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In the early days of the system that led to some fraud, but the new process has helped a bit. Some problems remain, such as how to deal with holidays and what mature students with children can do about their child care costs. However, it is really important that, as we move forward, we retain the recognition that a woman might need only a small amount of money in tax credits because she can earn reasonably well, but she can earn well only if all her child care costs are paid. She might need only a few pounds a week in tax credits, but she will need £100 a week or more in child care costs. I hope that that is recognised.
I hope that it is also recognised that, because that is the case, I have constituents who have received huge overpayments because of the child care element. I am sure that other hon. Members have such constituents, too. I ask that that be looked atparticularly in any future proposals that the Treasury makesto make sure that women can get their child care costs, and also that, if mistakes are made, women do not suddenly find themselves plunged into paying large amounts of money because of miscalculations on child care, especially when child care costs sometimes do not take account of holidays and some of the difficulties that women have.
I know that Conservative Members do not like being told about things that happened in the past. Fortunately, it is a long time since the last Tory
Government. However, I remember hundreds of people being laid off work and being put on benefits in the middle of one of the worst of the Tory recessions in Birmingham. That was in the days before computersor before large-scale computers. The then Department of Health and Social Security systemall the offices in Birminghamshut down in a strike because people were overloaded. It was not just that the admin did not work; it shut down completely. For about nine months, people got nothing. That was an example of the Conservative Government administering financial support to people who were out of work because of the recession that the Conservative Government created, and who were in dire poverty. The suffering was severe, which is one reason why Labour Members think twice when they hear Conservative Members talking about benefits for people on low incomes.
As I say, I will be second to none in criticising maladministration and fraud in the benefits system. Will my right hon. Friend the Paymaster General make sure that we have a welfare system that does not act as a kind of opium of the masses in keeping them in unemployment, but enables people to transform their lives, go out to work and have proper child care for their children, and create a much better future for their families?
Greg Clark (Tunbridge Wells) (Con): There is no perfect system of welfare. The system always involves choices. There is no utopia that we can ever hope to achieve. Because those choices have to be made, it is important that they should be debated properly and fully in Parliament. Those choices are fundamental to the designs of systems. There is the choice to provide incentives for people to stay in workthat extends in-work benefits up the income scale to the levels that we have. That is a choice that has to be made. We can have the simplicity of universalism in benefits, but that comes at a cost. All those questions need to be discussed fully and properly. What has been a bit disappointing in the contributions from Labour Members is how unwilling they have been to have a proper and open debate about the changes. Instead, they have defended a system that reflects some policy choices that can and should be questioned. The Select Committee report has done that.
It is important to address three points in particular. First, there is the question of overpayments. Secondly, there is the complexity of the system and, thirdly, there is the effect of the tax credit system on low pay. When it comes to the level of overpayments, let none of us be under any illusions. The overpayments are a direct consequence of the policy. The tax credit system is engaged in bringing together two completely different policies: the tax system, which has traditionally taken a look at income on an annual basis, and the welfare system, which takes a much shorter termoften week by weeklooks at what claimants need. Needless to say, putting those two things together involves exactly the type of problems that we have seen and that are intrinsic in that system. That is why that requires debating.
Quite reasonably, the Government have recognised the problem and increased the disregard from £2,500 a
year to £25,000. No doubt that will help to solve the problem. It is, however, important that we assess whether the change represents value for money, but the Government have consistently refused to allow us to make such an assessment.
When the disregard was set at £2,500, the Treasury was able to estimate that it would cost £800 million. When the disregard was increased tenfold to £25,000, similar figures, miraculously, could not be produced and no assessment could be givenor so we thought. When the Public Accounts Committee questioned senior officials in Her Majestys Revenue and Customs on the matter, it emerged, after a degree of probing, that such estimates had been produced. However, presumably because it would have been inconvenient to Treasury Ministers if the figures were disclosed, the information was not put in the public domain, although we know that it is available.
The Institute for Fiscal Studies, a well-respected think-tank that does valuable work to inform all parliamentarians about the technical aspects of the tax system, was eager to obtain the information so that it could make what, as every hon. Member would agree, would be an independent assessment of the consequences of the change, but its request was refused. HMRC sent the IFS an unbelievable letter in which it disclosed that it had information about the cost of the increased disregard, but refused, on freedom of information grounds, to give it. The letter read:
In applying this exemption we had to balance the public interest in withholding the information against the public interest in disclosing the information.
I have no idea what the public interest in withholding the information can be. If the Paymaster General wishes to explain it to me, I will be happy to take her intervention, but she is, perhaps conveniently, buried in her paperwork, as ever.
We are able to make an estimate of the figure because we know that the overpayments in the most recent financial year amounted to some £1.8 billion. It is argued that the overpayments reflect several factors, of which changes to income in-year is but one, and that it is impossible to work out the situation, although calculations have been done. However, in the qualification of the annual report and accounts of the Inland Revenue, the Comptroller and Auditor General was able to make an assessment of the reasons for the overpayments. In the 2004-05 accounts, the CAG said that the
Total overpayments for 2003/4 were mainly because family income had increased by more than the £2,500 disregard.
In other words, the CAG, who is an unimpeachable figure, says that the main contribution to the then £2.2 billion figure, which is now £1.8 billion, was in-year changes in income. If the Paymaster General wishes to correct Sir John Bourn on the record, I will happily give her the opportunity to do so, but I see, again, that she chooses not to intervene. The matter is important. If we interpret the CAGs assessment as generously as possibly by regarding mainly as constituting half the expenditure, the relevant figure is well over £1 billion a year and could be as high as £1.8 billion.
I said at the beginning of my speech that the welfare system involves policy choices. We should be able to
debate in both Select Committee and the Chamber whether £1 billion of Government expenditure is best applied to simplifying the system in such a way, or whether, for example, we should use it to increase child benefit by £140 for each family, which would be an alternative. Ministers are disgracefully denying us the opportunity to exercise such scrutiny. Although I understand the political interest in doing such a thing, I do not see the public interest.
Ms Keeble: If the hon. Gentleman reads the report, it works out that 30 per cent. of the overpayments are due to changes in income, roughly 30 per cent. due to changes in circumstances, and about 15 per cent. each to two other factors. That does not mean that there can then be a transfer into values. There is an interrelationship between the different elements, so the conclusion is wrong.
Greg Clark: The hon. Lady is right in saying that there are different factors. That is why I referred to the Comptroller and Auditor General, whose qualification of the accounts was based not on the number of claimantshe has no interest in thatbut on value. He said that the main contribution was from in-year changes in income. That was his assessment.
There are two more deficiencies in the present system. The first is its complexity. We should be able to have a reasonable exchange of views on the complexity of the developing system without having to pretend that it is the best possible system for the best possible set of circumstances. The National Audit Office takes a balanced and reasonable view. In a report on the complexity of the benefits system that the PAC considered, the NAO said:
We consider that an appropriate degree of complexity exists when there is an equilibrium between the system being complex enough to meet the needs of the wide range of different individuals in various circumstances, yet straightforward enough to run efficiently. Overall, in the National Audit Offices view, this equilibrium has not yet been reached.
Those are the objective and independent words of the NAO. Surely Ministers should reflect on that and concede that the system is too complex and needs to be reformed so as to be more simple. If the words of Sir John Bourn do not carry much weight with Treasury Ministers, perhaps those of the Child Poverty Action Group will. Its helpful handbook on welfare benefits and tax credits has, I think, been sent to all of us, as Members of Parliament. It now runs to 1,600 pages. In this years introduction, it says that recent
changes...have left activists exhausted, claimants increasingly anxious about their entitlements
and arguably, a system more fragile and complex than ever before.
I was concerned when the Chief Secretary seemed almost to be welcoming the ever-increasing numbers of people who are claiming tax credits. I will be the first to
welcome improvements in take-upthat is to say people who are entitled to benefits taking them upbut surely it cannot be a benchmark of Government policy that more and more people coming onto state benefits should be a symptom of success. What basis of economic competitiveness is that?
Another way of thinking of record numbers of people claiming tax credits is that 7 million working peoplerepresenting 6 million familiesare in jobs that are not productive enough to generate an income to keep themselves and their families without a top-up from the state. Of course, if they are not able to earn to that level, they need to have a top-up. They need to be helped, but we cannot congratulate ourselves that earnings are so low that more and more people every year require the intervention of the state so as to have a decent sum on which to live.
It is a striking fact that around half of the children living in poverty today live in a household where an adult is in work.
There are two reasons why people require these top-ups to sustain themselves. One reason is that they may not be productive enoughtheir skills may not be adequate enough to support themselves and their families. An increase in claimants for that reason is a damning indictment of what we need to do to be competitive. Again, the Secretary of State for Work and Pensions said:
Whereas we today have 3.4 million unskilled jobs, it is estimated that by 2020 we will need only 600,000.
Ms Keeble: The conclusion of the hon. Gentlemans argument is that it is better to be unemployed and on benefits than to be in work and on benefits. However, the tax credit system is designed to support people into work, which is why they claim when they are in work.
Greg Clark: The hon. Lady has got the wrong end of the stick. People who cannot earn enough to keep themselves deserve to be supported, but we should not congratulate ourselves, as every year, more and more people have jobs that pay so little that their earnings need to be topped up by the state. However, support should be available.
Unusually for a Conservative Member, I endorse the campaign by the Transport and General Workers Union on low pay in the cleaning industry, in which it points out that, for example, 60 per cent. of cleaners employed in the City of London earn less than £5.50 an hour. It is unacceptable for employers who make do very well from large profits and who depend on those services to get away with poverty pay. We should not accept such behaviour, and Government Members should not accept it either. We need to look seriously at the tax credit system and its interaction with the minimum wage if we are to address the argument of the eminent academic Jonathan Bradshaw of the university of York:
At the moment the state is playing a vital part in supporting market earnings. At no time in our history has it had to do more...The taxpayer is providing a large subsidy to low-paying employers and no doubt many are laughing all the way to their shareholders.
In conclusion, this is such an important issue that it is disappointing that the Government have complacently defended the present position. We need to debate these things more thoroughly and positively. If my words and those of of my right hon. and hon. Friends do not carry any weight with Treasury Ministers, perhaps the words of the right hon. Member for Darlington (Mr. Milburn) will do so. In March, he said that we need to
tackle the root causes, not the symptoms. That must mean moving beyond simply correcting low wages and family poverty after the event, towards policies that spread opportunity and help people to realise their own aspirations for progress.[ Official Report, 28 March 2006; Vol. 444, c. 710.]
I welcome this debate, but the House will be relieved to learn that I wish to make only a brief contribution. Tax credits have made a huge difference to a great many families in my constituency. Earlier, the hon. Member for Guildford (Anne Milton) bemoaned the citing of facts and statistics, and she urged us to focus on individuals. I am happy to do so, because she reminded me that in the last general election campaign, I ran a street stall on Denton market ground on a Sunday morning. A young mother came up to me and said, Are you Labour? Given her tone, I hesitated to reply, but I said, Yes. She said, Thats okay, because your lot have made a real difference to my life. You have done so much for me and my family. The tax credits have really made a difference, and have enabled me to go out and find a job.
That is the hidden success of the Governments tax credit system. Quite simply, tax credits have made work pay, and they have helped to support families financially. As the Minister said, they have helped us to lift 700,000 children out of relative poverty, which is good news that should be applauded. Yes, some of my constituents have experienced problems, and when things go wrong they often go very wrong indeed, which causes those families great concern. However, as my right hon. Friend the Member for West Dunbartonshire (Mr. McFall) said, our right hon. Friend the Member for Birkenhead (Mr. Field) and others have received anecdotal evidence of fewer tax credit problems than in earlier years. Having worked in my predecessors constituency office, and having dealt with many of those tax credit problems myself, I can confirm that there has been a substantial reduction in cases, although there are still some issues that need to be resolved. I have every confidence that they will be.
I welcome the changes being put in place by Her Majestys Revenue and Customs, which will alleviate
some of the problems in the system, not least with the increase in the disregard for earnings between one tax year and the next from £2,500 to £25,000. That will reduce the overpayments substantially once the measure is fully implemented, as has been acknowledged by speakers in all parts of the House. People whose circumstances have changed and who currently get caught up in the system should not get caught up in future. That is surely to be welcomed.
I am working to resolve the cases that my constituents have brought to me, and I will continue to do so, as I am sure other hon. Members will do. I re-emphasise what tax credits mean to many people. Tax credits benefit 6 million families. In my constituency, Denton and Reddish, that amounts to 7,600 families in receipt of family tax credit and 12,600 in receipt of child tax credit. Those are often lower paid families who struggled to survive under the Conservative Government.
For all the difficulties that there were and are in the system, that extra money is making a fantastic difference to a great many families in Denton and Reddish and throughout the country. It is most certainly not the shambles that the hon. Member for North Thanet (Mr. Gale) described. Yes, let us iron out the problems, but let us also be proud of this good policya redistributive policy, a Labour policy and one that is lifting families out of poverty and giving people opportunities to secure work. I am proud of that and I want to see those principles continue into the future.
long for a Chancellor who...introduces a Budget which abolishes all of Browns endless reliefs and credits,
as the right hon. Member for Witney (Mr. Cameron) does. That would be a retrograde step and it would be a disaster for that young mum on Denton market and thousands like her in Denton and Reddish, Greater Manchester and throughout the country.
Mr. Tobias Ellwood (Bournemouth, East) (Con): It will take me just three minutes to get my views across in this interesting debate. I am sad that the Chancellor is not present to hear some of the comments, and that it has taken the Conservatives to bring the issues to the fore. We listened with interest to the Chief Secretary, but one can always tell when a Minister is on the back foot. Rather than answer the questions put to him by the shadow Chancellor, the hon. Gentleman went on to attack what a Conservative Government might or might not do in the future. He failed to explain why about half of those who apply for tax credits do not receive the correct amount. He failed to explain why the overpayment threshold has been changed from £2,500 and increased tenfold to £25,000, and the consequences of that to the taxpayer. On a personal note, he also failed to explain why his own constituency is among those that fare worst in the tables published last week.
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