Select Committee on Treasury Written Evidence

Supplementary memorandum submitted by HM Treasury


In assessing the most effective way of tackling child poverty, has the Government undertaken a comparison of child tax credits and child benefits? (Q 273)

  Increases in both Child Benefit and the child element of the Child Tax Credit can reduce the numbers of children living in poverty. Estimates of the changes in child poverty are sensitive to factors such the choice of income equivalisation scale, the treatment of housing costs, the poverty threshold, and other modelling choices.

  However, the Treasury has made such estimates in response to recent, written Parliamentary Questions. As set out on 18 April 2006 (63256), an increase of £15 per week in all rates of Child Benefit would have lifted around 1 million children out of poverty in 2005-06, before housing costs. On the same basis, an increase of £14 per week in the child element of the Child Tax Credit would have lifted around 1 million children out of poverty. The increase in Child Benefit would have cost around £10 billion in 2005-06, while the increase in the Child Tax Credit would have cost around £5 billion. In addition, as set out in Parliamentary Questions answered on 17 January (41432) and 25 October 2006 (95739), raising the value of Child Benefit for all children to the rate payable for the eldest child is £1.7 billion, and would lift between 250,000 and 300,000 children out of poverty.

Why is the extension of Child Benefit to pregnant women not being introduced until April 2009? (Q 288)

  The extension of Child Benefit to pregnant women represents a significant policy change. To implement this policy, the Government needs to make the necessary legislative changes, which will require primary legislation, and put in place the administrative arrangements, including changes to the IT system, to deliver the new entitlement.

  The Government therefore announced an implementation date of April 2009. This is similar to previous lead times for Child Benefit policy announcements. For example, in March 2004, the Government announced its proposal to extend Child Benefit to the parents of unwaged trainees. This new entitlement came into effect in April 2006.

The Paymaster General said that a small proportion of claimants may experience disruption in their payments following the processing of changes in their circumstances. Which claimants are affected and why? (Q 282)

  This will only impact on these claimants if they report a new change of circumstance before the IT system is updated in April 2007. HMRC is putting in place special arrangements for dealing with these claimants until then.

Has the Government undertaken analysis of marginal tax rates as recommended by the TSC at Budget 2006? [11](Q 276)

  Calculations take no account of the £25,000 disregard in tax credits (extended from £2,500 in April 2006), which significantly reduces shorter-term deduction rates.

  The available research evidence shows that the Government's policies, including more generous in-work support through tax credits and the National Minimum Wage, have made a significant contribution in encouraging people to enter the workforce and raising employment rates for disadvantaged groups such as lone parents.

  The Government recognises the importance of evaluation of this and other issues surrounding the introduction of tax credits. HM Revenue and Customs has actively promoted and published significant research into the impacts of the Working Families Tax Credit. The evidence so far has not revealed any widespread adverse impacts on average hours worked or on shorter-term wage progression.

Do we collect data on the distribution of the benefits of public service pensions across the workforce, for example, what proportion of such pensions are received by the low paid in the public sector? (Q 192)

  Most public service pension schemes are final salary schemes, although some exceptions exist (such as the schemes for GPs and dentists).

  Final salary schemes calculate an individual's pension according to a formula, which is based on salary close to retirement of the individual in question and the number of years of service.

  The value of individual entitlements will vary with many factors including pay, service, age, future earnings patterns and gender. And these factors combine, so for example, the accrued pension for someone approaching retirement after a long career will generally be much larger than that of a younger employee in mid-career. There is not therefore a direct link between data on pension outcomes and data on the number of individuals who are or were low paid. This is because a low pension outcome might be associated with an individual who, for example, had low pay at retirement or had a short service, or left the public service early in their career. Also an individual who is low paid now may be more highly paid by the time they retire.

11 January 2007

10   Ev 18-37. Back

11   Treasury Committee's Recommendation: We recommend that the Treasury analyse the characteristics and income distributions of households facing marginal tax rates in the region of 60% to 70% and the extent to which these high marginal tax rates are discouraging people from entering the workforce, from working longer hours or from acquiring additional skills. We further recommend that the Treasury publish the findings of such analysis at the time of the 2006 Pre-Budget Report. Back

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