difficulty.

The formal announcements on the rates and tapers and on when the new tax credits will be introduced will be made in the Budget statement. I confirm yet again that that will happen in the Chancellor's Budget statement on 17 April and that we are planning a start in April 2003.

When setting the rates and thresholds, due consideration will be given to the relevant factors. My right hon. Friend will take those into account. As I said to the hon. Gentleman, the outline is in the Bill, but asking for specific undertakings on different sections of the population that will receive the tax credits is another attempt to debate rates and tapers. I know that he is keen to have that debate; so am I, and I look forward to engaging in it when the Chancellor makes his announcement. I hope that the hon. Gentleman's cold is not so bad that it restricts him from participating then.

Mr. Webb: New clause 1 is devised to allow us to request an assurance that there will be no cash losers among existing recipients. The Chancellor can set any rates or thresholds that he likes for people who come into the system or who continue in it, but do the Government believe that, no matter what those are, the principle of no cash losers is at stake? It seems that the Minister wants to keep cash losses on the table.

Dawn Primarolo: I am not going to help the hon. Gentleman to make his points about whether there are losers in the transition to the new tax credits, which he made in the press. As I said to him and to other Committee members and Members of the House, it is clear that the Chancellor will take all considerations into his calculations. Thresholds and tapers, which will influence all those who transfer into the new tax credits, will be announced in the Budget statement. The hon. Gentleman is trying to crack open that debate now so that he can continue to advance the arguments that he made in the press. I understand why he wants to do that as an Opposition Member. However, he will understand, because I have said this to him so often, that the Chancellor will make the announcement in the Budget statement.

Mr. Flight: Is the Paymaster General aware of the principle of Newton's law, named after Tony Newton? It clearly established that there should be no cash losers when welfare benefits change. For the record, the Minister is saying that this Government do not follow that principle.

Dawn Primarolo: That is not the Newton's law that immediately came to my mind. If you will excuse the pun, Mr. Deputy Speaker, this is a fruitless debate. All hon. Members know that rates and tapers are the subject of the Budget announcement by my right hon. Friend the Chancellor. The Bill and our debates on it have been widely welcomed by everyone who is concerned about simplicity and transparency and about ensuring that families on the lowest incomes get the most support from our policies to tackle child poverty.

7 Feb 2002 : Column 1061

New clause 4 deals with the interaction of the working tax credit with housing benefit and council tax benefit. It would prevent the working tax credit from being taken into account in assessing entitlement to either of those benefits and would mean that people in work had a higher entitlement to benefits. I am not sure that that would produce the bed of roses that the hon. Member for Northavon might suppose.

Of primary importance to any family or individual is the overall package of support that they receive if they are in low-income work. A family with children could receive a combination of child benefit, child tax credit, working tax credit and housing and council tax benefits on top of their earnings. The Government are committed to ensuring that the overall package provides sufficient incentives for families to move into work and, once they are working, to increase their earnings.

The hon. Gentleman is well versed in the interactions of tapers and their effects on incentives to move into work. A key factor is the effect of the interaction of the various elements of the package on overall withdrawal rates. I know that the hon. Gentleman and many of my hon. Friends are concerned about the impact of that on rental costs in some parts of the country. It might help if I outline the effect of the new clause on the current system because it does not deliver what the hon. Gentleman wants.

If the working families tax credit were not taken into account in housing benefit and council tax benefit, the combined withdrawal rates of the two credits would increase significantly, producing a total withdrawal rate of around 125 per cent., so people would be worse off for working harder. The underlying principles, if not the precise numbers, are the same for the working tax credit as they are for the working families tax credit and the disabled person's tax credit.

The Government are committed to improving work incentives. I understand the hon. Gentleman's concern about areas with high rents. We have discussed that in the context of housing benefit, and the Department for Work and Pensions is considering the problem. Far from improving things, new clause 4 would cut across the work that we are doing to ensure that people are better off in work. In addition, its effects would not be well targeted, so not only would it result in a withdrawal rate of 125 per cent. but the targeting would cause problems. Housing benefit and council tax benefit are withdrawn as incomes increase, ensuring that those on the lowest incomes get the most support. Apart from a small disregard, net earnings are taken fully into account in housing and council tax benefits. It would not make any sense to treat the working tax credit, which is designed to boost net earnings, more favourably than earnings themselves.

New clause 4 would not work. Indeed, it would make things worse. The debate allows the hon. Gentleman to highlight the interaction between high-rent areas and housing benefit payments. None the less, the new clause would destroy all the work incentives and the possibilities offered by the working tax credit. That might be his intention; I know that he is not a fan of the working tax credit. However, the new clause does not impress its virtues on the Government.

7 Feb 2002 : Column 1062

I am trying to explain the Government's intentions and how we view the interaction between benefits and the new tax credit. The interaction is especially important when we consider the passporting of benefits, which is dealt with in new clauses 7 and 8.

Next Section

IndexHome Page