Select Committee on Work and Pensions Minutes of Evidence

Examination of Witnesses (Questions 460-479)

11 FEBRUARY 2004


  Q460 Andrew Selous: So what contribution to the 2010 target will come from a growth in employment compared with increases in benefits and tax credits then?

  Mr Smith: I asked that very question of my officials in preparation for this session, anticipating that you would ask it, and they said it is very, very difficult to attempt to make any estimate.

  Q461 Andrew Selous: Even ballpark figures?

  Mr Smith: I asked them for ballpark figure as well, but they would not be drawn.

  Q462 Andrew Selous: So your officials have no view?

  Mr Smith: It is not a question of having no view. I think this is an area where actually I will make sure if it is not already happening that it does happen, which is to have some intensive and careful and statistical analysis because it would surprise me if, on a statistical basis, you could not actually make an estimate, but we do not have one to hand and, as I say, I could not extract a ballpark estimate out of them.

  Q463 Andrew Selous: Moving on now to some of the practicalities of the tax credit overpayments which obviously, if you have seen the previous evidence to the Committee, is of particular concern and was raised by my colleague Anne Begg with Margaret Hodge when she came before us in our last session. Can you tell us a little bit how well the top-up payments within the year are going when there have been overpayments?

  Mr Smith: I think you will now already have been told that we will have a much better picture of all of this at the end of the tax year. I am not really in a position to make an estimate right now.

  Q464 Andrew Selous: We understand that before the new tax credits came into force, the Treasury were estimating that three-quarters of a million families a year were expected to have an increase in their income leading to their award being reduced. Do you have any further data to know whether that level of families is what you are expecting?

  Mr Smith: Again that was a question I asked before coming along here and I was told that we would not have the information until the end of the tax year.

  Q465 Miss Begg: One of the problems with the tax credits is not the fact that people are honest about it and if there were links, they have not migrated across, but in the course of the year some people have come out of work and have gone on to income support, and if they have been overpaid, as they may have been because they were getting quite a lot of money through the tax credit system which they are not entitled to under income support, they might have been overpaid by quite substantial sums. Now, that will not become clear, as you say, until the end of the tax year. My question is: is your Department aware that this may be a problem for people on income support and have you got any contingency plans in place to make sure that any claw-back does not put them below the poverty level because that has been happening with in-year recovery? There is a group here, there is a large number of people, we do not yet know how many, who may be in that category and it may just hit them when the tax year changes.

  Mr Smith: Well, as I understand it, the operation of recovery is supposed to make allowance for hardship and, therefore, the amounts required will be reduced in order to avoid the extreme outcome that you fear.

  Andrew Selous: There is a 10% limit, is there not, for money that is recovered at the end of the year, but within the year there is no such limit, is there, so there can be very severe financial shocks and serious reductions in the amount of income, which is what Anne Begg is saying?

  Q466 Miss Begg: But even 10% on income support levels, if the overpayment has been 10% over the whole year on income support levels, it is quite a high proportion, and it is not only 10%, I know, but it means an awful lot more to someone who is living just above the breadline. I am just looking for assurances that your Department is alert to the potential here. I hope it does not happen, but there is the potential for problems.

  Mr Smith: We are certainly alert to the potential. I have to say that it is not something that I have been getting reports about, that there is a problem here.

  Q467 Miss Begg: That is what worries me!

  Mr Smith: But when we have got the data, clearly we need very carefully to analyse it and I will undertake to the Committee to examine the situation to ensure that we are operating on the income support side, as well as then operating on the tax credit side, a regime which does not accidentally, as it were, land people in severe hardship and I will share that information.

  Q468 Chairman: Perhaps you could give us a note on that because I think it is a serious question.

  Mr Smith: It is.

  Chairman: So perhaps you could reassure us on that and the contingency plans for April this year would be very, very useful.

  Q469 Mr Waterson: The definition of child poverty has these three elements of absolute low income, relative low income and material deprivation. The Department said that poverty is falling when all three indicators are moving in the right direction, but can I be clear what that means. Does it mean that the target has to be reached on all three elements at the same time or at least one, providing the others are moving in the right direction? How do you measure success?

  Mr Smith: Well, first of all, the statement that it is falling when all three are moving in the same direction or the right direction is, I think, clear and you can see the good sense in having the absolute component, the relative component and the combined relative and material deprivation component. In terms of success of outcome, I would say that it will be when no child is materially deprived through lack of income and we have relative low income rates, as indeed it says in the measurement document, amongst the best in Europe, and, as you say, we have said that we aim to make progress on all three indicators in our measure.

  Q470 Mr Waterson: But the original pledge was to eliminate child poverty. What does "eliminate" mean in this context?

  Mr Smith: It is to "eradicate" actually, and that is to pluck by the roots and obliterate, I think would be a dictionary definition.

  Q471 Mr Waterson: Well, that is fairly black and white! You will be aware that the Zacchaeus Trust published a report with a lot of backing from academics and others, calling for budget standards to be added to the measure of poverty and for a Minimum Income Standards Commission to be set up. Are these things you are looking at and, if not, what are your reservations?

  Mr Smith: Just as an addendum to your previous question, I would like briefly to make a couple of short points. First of all, to have any child in poverty is one child too many obviously, but there are aspects to this debate which remind me a little bit of the debate we had about full employment and whether it was a meaningful term to use a few years ago. I have stated what our defined goal is in terms of the deployment of the new measure and we want to get it absolutely as low as possible. For those who have any doubts about the measure, let's remember that subject to national statistics and independent decisions, they would say, all the other figures will be out there and be published. Then to come on to your current question, the Zacchaeus Trust and others will be making an estimate, so as well as the measure which we are deploying, commentators, academics, politicians, the general public will make a rounded judgment on this anyway, but I think of the array of indicators which are out there, not least in our own Opportunity For All annual publication, which we will continue to publish and update, I think you can see that there is a case for having a core set of indicators and saying that those are the ones which we are going to use as we develop our further targets. Of course the targets for the future will actually, the technical definition, will actually be settled in the Spending Review process, but I think I have told you what the goal is. In terms of the work of the Zacchaeus Trust—

  Q472 Mr Waterson: Sorry, before you go any further and just dealing with that clarification which was very helpful, what I think I was trying to get at, Secretary of State, was that in your own definitions you recognise, I think rightly, that there is a relative element in all of this and we are trying to get at how that sits with the word "eradicate". In other words, do you accept that the rounded judgment of the commentators may be that you have not eradicated it, whereas your judgment may be that you have at any given moment in the future?

  Mr Smith: Well, we are not close to eradicating it yet, but I think it is meaningful, applying our proposed measure, to see the number of children who are both below the 70% of median income relative component and in material deprivation, to see that figure approach zero. Now, that is a very big and ambitious goal and indeed commentators reacting to the announcement of our measure very much welcomed both the retention of the relative element and also the fact that we were looking at material depravation as well which, I have to say also, is an aspect of this which I think resonates with the sort of person in the street's commonsense view of what poverty means, so it is a very demanding and rigorous measure. Just coming on to the work of the Zacchaeus Trust and others who have argued for budget standards, I think this work is interesting and it is important that we follow it closely and continue to review it as we set future levels of income support and benefits, bearing in mind in terms of the progress we make in reducing child poverty and indeed poverty more generally. I have to say that there are problems with this budget standards approach. I do not think that in assessing poverty you can actually get away from the need for indicators, and the problem with the methodology, as far as I have looked at it on this budget standards approach, is that it does seem quite subjective. You do have to construct an array of cases for a very large range of circumstances and I think there are problems in maintaining consistency over time. Now, that is not to say that some of those problems are not there with some of the other measures. You can say on our material deprivation component of the measure we are proposing that over time that sort of basket of goods and services and what can people access will change, but I think there are particular problems with the budget standards approach in that respect. However, that does not mean that that sort of work and other similar studies should not inform our overall approach, I believe it should, but I do not think it is the basis for a measure.

  Chairman: I cannot resist saying that other international comparisons in other countries seem to have got round some of these problems, but we have not got time to pursue that.

  Q473 Mr Goodman: Very quickly on measuring, when we had Nicholas Holgate here last week from the Treasury, he made it clear that Northern Ireland is excluded from the area measured to meet child poverty targets at the moment because you have not had up to date information from the Family Resources Survey. However, he confirmed that you do now have that information, so I asked him whether or not you would now be including Northern Ireland in the figures because if you did not, it could be argued that you are artificially reducing your target. He said that would be a question for ministers, so I am putting it to you.

  Mr Smith: It will be resolved in the Spending Review when we actually set the targets and settle the methodology, but if you ask me whether I think that we should, as the UK Government, be very interested in progress on combating poverty in Northern Ireland, I believe we should be.

  Q474 Mr Goodman: But you are not committing yourself to including Northern Ireland in your measurement area?

  Mr Smith: I do not know if there might be some remaining methodological issues or even some constitutional issues here given the, we hope, devolved responsibilities there, but that we want to look at this from a UK perspective is something I would be personally strongly committed to.

  Q475 Mrs Humble: I want to ask you one or two questions about larger families and I want to refer specifically to barriers that larger families may have in getting into work. Before I do, just picking up on Nigel Waterson's point about definitional issues for child poverty and whether or not minimum income standards would be an appropriate measure, have you looked at those sort of definitional issues and compared children in single-child families or in two-child families with those in three-plus families, to look at how the definitions might change in larger families and the particular impact upon them?

  Mr Smith: We certainly take account of the impact of different measures on the relative weighting given to large, as compared with small, families and actually an interesting aspect of the shift from the McClements to the OECD basis of equivalisation is that it actually gives more weight to young children and large families are more likely to have young children, so to that extent they are being given greater weight.

  Q476 Mrs Humble: Would you then look at using Child Benefit as a method of targeting, looking at how Child Benefit is paid as a method of perhaps helping larger families?

  Mr Smith: Certainly of help to large families is of course the Child Tax Credit, and there is no doubt that the substantial increase in Child Tax Credit, which the Chancellor announced at the time of the PBR, will be a major factor in ensuring that we hit our most immediate target and will be of particular benefit to large families.

  Q477 Ms Buck: Can I just pursue that question a tiny bit. There was a Parliamentary Question, which you will probably have been briefed upon, by Andy King which drew attention to the difference between your absolute low income standard and the JSA income support standard after housing costs, which showed that there is less money available the more children there are in the family. That slightly counters the point about more benefit going to families with younger children, which in general I think is correct, but actually when one gets to the cold, hard figures, it does look as if the larger the family, the more the variation between what we give people and what your standards, the definition, would entitle them to.

  Mr Smith: I agree with you. I think it is important that we look into that further and indeed, as the Committee will be aware, in our Opportunity For All Report, the last one last September, we did dedicate a chapter in there to the particular challenge in respect of large families of combating poverty because I think large families, something like a third of the total, have actually got half of the children in poverty in them. What really that chapter and the work we did for it pointed to, as these things often do, was the need for more research as I think it is the sort of thing we should go into, but the poverty would seem to be resulting not simply or largely from family size as such, but from other factors which correlate with family size, for example, the fact, as I said earlier, that they are more likely to have a pre-school-age child in them, it is likely to be longer since the mother worked, they are more likely to be from an ethnic minority background and they are more likely, which is commonsense, to have complex and possibly childcare arrangements, so there are all of those factors to be examined as well.

  Q478 Ms Buck: But why then do we cap childcare assistance to families of two or more children?

  Mr Smith: I thought that would invite that question. When we have actually looked at the affordability of childcare for people with different numbers of children, it is actually quite a small percentage who are spending more than the £200 available. Now, I accept that that is not an indicator of the suppressed demand that there might be there and I think that the childcare costs in relation to large families is something we are going to have to keep closely under review.

  Q479 Chairman: Joan Humble's important questions, I think, are contradicted by the answer that Karen Buck refers to that was recently given to Andy King. Could you look at that answer and do us a note in terms of the larger families?

  Mr Smith: Sure.

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