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David Mundell (Dumfriesshire, Clydesdale and Tweeddale) (Con): I very much welcome having a debate on the Floor of the House that focuses on Scotland. Perhaps such debates should take place more often, and
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not only when elections are being held in England. Ironically, the most recent debate here to focus on Scotland was held when the debacle that was the Scottish elections took place nearly a year ago. I hope that, like me, Ministers will use what influence they have to bring matters affecting Scotland to the Floor of the House.

I welcome the report from the Scottish Affairs Committee, and want to take this opportunity to pay my respects to our Chairman, the hon. Member for Glasgow, Central (Mr. Sarwar). He has provided wise chairmanship, and shown a willingness to allow members of all parties and with all points of view to make those views known during our sittings. I found the Committee’s various visits and evidence-taking sessions to be extremely useful. I am a little surprised that the hon. Member for Dundee, West (Mr. McGovern) is not present today, as I expected him to use this opportunity to campaign, as he always does, for a new railway station in Dundee.

I was disappointed that the Committee was not able to visit my constituency. I know that that was not deliberate, but we did not focus as much as perhaps we should have done on communities such as Rigside and Kelloholm. They are essentially urban communities in a rural location, and suffer from some very specific difficulties that are not the traditional and often discussed problems associated with rural poverty.

I have noted the response from the Scotland Office and the Scottish Government to the Scottish Affairs Committee report. On this occasion, I agree with the Minister that it is essential that the UK and Scottish Governments work together on these matters. We should not focus on our political and constitutional differences, as our key objective is to reduce child poverty.

I also noted what the Minister said about local government. It is very important that the Department for Work and Pensions works closely and directly with local government in Scotland. Representatives of Scottish local government made it clear to the Committee that, since the devolved settlement and for no particular reason, the relationship between the DWP and Scottish local government was not as direct as it had been. I hope that that matter will be addressed.

The Minister also referred to an important document—“Making British Poverty History”—that has been published and launched by my right hon. Friend the. Member for Witney (Mr. Cameron). I shall be referring to it, as it is relevant to this debate, and I shall also say more about the report on Glasgow by my right hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith) that was part of his “Breakthrough Britain” series for the Centre for Social Justice. I was very pleased that the Glasgow report was well received, especially by the leader of Glasgow city council.

Obviously, I am not about to agree with the Minister’s interpretation of the past but, given that today’s debate is to focus on the future, I will agree with her that it is not acceptable for the latest figures to show that 23 per cent. of children in Scotland—or some 250,000 children—are living in poverty. Those children have a low standard of living and are unable to access many of the leisure, sports and cultural opportunities available to others, and they are also at increased risk of educational failure, ill health and being unable to move into work when the time comes.

They in turn are likely to bring up their children in poverty. Indeed, the most probable explanation for an
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adult being in poverty is that he or she was born in poverty, rather than their having suffered a mid-life catastrophe.

It is clearly agreed throughout the House that addressing child poverty in Scotland should be a priority for any Government, but although I recognise that the Minister feels passionately about the subject, and that by and large the United Kingdom Government are expending a great deal of effort, I believe that the Government’s approach is flawed. They have placed too much faith in what simply spending more money on a problem can do. The cocktail of mega-money and micro-management has been characteristic of Labour’s approach in most areas of social policy, and in child poverty as in other areas the results have been mixed.

I believe that three changes are required. First, the tax and benefits system should be simplified, and the disincentives to work that are built into it should be removed. Secondly, Government action should focus more on addressing the root causes of poverty, such as educational failure, family breakdown, indebtedness, drug abuse and crime, rather than merely addressing its symptoms. Thirdly, the Government have trusted communities and people too little. I should like to see central, devolved and local government supporting voluntary and community groups in their efforts to end poverty, even if that means giving up some control.

As the hon. Lady said, the Government’s flagship policy was their tax credit system. That system, designed by the current Prime Minister and his boffins at the Treasury, is one of byzantine complexity. It is so complicated that even Her Majesty’s Revenue and Customs, the Government body responsible for administering the system, does not understand it. In the last year for which we have data, HMRC managed to get more tax credit payments wrong than right. Make no mistake: this is not just a situation that ties up civil servants in recalculating payments. It is not even just a situation that has led to the loss of £5 billion in public funds through overpayment, fraud and error, although it has certainly done that. Most gravely, it is a situation that has seen many of Britain’s poorest families facing the prospect of repayment demands, and many others scared off even applying for tax credits, in case they receive such demands further down the line. That should alarm the Government.

Sandra Osborne (Ayr, Carrick and Cumnock) (Lab): I do not deny that there have been bureaucratic problems that have caused distress to a number of people, but tax credits have also helped many families out of poverty. What would be the hon. Gentleman’s alternative?

David Mundell: As the hon. Lady knows, Opposition Members have made it very clear that they would retain the tax credit system but would make it work effectively.

Jim Sheridan: How?

David Mundell: It is very clear how the system could be made to work more effectively. It is about giving people the right amount of money to which they are entitled. It is about dealing with bureaucracy. It is about not clawing back money from people who can ill afford it. It is all very well for Labour Members to jest
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about the topic, but they have had 10 years to get the system right, and they have failed to do so.

Mr. Carmichael: The hon. Gentleman spoke of “clawing back” tax credit overpayments from people who could ill afford to repay the money. Is it now his party’s policy to write off tax credit overpayments?

David Mundell: If the hon. Gentleman had been listening to my speech, he would have heard that it is our party’s policy to get people’s tax credits right the first time.

I said that many people had been discouraged from applying for tax credits because of errors in administration, but, as the House must know by now, many more people who were eligible were deterred from going near the scheme in the first place, for the reasons that we have just been discussing. The same complexity that makes the scheme difficult to administer also makes it difficult to access.

Take-up of working tax credit by people without children is only 22 per cent. I remind the House that as well as being one of the principal weapons in the Government’s anti-poverty armoury, tax credit is likely to be one of the key routes through which the Government attempt to provide compensation—or so they say—for their abolition of the 10p tax rate. Given such a low take-up, it is hardly surprising that the report on child poverty by the Scottish Affairs Committee features the constant refrain that the tax and benefits system needs to be simplified. That is what the Conservatives have said almost since the moment that the Prime Minister, as Chancellor, took control of it, and I hope that we are now beginning to see a consensus.

Miss Begg: Before the hon. Gentleman moves on from tax credits, I would be interested to hear him clarify the point he is making about bureaucracy. One of the reasons why tax credits are often overpaid is the way in which the system works to ensure that people do not constantly have to give information about income changes; the system contains an element of rationalisation. Is it the Conservative party’s position that such reconciliation should take place monthly? That would be even more bureaucratic, which is why the Government did not go down that route.

David Mundell: Our position is that where people have identified that they are being overpaid tax credits, they should have the ability to pay the money back. As the hon. Lady knows, they do not have that ability at the moment.

Jim Sheridan: Following on from the question asked by the hon. Member for Orkney and Shetland (Mr. Carmichael), may I ask whether the Conservative party agrees that there should be an amnesty for those whose tax credits have been overpaid?

David Mundell: As I have made clear to the House, we believe that the tax credits system should be sorted out. The hon. Gentleman’s party has had the time to sort out the system, but it has failed to do so: a Conservative Government will do it.

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Given the number of times that the words “simplify”, “simplification” and “simpler” appear in the Red Book, I do not think that the Government are listening to what is said about the tax and benefits system. I was going to say that “simple” appears to be the new buzzword, replacing “prudence”—although I admit that it would be grossly unfair to use that term to describe the Prime Minister. I suppose people now realise that it was equally inaccurate to describe him as prudent. At its most serious, the complexity of the system has allowed all the Government’s initiatives to pass many of the most seriously impoverished families completely by. There is real concern that many are unaware that they might be eligible for some of the plethora of different types of benefit on offer, or may not have the confidence to complete a complicated means-testing process.

It has been stated that

Those are not my words; they are those of Save the Children’s severe child poverty report of last year. The sad state of affairs even led the Scottish Affairs Committee to ponder whether increasing the level of the old-fashioned universal child benefit might be the only way in which the Government would be capable of getting help to those who need it most. What is the point of having such a complex and expensive system of targeting support as the tax credit system if the bullseye of that target is left untouched?

Ms Katy Clark (North Ayrshire and Arran) (Lab): Surely the hon. Gentleman must appreciate that during the 18 years in which his party was in power between 1979 and 1997, this country’s child poverty doubled and became the highest in Europe, and that since Labour came into power in 1997, some 600,000 children have been taken out of poverty? Does he not think he is in a very difficult position to give anybody advice about how to end child poverty in this country?

David Mundell: I do not accept the hon. Lady’s proposition at all. In fact, her contribution typifies the approach of Labour Members, who wish to focus entirely on the past, and not on the future or on their inability to meet the targets that they set for themselves.

It is unfortunate that Labour’s policies were all calculated on the basis of a very narrow measure of poverty: having less than 60 per cent. of average median income, adjusting for family size. On that basis, the Government set a target of halving child poverty by 2010 and eliminating it by 2020. Although I share that aspiration, I would point out that progress to date has been largely achieved by moving hundreds of people who were receiving a few pounds a week less than the poverty line to a position in which they receive a few pounds more. In other words, the Government have been able to present themselves in a favourable light to the media without letting on that the problems of very severe poverty have largely been left untouched.

So, if we accept that the system is unnecessarily complex, we must consider why it has been constructed in such a way. While I do not dispute that the current Prime Minister—the previous Chancellor—may be attracted to complexity for its own sake, a far more likely explanation is that the Government were determined to micro-manage the incomes of millions
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of Britons. Some have speculated that this was for ideological reasons. Others have said that it was to make people think that they were in some way dependent on the Government’s staying in power. The most innocent explanation is that the Government wished to create a system that did not waste money and targeted help where it was needed, even if that has not been achieved in practice. This is not the place to speculate on which motive was most likely, as more important issues are at stake.

The most important issue is that this very heavy means testing has imposed high marginal rates of taxation on many low-income families and has therefore undermined the incentive for parents to take on a job, work more hours or move up the career ladder. The Treasury itself says that

An illustration of how many people suffer such disincentives is the fact that more than 2 million working people in the UK stand to lose, in a vicious combination of increased taxes and cuts in their benefits, more than half of any increase in earnings that they make. The abolition of the 10p tax rate will exacerbate this situation even further. Notwithstanding the compensation package that has been forced out of the Government, the number will rise to more than 2.25 million.

If we take the problem of high marginal taxation at its most extreme, some 160,000 people in Britain would keep less than 10p of each extra £1 that they earned. To put that into perspective, that is three times the entire population of Inverness. For working an extra hour, often in hard jobs, those people would earn only a few more pennies.

The high rates of marginal taxation have led the Institute of Fiscal Studies to conclude that although the Government’s over-reliance on means-tested benefits may reduce measured child poverty in the short term,

In short, I very much accept that tax credits are an essential part of modern welfare policy, but I want to see them simplified, and the disincentives to work that are the unintended consequence of the system reduced.

I also want to see much better support for people looking to get back into work, with effective practices adapted from other countries and an expectation that the unemployed, if able to do so, will take part in welfare-to-work programmes.

Miss Begg: The hon. Gentleman mentions incentives to work. Do the lessons that the Conservatives are learning come from Wisconsin in the United States, which provides huge incentives to work, because people there get no money unless they do?

David Mundell: The hon. Lady has chosen to characterise the Wisconsin scheme in a way that meets her political objectives rather than according to the facts. We will bring forward comprehensive policies to encourage people to move from welfare to work.

Tax credits may be an essential part of a modern welfare policy, but they are not the only approach, and
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the Government have rather neglected the others. Particularly, they have failed to see that correcting the symptoms of poverty, such as low wages, has to be complemented by attacking the root causes of poverty, including educational failure, family breakdown, indebtedness, drug abuse and crime. How the Government and Scottish Government can do that will form the second part of my contribution.

Of course, the education system in Scotland is the responsibility of the Scottish Parliament and the Scottish Government. I shall therefore not dwell too long on the subject save to mention its importance in the context of this debate and to give a short synopsis of what my colleagues in the Scottish Parliament have said on the issues.

The education system is important to this debate because its products are the parents of tomorrow. If they can get themselves established in a skilled job when they leave education, when they go on to have children those children are unlikely to grow up in poverty. As poverty is a generational issue, their children’s children, too, will have their risk of growing up in poverty dramatically reduced.

Unfortunately, the Scottish schools system fails to set many children on the path towards a skilled job or further study. Indeed, a higher proportion of young people are not in education, employment or training in Scotland than in any region of England, or any other country in the OECD. This represents an enormous waste of human potential, and has been estimated by the Scottish Government to cost as much as £1 billion per annum.

I believe that that is the legacy of decisions stretching back many years over how our education system should operate. Those decisions were often made to satisfy left-wing ideology or notions of political correctness, rather than being based on pragmatic consideration of what worked best for the children. The one-size-fits-all approach must be left in the past. Ironically, the efforts of the left to help the poor have often been counterproductive. It is time that vocational education in particular was opened up to those in their early teens who are not interested in, or not suited to, the current curriculum.

As for family breakdown, what we say and do in Westminster has a great effect in Scotland. Scotland has one of the highest rates of family breakdown in Europe, yet the Prime Minister’s tax credit system penalises couples for staying together. Couples with children can receive more money by living apart, or claiming to live apart. The cost of the so-called couple penalty can reach into the thousands. The Government’s policies discriminate so heavily against families with two parents that it is harder for couple families to escape poverty. As a result, the risk of poverty has hardly changed for children in two-parent families since 1997, and rose last year from 21 to 23 per cent. across the UK. In addition, 60 per cent. of poor children live in couple families.

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