Tax Credits Bill

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Dawn Primarolo: I do not have the exact point about the hours to hand, but I appreciate why the hon. Gentleman wants to know. I will do my best to tease that figure out and communicate with Committee members about it in the normal way.

We are putting in place the working tax credit to help bridge the gap of families with no children and no disabled members. We thought it right for there to be no barrier if those people were working 30 hours a week. For those reasons, we decided that intervention was important, but it comes down to a matter of judgment.

On the point that the hon. Member for Northavon made, the working tax credit is a work incentive measure. Everyone who receives it, whether or not they also receive the child tax credit, will see the rewards in working and will be better off. Again, all the information that we have today shows that that is working in narrowing gaps and helping people to move into work.

The hon. Gentleman went on to talk about payment by the employer. That is the simplest way, and it works. It reinforces the link with work, and he will see in the Bill that, because of the new design of the tax credits, we have been able to reduce

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requirements on employers. Obviously, when the research under way is done, we will have much more detail on working tax credit, but again the information coming back to us from employers and workers is that, despite a tiny minority who do not like it, it is working very well and achieving many of its objectives. I think that the Government fully recognise the points that are being made about having a working tax credit and about the need to intervene cautiously. That is why we have set the age levels and hours test that we have.

Miraculously, I can now answer the question about the figure of 1 million. That figure does include under-25s and those working less than 30 hours.

Mr. Clappison: I am grateful to the Paymaster General for that speedy and helpful clarification, and I have another question following on from it. How many of the people in poverty fall into those two groups, the under-25s and those working less than 30 hours?

Dawn Primarolo: At this rate, I will not need to write any letters, because the answers are coming very speedily.

Mr. Mark Hoban (Fareham): Will the Paymaster General give way?

Dawn Primarolo: I thank the hon. Gentleman.

Mr. Hoban: I shall give the Paymaster General a break, and give her officials another task to perform in the meantime. How many of those 1 million people, if they are in work, are paying income tax? It sounds to me as if we are in danger of simply recycling money. People are paying tax through their pay packets and getting it back, through the Government's generosity, by a different calculation.

Dawn Primarolo: The calculation at employer level gives the tax credit. That will be named on the payslip as a payment of tax credit. Some people will still be paying some tax, but for those on the lowest incomes, the tax credit payment back is greater than if there had not been a tax credit and they had paid their tax.

It is odd that the hon. Member for Fareham (Mr. Hoban) should ask that question, given that his party, when in power, taxed people, sent them all the way through one Department, then made them apply separately to another Department—in fact, several other Departments—to receive back payments in recognition of their low income, such as family credit. We are streamlining the system into one place. This system is more efficient than interfering with the tax code. We have had all the discussions about why it would be inappropriate to use that and why this system is more targeted than using the allowances or rates to maximise income for those in the lowest income groups, whom we want to help in the greatest numbers.

We have accepted the principle that the Government should give a continuous stream of support for children through the children's tax credit, and that they should, through the working tax credit, tackle the barriers to work and the unemployment trap. We must do that if unemployment is to continue to fall, and if we are to tackle unemployment and the poverty trap, where

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people want to work, and there are jobs for them, but it does not make economic sense in their family arrangements to make the transition to work. Tax credits are one way of breaking that cycle, and the minimum wage is another. The Government's strategy is working through that and has been very successful. Any policy can be pulled apart and questioned, but we have seen how the system worked in the past and our proposed system is the simplest, most direct and clearest.

Mr. Flight: I have another question about the precise relevant number of people. We need to know how many fall into the category of the replacement for 50 plus. How many of the 1 million people are relevant to the point that we are discussing?

Dawn Primarolo: I do not have that information with me. I really do not have it, and Committee members may keep me on my feet for as long as they wish, but I know that I shall not have the information immediately to hand. Hon. Gentlemen started asking for more information as soon as I put the figure of 1 million on the table. We are trying to deal with the problem in the labour market caused by persistent poverty that traps households of people aged 25 and over without children. There are plenty of indications that that needs to be dealt with, I shall be a little more careful when I cite figures in a certain area because they may be sliced in many ways. There is a problem in the labour market for that age range and we must approach it cautiously. Our objectives are correct, but we must be careful about the way in which they interact with the minimum wage and opportunities in the labour market.

We have taken the cautious approach of starting with 25 years, notwithstanding the exceptions, and the 30-hour rule. That will help people in that group to move on through the labour market and to improve their position and wages without the current stark comparisons between households with children and those without, even when compensation is available for the cost of children in those households.

On the alternative test and the definition of direct care, I do not understand why the hon. Member for Arundel and South Downs wants to use the concept. Clause 8 was the correct place in which to deal with responsibility and care, but I do not see what benefit would be gained from using a concept of direct care. The concept of the main carer having responsibility, as we discussed under clause 8, is well understood here and in other areas—for example, child benefit. I just cannot see what would be gained by using the concept of direct care. It would simply add another definition, but would in fact mean the same as the existing definition.

The hon. Member for Arundel and South Downs is trying to tighten the provision, but his amendments would not work and are unnecessary. I can see that I have not done so well this time in convincing him. Unless he stands up to voice blindingly obvious points that will make things clearer, and I do not see how he could, the question on direct care is not relevant. I ask him to withdraw the amendment.

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I hope that I have clarified, in terms of age and household type, who would qualify for the working tax credit. I have also demonstrated the Government's thinking on how we will target a particular group, the age range of which starts at 25, by dealing with the restrictions in the working tax credit. The beauty of the tax credit is to allow for a foundation on which we can respond as the labour market changes. Pressures on work incentives and assistance, and on tackling poverty and unemployment traps, might change over time, so we have a framework. I hope that the hon. Gentleman will withdraw the amendment, and if he does not I will ask my colleagues to vote against it.

3.30 pm

Mr. Webb: I am grateful for the Minister's response. When I say that £15 is not much, I mean that it is not enough to justify a separate administrative system—£15 could be delivered in another way. It is not a question of £15 or nothing, but one of £15 through the pay packet, a tax allowance increase or another mechanism such as reducing the lower-rate band. I want the low-paid to have the £15, but we must address how to deliver it effectively. Delivering the money through tax allowances and bands, rather than credits, still gets the money in the pay packet and people will be able to see the benefit of working. They will look at their pay packets, see what they are being given and judge whether it was worth working and whether they feel better off. That argument does not undermine the reward to work, but delivers the money in a cleaner fashion.

I will not stray on to the under-25 issue because it will be dealt with under the next amendment. A critical point is the unemployment trap and the fact that childless couples will find that the sorts of jobs that they can get will make them only £20 a week better off. There are two sorts of households: those who are renting and those who are buying. The figure of £20 will mean something different to different households. The reason why some childless couples are virtually no better off in work is because they have a socking great rent, which is covered almost in full when they are not working and almost not at all when they are in a job that puts them beyond the housing benefit taper. They really wonder about working. Someone with a mortgage that is not being covered by the income support system—that applies to a growing number—has a bigger incentive to return to work because they do not lose housing help.

The argument for the working tax credit and work incentives does not apply strongly to those with mortgages. The gap is bigger than £20 for people with mortgages and probably £20 or less for those renting. If the problem is rapid withdrawal of housing help and high rents, the answer must be to tackle that and not to invent a system that covers the entire working adult population over 25. We have not talked about housing, although it is central to the unemployment trap. I hope that the Government will continue to think about that.

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