REPLY BY THE GOVERNMENT TO THE SECOND
REPORT OF THE SOCIAL SECURITY COMMITTEE SESSION 2000-2001 ON THE
INTEGRATED CHILD CREDIT (HC 72)
Recommendations and Responses
Recommendation (a)
We value the role of universal Child Benefit and
believe it should continue to play a substantial role in supporting
the children of this country. We welcome the commitment from the
Chancellor to Child Benefit. We recommend that the Government
takes steps to ensure that, as integration develops a separately
identifiable universal element, presently Child Benefit, is preserved.
Recommendation (z)
The Committee agrees with the logic of the Secretary
of State's argument that it makes sense for the different components
of money that go to children to be paid in one income stream,
and therefore believes that different elements such as Child Benefit
and ICC should not be paid by different Departments. It is very
worrying that plans to move Child Benefit administration to sit
alongside ICC appear to be so uncertain and illdefined at
this stage.
1. The Government is
committed to Child Benefit as the foundation of support for families
with children. In the last parliament the rates of Child Benefit
for the first child were raised by 26% in real terms. On 31 May,
the Chancellor said: "Millions of families can be absolutely
reassured that not only will Child Benefit not be taxed, it will
remain universal, and in the (next) parliament it will rise in
line with prices." Child Benefit will continue to form the
universal foundation of support for families.
2. On 25 June the Prime Minister announced that
responsibility for Child Benefit in Great Britain will transfer
to the Inland Revenue so that when the new credit is introduced
in 2003, Government support for children will be administered
by one Department. It makes sense for a single department to administer
both Child Benefit and the new tax credit for families with children.
It will mean parents can benefit from a better, more joined up
service.
Recommendation (b)
We believe that the introduction of Integrated
Child Credit provides an opportunity for a long overdue review
of the level and structure of financial support for children in
Britain which should not be missed.
Recommendation (c)
We recommend that the Government should establish
a specific budget to fund a variety of research by different social
scientists into the levels of income which are sufficient to keep
families with children out of poverty.
Recommendation (d)
We also recommend that the Government convenes
an ongoing working party involving policy makers, academics and
other interested parties to assist it to devise publicly acceptable
measures of the levels of income needed to avoid poverty.
Recommendation (e)
Given that ICC is creating a framework where all
families will be part of the same system, we believe there is
a case for working towards a maximum award of ICC, paid to families
on the lowest incomes, which reflects what parents on average
need to spend on their children, an amount which is then tapered
away as income rises.
Recommendation (u)
There is little doubt that support for the introduction
of ICC would be badly affected if meanstested benefits for
children went down at the point of change. We therefore urge the
Chancellor to make sufficient funds available to ensure that this
does not happen.
3. We welcome the Committee's
acknowledgement that the new integrated child credit, by providing
a transparent system of support for families with children, will
facilitate discussion about the appropriate level of support in
the context of the Government's commitment to eliminate child
poverty within a generation. The final decision on rates, tapers
and thresholds will of course be a matter for the Chancellor who
will set these rates nearer to the time of introduction of the
new system. Decisions on where to focus resources will, as now,
reflect the Government's objectives of supporting families, tackling
child poverty and making work pay.
4. The Government takes an active interest in
research into the levels of household income that are associated
with poverty, including work on adequacy, but notes that there
is a wide variety of views on how this question should be approached.
Recommendation (f)
We recommend that the disabled child premium within
IS/JSA and the disabled child credit within WFTC/DPTC be incorporated
within Integrated Child Credit.
5. The new tax credits
are intended to build on the approach taken in WFTC/DPTC and IS/JSA
where the additional responsibilities associated with caring for
disabled children are recognised by additional premia.
6. As outlined in Chapter 2 of the consultation
document, the integrated child credit will similarly recognise
these additional responsibilities by providing extra credits for
each child with a disability in a household, based on the existing
credits in WFTC/DPTC and the premia in IS/JSA (IB) and paid at
a higher rate for children with more severe disabilities.
Recommendation (g)
We recommend that ICC rates do not distinguish
between first and subsequent children, and that levels of Child
Benefit between first and subsequent children be equalised.
Recommendation (h)
We recommend that there should be no agerelated
element in the rate of child credit per child.
7. The integrated child
credit will contain a family element paid to all families with
children regardless of the number of children in the family. This
family element recognises the responsibilities families have in
caring for children and delivers support to these families across
a broad range of income, ensuring that the integrated child credit
is a single, inclusive system of supporting families. (Consultation
document Chapter 2)
8. On the question of the relative rates for
first and subsequent children, we are aware of research that shows
the greater likelihood of poverty for larger families. This is
why much of the additional resource that has been directed towards
poorer families with children since 1997 has focussed on increasing
the amount paid for each child, for example the Income Support
and Jobseeker's Allowance for children aged under 11 increased
by 80% in real terms over the last parliament. The family element
in the integrated child credit and the different levels of Child
Benefit remain important components of support as they recognise
the sharp reduction in family income often associated with the
birth of a first or only child. This approach is further enhanced
by the availability of a higher rate of family element to any
family with a child under the age of one, when the evidence shows
that family need is often most acute. (Consultation document Chapter
2)
Recommendation (i)
We welcome the 'portability' of ICC for families
moving into work, whereby the maximum rate of ICC will be retained
across the no work/work divide. It will enable resources to go
to children in the poorest families whilst providing their parents
with certainty of income if they move into low paid work.
9. The introduction of
the integrated child credit is an opportunity to create a secure
bridge of support for parents moving from welfare into work. As
chapter 2 of the consultation document explains, the portability
of the integrated child credit is a fundamental feature of the
new approach to targeted support for families with children.
Recommendation (j)
We have concluded that in order to reduce child
poverty, assist the transition into work, and aid administrative
simplicity there are strong arguments for maintaining a wide band
of income across which maximum ICC is paid, before it starts to
be withdrawn.
10. The integrated child
credit will only be withdrawn once a household's entitlement to
the employment tax credit is fully extinguished. This means that
maximum child credit will be paid to all those on out of work
benefits (IS and JSA(IB)) and all families with children who receive
the employment tax credit. This structure ensures that the integrated
child credit forms a portable and secure base of support for families
which will make the transitions from welfare to work easier.
Recommendation (k)
We are pleased that the Government is looking
at the interaction of ICC and Housing Benefit, but consider that
the aim should be to improve marginal deduction rates rather than
simply not make them worse than they are at present.
Recommendation (w)
In addressing the question of the interaction
of ICC with Housing Benefit and Council Tax Benefit, the effect
of ICC on entitlement to maximum benefit is a matter to which
urgent and careful thought must be given to avoid creating large
numbers of 'losers', thus undermining the credibility of ICC.
11. In exploring the
interaction between the new tax credits and Housing and Council
Tax Benefits, the Government is giving careful consideration to
the way that support is withdrawn as income rises, the effect
on marginal deduction rates and the issue of "passporting"
families to maximum Housing and Council Tax Benefit. The Government
agrees with the Committee that the aim should be to ensure that
those who are on both HB/CTB and the new tax credits are not disadvantaged
by the introduction of the latter. (Consultation document Chapter
7)
Recommendation (l)
We repeat the recommendation made in our report
on Housing Benefit that consideration should be given to removing
as many people as possible from the necessity of making claims
for Housing Benefit alongside ICC, either by increasing the earnings
disregard or examining the possibility of including a housing
credit as part of the reforms of tax credits in 2003.
12. The Government is
looking at the long term possibilities for reform of Housing Benefit
(consultation document Chapter 7) but it is important that work
on delivering the new system of support for families continues
towards the intended introduction of the new tax credits in 2003.
Recommendation (m)
We have concluded that the best model for ICC
is likely to be a relatively unresponsive structure, with fixed
awards of at least six months duration, but with a safety net
of 100 per cent ICC when income drops to IS/JSA level. Otherwise
there should be adjustment only for major changes in family circumstances
such as the birth of a child; a child leaving the household; a
new partner; or loss of a partner. Our conclusion that there should
be a relatively unresponsive structure reinforces our earlier
recommendation that there should be a wide band of income across
which maximum ICC is paid.
13. Chapter 6 of the
consultation document sets out the details of the proposed responsive
system for the new tax credits. We agree with the committee that
entitlement to tax credits should change to reflect major changes
in family circumstances and that there should be an integrated
child credit safety net for those who move onto IS/JSA(IB). On
the question of responding to income changes, the consultation
document outlines the tradeoffs to be made between a more
responsive and better targeted system and a more rigid system.
Our proposals are intended to strike the right balance by delivering
a system that can respond to changes in income and target support
to those who need it, whilst also providing certainty for those
with stable incomes.
Recommendation (n)
We have concluded that abolition of the current
capital rules which apply to benefits and tax credits in favour
of rules which take into account income from capital may not produce
all the simplifications that could be achieved.
14. The details of our
proposals for the treatment of capital and income from capital
are set out in Chapter 5 of the consultation document. Our proposal
to take account of income from capital with no capital limits
is based on producing a fair but simple system, which does not
create disincentives for people to save.
15. We want people to be able to benefit from
tax incentives to save even if they are on a low income so we
are also proposing to ignore income arising from taxfree
savings vehicles such as ISAs and National Savings Certificates.
16. Our approach is based on delivering a simple
system that is consistent with the tax system and encourages all
families to build up their savings.
Recommendation (o)
Whatever changes are made to the treatment of
capital for ICC, we recommend that the same changes are applied
to adult benefits and tax credits.
17. The approach to capital
in the new tax credits is outlined in Chapter 5 of the consultation
document and it should be noted that the integrated child credit
in particular will be available to families on a broad range of
incomes who will all be able to benefit from the proposed approach.
As the Government announced in the PreBudget Report 2000,
the next phase of modernising the social security and tax credit
system offers an opportunity to review the treatment of income
and capital in assessing entitlement to support for workingage
families and this approach will be among those considered.
Recommendation (p)
We recommend that, in designing the next generation
of tax credits, the Government moves closer to aligning definitions
of income for tax credit purposes with those used for income tax.
18. As Chapter 5 of the
consultation document explains, one of the basic principles behind
our proposed approach to income for the new tax credits is that
the definition of income should be made as consistent with the
treatment of income for income tax purposes as possible. We propose
to follow that basic principle except in certain circumstances
where doing so may be contrary to the overarching objectives behind
the new tax credits of supporting families, tackling child poverty
and making work pay.
Recommendation (q)
We recommend that child support payments are ignored
for ICC purposes.
19. In WFTC and DPTC
child maintenance payments are disregarded in the hands of the
recipient. This has improved work incentives for single parents
by allowing them to keep more of the income they receive for the
support of their children. We should like to retain these arrangements
for the new tax credits, which would be consistent with the fact
that child maintenance payments are no longer taxed in the hands
of the recipient. (Consultation document Chapter 5)
Recommendation (r)
We repeat a recommendation made in our earlier
report on the Child Support reforms that all parents with care
in receipt of Income Support or incomebased Jobseeker's
Allowance should be permitted to benefit from the £10 child
maintenance premium from the date of commencement of the reforms.
20. All parents with
care on IS or JSA (IB) will have access to the child maintenance
premium from the date that the reformed scheme takes effect in
their case. In practice, it would be very difficult to introduce
the premium for "old" cases on the existing IT system
and, as it is part of a balanced package of reforms, we think
it should not be pulled out in advance. We have decided that we
should concentrate on getting the new arrangements working for
new cases as quickly as we can.
Recommendation (s)
We consider there is a case for ignoring payments
of statutory maternity pay and maternity allowance for ICC purposes.
21. Statutory maternity
pay and maternity allowance are disregarded for the purposes of
WFTC and DPTC. This is intended to provide mothers with more flexibility
to stay at home to look after their new child in the first few
months of it life. The Government remains committed to giving
mothers this flexibility therefore, although statutory maternity
pay is taxable, we continue to see a strong case for disregarding
statutory maternity pay and maternity allowance for new tax credits
purposes. (Consultation document Chapter 5)
Recommendation (t)
We favour the WFTC and DPTC model for the treatment
of Child Benefit, not least because we know from direct experience
that the reduction of benefit to take account of Child Benefit
is a perpetual source of complaint among poor families.
22. Child Benefit will
form the foundation of support for families with targeted support
in the form of the integrated child credit sitting on top. We
do not propose that Child Benefit would reduce a family's entitlement
to the integrated child credit or viceversa.
Recommendation (v)
We recommend that a component for school dinners
be separately identified within the ICC calculation and that the
Government should give consideration to extending entitlement
to other 'passported' health and education benefits, Social Fund
payments and 'Sure Start' Maternity Grant to families in receipt
of maximum ICC.
23. Access to passported
benefits such as free school meals and other health and education
benefits is a vital element in the Government's multifaceted
approach to combating poverty and social exclusion. As outlined
in Chapter 7 of the consultation document, we propose to ensure
that the new tax credits are structured in a way that makes it
possible for entitlement to such passported benefits to be attached
to an award of tax credit or a certain level of household income.
The Government is considering the issue to ensure that all families
receive an appropriate package of support, particularly those
on the lowest incomes.
Recommendation (x)
Since much of the detail has yet to be announced,
we believe it would be sensible to provide a further period of
public consultation on the details of ICC once they have been
finalised.
24. The publication of
the Inland Revenue consultation document is an opportunity to
obtain the views of interested parties on the next stage of the
Government's modernisation of the tax and benefit systems.
Recommendation (y)
The Committee welcomes the potential offered by
ICC for the development of a more seamless approach to the collection
and transmission of information between agencies.
Recommendation (aa)
We recommend that the introduction of ICC should
only take place once computer systems at the Inland Revenue, the
Child Benefit Centre and the new Working Age Agency are fully
compatible and operational.
Recommendation (dd)
We invite the Government to give an unequivocal
undertaking that ICC will not be implemented unless and until
the administrative framework and IT systems to support it are
fully operational.
25. The proposals in
the consultation document outline a system that will require joined
up delivery between the Inland Revenue and Jobcentre Plus, the
new agency for working age people forming part of the Department
for Work and Pensions. As officials outlined in their evidence
to the Committee, the Inland Revenue and Department for Work and
Pensions are working very closely on the delivery of the new system
including the IT system. Clear communications across departments
will be vital to the successful implementation of the new system
and IR and DWP officials are working together to ensure a smooth
introduction of the new tax credits in 2003.
Recommendation (bb)
We recommend that the new rules for tax credits
should not consist merely of multiple amendments to social security
benefit legislation. Rather, both the primary and secondary legislation
relating to tax credits should be drafted, as far as possible,
as stand alone legislation.
Recommendation (cc)
We recommend that, in planning the legislative
timetable for ICC and ETC, sufficient time is allowed to enable
careful drafting of both primary and secondary legislation in
plain English.
Recommendation (ee)
We believe that the introduction of a simple annual
tax form to complement existing information held by the Inland
Revenue would enable people to report unearned income; the presence
of children and if appropriate, the existence of a partner. It
would provide the required balance between simplicity and eliciting
the basic information and we recommend the consideration of such
a system.
28. One of the main themes
of these reforms is that the new system should be kept as simple
as possible. This runs throughout all of our proposals in the
consultation document and in particular has influenced our thinking
on the treatment of income (Consultation document Chapter 5).
29. Keeping the rules as simple as possible will
enable the application process to be straightforward so that people
can easily provide the right information, encouraging potential
claimants to apply. The work on devising the application process
will build on the lessons learned from WFTC/DPTC and the Children's
Tax Credit.
Recommendation (ff)
We welcome the proposal that ICC should be paid
to the main carer.
30. It is only right
that dedicated support for children should be paid to their main
carer just as payments focused on making work pay should be channelled
to the person in work. (Consultation document Chapter 6)
Recommendation (gg)
We recommend that recipients be given a choice
concerning the intervals at which they are paid: (for example
fortnightly, monthly, annually), and that the main carer be given
the option of payment otherwise than electronically, if he or
she does not have a bank account.
31. Where payments are
made direct to a recipient we agree with the Committee that the
recipient should have flexibility as to how often they will receive
the payments. We are therefore proposing to offer recipients the
choice to receive direct payments either weekly or 4 weekly in
arrears. (Consultation document Chapter 6)
32. Where some families do not currently hold
a bank account or may have difficulty opening one, we want to
build on the Government's drive to tackle financial exclusion.
Work to ensure that those without bank accounts will be able to
open a suitable account into which we can pay tax credits is being
taken forward together with the Post Office and major banks. (Consultation
document Chapter 6)
Recommendation (hh)
We conclude that although ICC is a welcome step
towards a simpler system, there is still a considerable way to
go to create a tax credit and benefit system which is easy to
understand and easy to use from the recipient's perspective.
33. Creating a system
that is simple and easy to access is at the heart of the proposals
in the consultation document. In addition to this, the new system
is intended to be more flexible and better targeted. In many areas
there are tradeoffs to be made between simplicity and more
flexibility and better targeting. The proposals in the consultation
document intend to strike a balance between these sometimes conflicting
objectives, creating a system that is simple and easy to access
but which delivers targeted support in a fair way.
Recommendation (ii)
It is important to know the characteristics of
those people who are not claiming ICC, to establish whether there
are trends in family structure; income or regions, so as to enable
the more accurate targeting of takeup campaigns.
We recommend that these patterns of lack of takeup are analysed
by the Government.
Recommendation (jj)
We agree that the takeup of ICC will be
vital to its success and that active encouragement to claim should
begin as soon as a child is born. We therefore recommend that
Integrated Child Credit application forms be sent to parents of
newlyborn children alongside those for Child Benefit and
that data matching between Child Benefit and Income Tax records
should be regularly used, as in Australia, to identify likely
claimants and to encourage them to claim.
34. Creating a simpler
and more accessible system of tax credits will in itself help
to ensure that people are encouraged to apply. Nevertheless, it
is essential that all potential applicants are made aware of their
potential eligibility. In the lead up to the introduction of the
new tax credits in 2003 we will look carefully at patterns of
take up in existing tax credits and aim to learn the lessons from
the introduction of those credits.
35. When targeting those families who may be
eligible for the new tax credits in the lead up to introduction
in 2003, we aim to specifically target our efforts at families
who claim all forms of existing support for children, including
Children's Tax Credit, WFTC/DPTC and Child Benefit. The transfer
of responsibility for Child Benefit will enable Government to
deliver a better joined up service to families who will be eligible
for both Child Benefit and the integrated child credit.
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