Tax Credits Bill

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Dawn Primarolo: The amendment would ensure that couples who are awarded working tax credit always receive a higher award than single people in similar financial circumstances. I do not disagree in principle with such a proposition. However, the amendment is unnecessary because clause 11 provides under subsection (6)(b) for a second adult element in addition to the basic element that all recipients of the working tax credit will receive.

As we have discussed at length, the working tax credit is a work incentive measure. We are well aware that both lone parents and couples are likely to face greater barriers to work than single people with no children. The living costs of couples, whether or not they are responsible for children, will be greater than those of single persons. If the hon. Members who support the amendment are angling for a commitment on the relative rates of the second adult element and the lone parent element, what a surprise, I cannot give them one. However, I do not believe that they are.

Setting the rates of all the elements of both the new tax credits is a matter for the Budget, and we shall not debate it today. However, I assure hon. Members that we fully intend to include in the working tax credit all the elements in clause 11.

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Work is already well under way on the regulations to be made under the clause, which will provide for an additional element for claims in respect of both lone parents and couples. The maximum rate of the working tax credit payable to those categories of households that claim will, therefore, always be higher than the maximum for the single. That covers the point made by the hon. Members for Northavon and for Arundel and South Downs. Now that I have made it absolutely clear that we intend to use all the elements in the clause, I hope that they will appreciate that the amendment is unnecessary and that, rather than making the Bill longer, the hon. Member for Arundel and South Downs will agree to withdraw it.

Mr. Webb: That is a tremendously welcome announcement. I suppose, considering the matter, that that should have been obvious, but it did not jump out, and until today we did not have the assurance that the power in the Bill would be used.

Did the Paymaster General say that there would be a second adult element in respect of couples? I believe that she mentioned lone parents in the same breath. Was she effectively saying that lone parents would be deemed to be couples for the purpose of the working credit? What did she mean by that? We are separating children and adults—the clause relates to adults, not children—but are saying that couples will receive an extra amount for the second adult regardless of whether they have kids, but single people who have kids will receive an extra amount through the working credit. I hope that she understands why I am slightly confused by, although delighted with, what she has just said. What did she mean?

Dawn Primarolo: I may inadvertently, in trying to clarify, have first clarified and then confused the matter. The essential point that the hon. Members for Arundel and South Downs and for Northavon make relates to single people or couples without children and the additional adult allowance. The clause provides for an element to be added. Two elements are involved, for both of which the rate would have to be set. The first relates to a second adult. The other relates to lone parents and would recognise that some costs are fixed, regardless of whether there are two adults or one in the household.

The point that the hon. Gentlemen make relates to whether there is an additional adult allowance for couples without children. What the amendment would provide is already provided for in the clause. I presume that the hon. Member for Arundel and South Downs knew about the intention behind the amendment.

Mr. Flight: With respect, and as I thought that I had made clear in discussing amendment No. 31, which dealt with the same subject as amendment No. 32, the issue does not relate to couples without children. In simple language, under the present working families tax credit and children's tax credit, if one parent in a couple is not working, for reasons such as young children to care for or the place in which the couple live, there is no recognition of the economic needs of the non-working person.

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The illustration to which the hon. Member for Northavon and I referred shows the effect of that on families on, say, £150 a week, with two children. A lone parent would end up £35 above the poverty level and a couple in which one spouse does not work would end up £20 below the poverty level. That is a £55 material difference. The same issues were raised when the working families tax credit was introduced. A different way to make the point is to say that there are tax credit disincentives to partnering up for the single person with children.

When we suggested that the matter should be addressed as a special element in the child tax credit, the Minister said that we should address it in relation to working tax credit. Our amendment is broadly drafted. We want a commitment from the Minister that the arrangements for working tax credit will contain an element that takes specific account of the non-working spouse's economic needs. That could be achieved by adopting the amendment or it could be covered under subsection (6), as the Minister said. Our welfare objective is to ensure that there is not considerably greater assistance to lone parents compared with couples in which one person does not work.

Dawn Primarolo: I cannot follow the hon. Gentleman's logic with regard to the second adult element. I have assured him that the issue is whether a lone parent would be at an advantage compared with a couple in which one person did not go into paid employment. I said that we must address greater barriers to lone parents than their ability to work.

The structure of the elements in the clause provides for additional optional elements. Certain elements form the absolute base of the working tax credit, but optional elements should provide extra financial support to increase the incentive for work. The elements take account of greater living costs that are incurred by certain categories of claimant. The second adult element falls into that category.

The hon. Gentleman makes a slightly different point that is more about household structure and people's choices on that. He implied that people would choose to be lone parents because they would be better off than if they were in a two-parent household, and that the Bill will provide an incentive for that. I reject his first proposition that people choose to be lone parents because they would be a few quid better off. Anybody who knows about the experience of lone parents will know that, unfortunately, the overwhelmingly majority become lone parents because of often tragic and difficult personal circumstances, which they did not choose. Being a lone parent is considerably harder than being in a two-parent household. In the end, the hon. Gentleman and I have a different view. I do not believe that people choose to be a lone parent because they will be financially better off, and the Bill does not provide for that.

The hon. Gentleman's point is about the interaction

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of those elements. He is right that when those elements are balanced, and a level is set, the position of two-parent households in which one parent is not in paid employment should not be skewed dramatically. He is mixing up a case for its being better to be in a two-parent or married household than in a lone parent household, and asking whether the Bill is a piece of social engineering that pushes people to being in one-parent households. I assure him that that is not the case.

The hon. Gentleman's point about the second adult element is dealt with clearly in the Bill. I have explained that twice, and it has been accepted that it is clear. His views on what is a better household type—single or married—are not a matter for the Bill, which tackles poverty traps, unemployment traps and work incentives, and responds to the barriers that exist in those circumstances.

Mr. Flight: The Minister has somewhat misrepresented what I said. My point was that none of us would want a situation in which a lone parent was discouraged from partnering up with someone because the net effect, if that person was not working, would be a £50 fall in disposable income. It would be crazy for that to be the case, although at certain levels that is how working families tax credit operates. Although I am grateful for what she said, the Opposition are looking for an assurance, in common-sense language, that if the situation is not catered for under working tax credit, the Government will make arrangements to ensure that that does not happen.

Mr. Webb: The debate on the amendment has been helpful. Subsection (6)(b) gives the Government the power to provide a second adult credit in respect of a person who is married or in a couple, whether or not there are children. It also gives a power to provide extra sums to a lone parent. Therefore, the only people who are not covered are those who are single and childless. That is a welcome step in the direction of the spirit of the amendments.

I cannot help feeling that the matter has been dealt with and, having received an assurance that the Government will use the power, that the amendment is no longer necessary. However, I am still slightly puzzled as to why the question of whether someone has a child is being muddled with the working tax credit, given that we were told this morning that it was not about children. It therefore seems a strange place to deal with that issue. However, I am sure that there are reasons for that, which will perhaps be discussed outside the Committee. I want to put it on the record that I welcome the progress that the Government have made on the issue, and the amendment is therefore unnecessary.

Amendment negatived

Question proposed, That the clause stand part of the Bill.

 

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Prepared 17 January 2002