Draft Child Tax Credit Regulations 2002 and Others

[back to previous text]

Mr. Boswell: Surely not.

Mr. Bercow: My hon. Friend the Member for Daventry, who is extraordinarily fair-minded and gracious, says, ''Surely not.'' He is probably right, and I was wise to insert the caveat ''almost'', because I do not recall the Minister being unkind on any occasion. Have the Government come to a definite view about that matter, and will she comment on the legitimate debate about how the issue should be classified?

It is reasonable to focus on fraud in the context of the working families tax credit. I could focus on many other issues, but we should not detain the Committee indefinitely, especially as the temperature is rather high. The Minister will know that when the working families and disabled person's tax credits were first introduced, questions were asked about the scope that they presented for fraudulent claims. Speaking as long ago as 1998, the right hon. Member for Birkenhead (Mr. Field), the former Minister for Welfare Reform, warned that

    ''the whole of the family tax credit venture is fraught with great dangers. It offers huge bonuses for dishonesty. It strengthens the employers' hold over working people 'these are the conditions: cheat and both of us will be better off'. It thereby pulls employers into a spider's web of dishonesty and corruption. It rewards employers

Column Number: 30

    paying low wages. It takes the pressure off improving productivity and thereby the scope of increasing real wages''.

That is an extremely serious and critical verdict by an acknowledged expert on the social security and welfare benefits system, and it is right that the Committee should be aware of those comments as it decides whether to accept the regulations.

Mr. Boswell: Has my hon. Friend had the chance to see the recent pamphlet by the right hon. Member for Birkenhead entitled ''Welfare Titans'', which draws some not wholly complimentary comparisons between the present Chancellor and the late David Lloyd George? From it, I noticed that the right hon. Gentleman has not changed his views on the moral hazards of tax credits, as he describes the concept as being ''a wasp trap''. There is a degree of inducement inside but with a certain fate for the wasps that get trapped in the system and are then enmeshed in administrative complication and disincentive from which there is no lasting escape.

Mr. Bercow: It sounds a grisly fate, certainly for the wasp and possibly for other affected parties. I am not sure that someone in my tender condition would want to go into the intricate detail to which my hon. Friend is so helpfully referring. [Interruption.] I must apologise, because I am overcome by emotion. I am not well; I give way to my hon. Friend.

Mr. Boswell: I am grateful to my hon. Friend. While he composes himself on a matter that is too serious for laughing, will he reflect on the fact that although we have great respect of the Chancellor of the Exchequer—I hope that the hon. Member for Northavon is paying attention—

The Chairman: This is an intervention.

Mr. Boswell: Indeed. I claim modestly and probably inaccurately to be the only Committee member to say that my father knew Lloyd George, which is part of the reason for my interest in the subject.

Mr. Bercow: I am extremely reassured by that. I would never suspect my hon. Friend of name dropping, because he is not that sort of person. He hails from the patrician tradition in our party and is not someone to advertise his connections. He is simply aware of them and the lineage of which he is part.

By noting the concerns of the right hon. Member for Birkenhead, my hon. Friend has helpfully prodded me towards speeding my remarks to an earlier conclusion. However, I will not sit down immediately because we must consider the serious concerns of the Social Security Committee. We are talking not only about the right hon. Gentleman's concerns, which he held in 1998 and of which, according to my hon. Friend the Member for Daventry, he has not been disabused in the ensuing four years. That is a serious enough consideration, because Members from all parties respect the right hon. Gentleman. He has an expertise that most of us could not hope to match or imitate. We should also be worried that his concerns are shared by the Social Security Committee, which expressed its anxiety that the potential for fraud in the tax credit system could increase if priority was placed on prompt payment at the expense of rigorous checking of eligibility.

Column Number: 31

I do not know whether the Government have reached a judgment about that or assessed the level of and reasons for fraud in the working families tax credit. It would be an instructive exercise. I would not blame the Government for the fact of some fraud in the working families tax credit, because fraud exists in most benefits and not because Governments are Labour rather than Conservative, or vice versa. Some fraud will be inherent until we achieve human perfection, which is a little way off. However, it is sensible for the Government to take account of fraud that has happened, the motive-basing factors in the regulations that make it easier to get away with and the lessons that they can draw from the process.

The Minister has been extremely painstaking, tolerant and decent, so I shall speak only briefly about stigma. I shall try to speed up such as my voice and the waspish interventions of my hon. Friend the Member for Daventry will allow. According to the Government, payment through the wage packet is a key element in reinforcing the message that work pays and in demonstrating the link between receiving employment tax credit—again, I use the old terminology—and being in employment. However, the evidence does not support that claim and instead suggests that tax credits can serve to stigmatise the recipient.

As someone who might almost be described as a Treasury elder but for her youth, the Minister will know that even prior to the introduction of the working families and disabled person's tax credits, Martin Taylor, the author of the 1998 Government-commissioned report of working incentives, admitted in evidence to the Social Security Committee that there was no empirical evidence to suggest that the WFTC would have an effect on stigma. He said:

    ''As far as stigma goes, the hard and fast evidence in all these non-financial psychological matters is difficult to come by.''

Nevertheless, he believed that the possibility of such stigma existed.

The National Council for One Parent Families—a reputable organisation to whose views I attach great importance—the Confederation of British Industry and the Institute for Fiscal Studies also warned that paying credits through the payroll could increase the stigma attached to means-tested benefits. That was noted during a House of Commons debate three years ago, and in its recent response to the Government's plans, the document ''Credit where it's due?'', the IFS commented:

    ''There is no evidence . . . that payment in this way improves work incentives or reduces stigma.''

It is debatable whether it increases stigma, but there is no evidence that it reduces stigma.

The working families tax credit evaluation programme has not yet produced estimates of WFTC take up, or the impact on employment. It goes on to suggest that for some, payment through the wage packet has perhaps been more stigmatising and certainly caused more hassle than direct payment. I am conscious that when we discuss these issues we are

Column Number: 32

trying to draw general lessons or messages from what we understand to be the experience of the system. Inevitably, we are dealing with millions of individual citizens and they cannot just be classified as all being the same. Some may not feel at all stigmatised by payment through the wage packet, because they reasonably take the view that they are entitled to received it and they have no reason to feel ashamed or embarrassed about it; that is a proper view. Equally, many people desperately in need of help who would, by any yardstick, be categorised as vulnerable people whom a civilised society should help, nevertheless feel because of their upbringing, their religious faith or a lack of self-confidence or self-esteem, that somehow they are asking for more than they should get. They would rather people did not know that they are the recipients of state assistance.

It is difficult to reach a conclusive judgment about what might be called the stigma debate. I would like an assurance from the Minister that in keeping the system under review, the Government will at least be prepared to consider the issue of stigma and the evidence about it, and the take-up and administrative costs. I do not ask for more than that; I do not expect the Government suddenly to announce that they will pay the credit in a different way from what is proposed. If there is to be an annual report, I would like to think that it will be meaningful, comprehensive and informative. The Government, and especially the Minister, seem proud of their successful amendment to guarantee the annual report. It must not be a shell or a whitewash; it must address the issues that concern not just members of the Committee but people outside the House who have taken part in the debate.

Those brief, limited observations are the thrust of what I wanted to ask the Minister and other hon. Members will wish to contribute to the debate. I thank you, Mrs. Adams, the Minister and the Committee for putting up with my frog-like approach to the consideration of these important issues.

6.43 pm

Mr. Steve Webb (Northavon): In contrast to the hon. Member for Buckingham, who started two and a quarter hours ago by apologising for his poor health, but whose voice has strengthened and whose health has improved, I, mysteriously, have acquired a headache in that time.

I want to ask a couple of brief questions on the proposal. The issue of phasing in and implementation is relevant to this measure, as it was to the previous regulation. A point that the Minister made, which is germane to this proposal, is that the leaflets will go out to employers who will have to deliver the credit in November or thereabouts, but it was stated in the documents that the leaflets about applications and so on can start going out in August, albeit starting on a small scale. I assume that initially the roll-out will be to existing recipients. Is it not conceivable that an employee will receive a leaflet, letter or application form about the working tax credit, ask their employer, ''What's all this? Is it all going to change?'' and the employer will say, ''I don't know what you are talking about,'' as he will receive the leaflet three months later? Can the Minister say something about the relative

Column Number: 33

timing of those two things? As the working tax credit is delivered through the pay packet, surely when people are starting to ask their employers what is going on, employers should be able to answer their questions.

Secondly, what really worries me about the working tax credit is the provision about averaging hours worked during a year. From the regulations, it seems that people will be treated on the basis of the hours that they are working when they make the claim. If their contract says 30 hours and they do 30 hours, that is fine, but not all contracts will be as precise as that and not all work as regular.

I am worried about people who are on the cusp of either the 30-hour or the 16-hour threshold, and whose hours might go up or down during the year. Their average number of hours over the year might be 15.5, not 16, so they might not have been entitled for the entire year. People could then have accrued a large overpayment. [Interruption.] The Room is filling up while I am speaking.

The overpayment of working tax credit at the maximum rate in the regulations could be substantial, and I have never quite managed to get to the bottom of how such a case would be dealt with. Obviously, the problem is most acute at the 15 or 16-hour threshold, where total entitlement is at stake, but it would also be acute at the 30-hour threshold, where the 30-hour top-up is at stake.

As I read them, the regulations say that it depends on what the contract says, but some contracts will allow hours to vary from week to week. Indeed, our standard contract in this place talks about such hours as may be required. This is not a nit-picking point; there is a genuine, serious and practical problem with the system. We are moving from a system that has worked on the basis of weekly assessment—the situation at the time of the claim—to a world in which we average hours over the year.

We can average income over a year fairly readily; we know what the rules are if it is up a bit or down a bit. However, if the absolute entitlement is threatened—not just a pound or two either way if someone's income has gone up or down a bit—and the absolute conditions for entitlement have changed during a year, will there be people with a huge overpayment that needs to be recovered?

Previous Contents Continue

House of Commons home page Parliament home page House of Lords home page search page enquiries ordering index

©Parliamentary copyright 2002
Prepared 16 July 2002