Examination of Witnesses (Questions 60-79)
MR JOHN
WHITING, DR
MARTIN WEALE
AND MR
ROBERT CHOTE
17 MARCH 2008
Q60 Chairman: Do others share that
view?
Dr Weale: Could I say that in
some ways the surprise is the sort of thing that should not have
been a surprise. In the chapter on an environmentally sustainable
world you read in the third bullet point, "The planned increase
in Fuel Duty has been delayed" and a mix of measures, which
with respect to motor vehicles are likely to be less successful
than using Fuel Duty as a means of promoting an environmentally
sustainable world.
Mr Chote: To be honest, there
was more on child poverty than I would have expected, more progress
made there. Less attractively, there was another collection of
one-off measures that we will wait to see how one-off they are
and, as Martin says, the Fuel Duty delay. The justification for
delaying is that you are doing that to support the economy. But
saying that in a £1.4 trillion economy whether you raise
Fuel Duty by £500 million now or in October is going to make
a great deal of difference seems to me at odds with experience.
Chairman: On that point of child poverty,
that is a cue for Sally and George.
Q61 Ms Keeble: Do you agree with
the Government's assessment that the measures in the Budget will
lift an extra quarter of a million children out of poverty? Do
you think it will be the seriously poor or the marginally poor
who will be lifted out?
Mr Chote: I think on the 250,000
number—we would end up with 200,000 to 250,000. Given the
uncertainties around this, that looks okay. We have not done a
projection comparing the impact on, say, below 40% or below 60%
so I could not give you a judgment on that, but my guess would
be that as with the pattern recently you are likely to see more
people moving from relatively close below 60 to above it rather
than much change in the number below 40, but that is based on
the past.
Q62 Ms Keeble: Will you be doing
a study on that? Could you give us a note? That is quite key in
terms of potentially meeting the longer term targets, is it not?
Mr Chote: The next time we will
look at it is when the next set of HBAI numbers come out, which
we are expecting in the next few weeks, and it will be interesting
to see whether the pattern of the past has been repeated, in other
words more movement around the 60% line than around 40%. As you
know, the difficulty is that the further down the poverty scale
you get the more ropey the numbers become.
Q63 Ms Keeble: The emphasis is on
splitting the improvements between universal and in-work benefits,
targeting in-work benefits. Do you think they have got the balance
right and what impact do you think the measures will have on incentives
to work?
Mr Chote: This is a Budget that
probably does more for the incentive to enter work than to advance
in the labour market. It is the unemployment trap versus the poverty
trap. You are talking about the changes in disregards as affecting
Housing Benefit and Council Benefit that may provide a useful
incentive for people to get into work in the first place. More
generous Child Tax Credits, being means-tested, probably does
less for the incentives to work a little bit harder and earn a
little bit more. Arguably it is probably doing more at the margin
at which the Government can have greater effect, the extensive
margin of getting people into work, than it does on getting people
to advance a little further in the labour market. In terms of
the balance, some mixture of the two can certainly look appropriate
but the difficulty is that you do not get as much bang for your
buck in terms of reducing the target measure of child poverty
by going for something like Child Benefit because a lot of it
is spent on people who are well above the poverty line anyway.
If you were then to think about what more might still need to
be done to get you to the 2010 target, throwing it all on to the
child element of the Child Tax Credit would probably create more
difficulties with work incentives, so you might want to think
of a package which included some money there but also some money
on the family element, say for larger families which are more
prone to poverty, so a mixture of the two is appropriate.
Q64 Ms Keeble: Just on the point
of the disregard. You mentioned that in terms of it being an incentive
for people to get into work and I wonder if you could expand on
that. I have to say, I was a bit taken aback because when I went
to a primary school to talk to the mothers about this and said,
"Isn't it wonderful this is happening", they said, "Oh,
but they disregard it anyway", which completely threw me.
I wonder if you could just say exactly what the rules are now
and how this ends up being an incentive to people to get into
work because it just provides them with more money in their hand.
Mr Chote: How exactly this works
would be stretching beyond my feeble capabilities. You are right
in the sense that there is already a disregard, but for people
who are hitting the 16 hours of work it is effectively to give
an extra income disregard equal to the amount of Child Benefit
that you are getting.
Q65 Ms Keeble: There is already a
disregard?
Mr Chote: There is already a disregard,
so it is like giving a disregard twice.
Q66 Ms Keeble: So it is an extra
disregard?
Mr Chote: Yes, but it is linked
to the amount you are getting in Child Benefit. If it is understood
by the people who are intended to receive this they are brighter
people than I am, I have to say.
Q67 Ms Keeble: I have to say it shocked
me a bit because I had not spotted it. You said what more would
be needed to reach the 2010 target. What is the bottom line for
the Treasury in how much that will cost and how should it be split
between in-work benefits or more simple cash transfers?
Mr Chote: One way of hitting the
2010 target, our best guess would be that if you were to increase
the child element of the Child Tax Credits, the means-tested element,
by £7.50 a week and then give a new payment of £12.50
a week for the third and subsequent child through the family element,
which is obviously not means-tested away until much higher up
the income distribution, so you are limiting the increase in the
marginal rate at that point, that would cost £2.8 billion.
That gives you some sense of how much more money there is to find.
If you think that they have reduced child poverty by 200,000 to
250,000, let us say 250,000, they are probably still 450,000 short
of the target. So you would be needing to do another 2.8 billion
or so, so two or three similar sorts of steps to the ones we have
seen in this Budget taken in the remaining Budgets and Pre-Budget
Reports before the target date.
Q68 Ms Keeble: We have talked about
this before, but how about going into work as a solution to child
poverty, particularly given the prospects of increased unemployment?
Mr Chote: It does not make much
difference on the timescale for 2010. If you were to achieve the
Government's lone parent employment target it would probably cut
the amount you needed to spend by about 200 million. That was
the calculation we did a year or so ago. It shows basically that
success on that front does not really get you very far in terms
of the near-term target, so it is either transfer payments or
nothing at this stage.
Q69 Mr Mudie: Robert, can I ask you
to brief me before I have my annual joust with the Treasury over
this. You have just shocked me by saying with the present measures
there is only 450,000 left. Tell me where you think we are with
child poverty. First of all, let us see the target. The target
is 1.7 million by 2010-11 and it started off with 3.4 million
and my maths say it is 1.7.
Mr Chote: Our view was that before
yesterday on current policies they would have ended up 700,000
short of where they wanted to be by 2010-11. I do not have the
precise number on me.
Q70 Mr Mudie: In the Budget book
they say considerable progress has already been made of some 600,000
children. I do not think that includes the 200,000 from the 2007
Budget, so if we add that, that is to 800,000. If you add 250,000
on for this Budget that just takes you over the million and that
means there are 700,000 children short of target.
Mr Chote: The latest numbers we
have are for 2005-06. We will get the 2006-07 numbers this coming—
Q71 Mr Mudie: You do not trust the
Government's Budget book?
Mr Chote: You just have to remember
we always have to take account of the fact that we know there
was a relatively ungenerous year of benefit increases to be reflected
in the next set of child poverty numbers.
Q72 Mr Mudie: What was the quarter
target, 2004-05? I calculate, and Colin calculates, that it would
be 850,000 children. That was a quarter target. Do you know how
many they did?
Mr Chote: I do not have that on
me. They missed it and they moved further away from it in 2005-06
by 100,000.
Q73 Mr Mudie: Your organisation reviewed
one of the two pilot schemes, if not both pilot schemes, on the
saving gateway. How do you view the proposals against your organisation's
review?
Mr Chote: There are a number of
decisions they still have to take on how to go ahead with this.
The lesson that emerged from the pilots, which I think the Government
has accepted, is this is more effective to the people on lower
incomes than higher incomes, the lower half of the income range
over which it was piloted than the higher half of the income range.
There was some evidence for the people who did show an effect
that they did increase the amount of money they had in liquid
financial savings, they did appear to be spending less but, confusing
matters, if you asked them whether there had been an increase
in their overall stock of assets they said "no". It
may be that is asking a set of complicated questions of people
and the third one is the one they are most likely to get wrong.
It may be there is some evidence that this has at least a short-term
effect on the amount of saving that the target group does. We
do not have evidence on whether that effect will persist and the
policy is being rolled out before we will.
Q74 Mr Mudie: Out of your review
was there an obvious choice for a matched rate? Is the coyness
of leaving it out simply because they do not want to put the figure
in the book in terms of their expenditure?
Mr Chote: Of the matched rates
that were tested—20, 50 and a pound—20 did not seem
to get much response at all, so I would have thought that 50 looks
the most sensible of the three. There is obviously this issue
that they have to deal with in terms of rolling this out in that
how do they stop people effectively borrowing, they go along to
a financial provider who says, "Fine, we will lend you the
money and you can then go and get the match for this and you can
pay us back, you are better off and we are better off", but
that is not achieving what the Government wants to.
Q75 Mr Mudie: We have been having
some discussion about the criteria that they have defined. It
seems heavily weighted in terms of being on benefit, so that is
the passport. Does that leave out any group of low income people
who might not be claiming benefit for a given reason?
Mr Chote: Quite possibly it does.
This is a way of identifying the people on relatively low incomes.
All but one of the passported benefits and tax credits we are
talking about are means-tested. There is Incapacity Benefit where
arguably that may be paid to a partner in a household that is
better off than the target group that they are looking at. You
are certainly right in the sense that if there are people who
are deserving but not achieving that passport then that is a problem,
but they have to make—
Q76 Mr Mudie: That is the point.
Do you think there is a considerable group of people who because
it has been passported at benefits are going to be left out, although
the criteria for the pilots were low income?
Mr Chote: I do not know in terms
of the magnitude of people but clearly there is the possibility
that there are people not taking up those benefits and tax credits
to which they are entitled and therefore might be.
Mr Whiting: One possible group
is obviously young workers who are just starting out who do not
qualify for Working Tax Credits, who are on low incomes, and it
is a moot point whether those are the ones you want to encourage
but in principle they would not be in this broad criteria.
Dr Weale: Chairman, it seems to
me that the underlying issue is the relationship between the saving
gateway and personal accounts. Even with the criteria as they
are defined here there will be some people who, to say the least,
may be confused as to whether they should be putting their savings
into a saving gateway product or whether they should be opening
a personal account. Maybe the Government hopes they would do both
but we are talking about people on low incomes who are unlikely
to want to do both, so even with the situation as it is defined
the Government needs to be clearer and have a view about whom
it is hoping will participate with personal accounts and whom
it is aiming the saving gateway at.
Q77 Nick Ainger: Apologies for not
being here earlier, I had a Statutory Instrument that I had to
be on until now. Crude oil prices have gone from $30 a barrel
at the end of 2004 to over $100 a barrel now. Oil companies' profits
are at record levels: Exxon Mobil made over £40 billion profit
last year; Shell $27 billion. The Budget is putting pressure on
the energy supply companies to provide a uniform social tariff
for all its customers that are on low income or in need. Should
the Treasury also be looking at a contribution from the oil industry,
not just the energy suppliers?
Dr Weale: First of all, on the
question of the social tariff, there are questions about how competitive
the market is because if the market were competitive then you
would not expect the suppliers to be providing the social tariff,
you would expect the costs of needy people's fuel bills to be
met out of State benefit. The situation we have is inherently
a bit peculiar, but it may be a reflection of the fact that everyone
recognises that the retail fuel market is not terribly competitive.
A separate issue is the taxation of oil companies and, of course,
in the past when oil prices have been very high we have seen windfall
taxes. That takes you into the broader question of whether for
domestic production the royalty taxation structure is appropriate
to ensure that the revenues generated by very high oil prices
are evenly split, and I suspect out of the oil produced in Britain
the Government could be doing a bit better and the taxpayer doing
a bit less well, so there may be a case for a windfall tax but
logically it is separate from the issue of a social tariff and
how you support people who have difficulty with their fuel bills.
Q78 Nick Ainger: I had a meeting
a few weeks ago with a representative from SWALEC who were complaining
that they offered what they believed to be a decent social tariff
but very few of their competitors did. I cannot remember which
chief executive of which energy supply industry it was, but before
the Budget he said that he felt there should be a statutory social
tariff agreed so that there is a level playing field for all energy
suppliers rather than some being, as SWALEC believe, generous
and others not doing anything. Do you think that the social tariff
should be on a statutory basis as a specific requirement for all
energy suppliers?
Dr Weale: In networks we do typically
have people having social obligations and this is a case where
because the market does not work in the way that a competitive
market would be expected to, the particular people we are talking
about maybe finding it particularly difficult to shop around for
their most competitive supplier, so there is a case for putting
it on some sort of statutory basis but I still think the issue
is distinct from the fact that prices happen to be particularly
high at the moment.
Q79 Nick Ainger: One of the problems
which applying a social tariff has is in identifying those people
who should be receiving it. Again, from the discussion I had with
this gentleman from SWALEC the problem is that central and local
government do not want to give energy supply companies a list
of people who are in receipt of Pension Credit or on Income Support
or Disability Benefits, so they cannot actually target them and
you are left with those people who may be least capable saying,
"I do qualify for the social tariff" actually not claiming
it. They feel that it should be the other way round, they should
be given those households which are in receipt of certain benefits
so they can identify them and make sure they do get the social
tariff. Do you think that should be happening?
Dr Weale: Well, the reality is
people may come across special issues like that, but in general
they are terribly sensitive about personal information being dispersed
widely and in Britain, perhaps more so than in some other countries,
people are terribly worried about privacy and you cannot have
both.
Mr Whiting: Can I add a couple
of brief points. Certainly I would echo Martin's point about the
difficulty of the administrative burden that might be created
if there is a great deal of tying up to be done, which is one
of the concerns electricity companies would have. Also, reverting
to your first point on oil companies, if you look at it they are
some of the biggest taxpayers in the country at the moment because
as the oil price goes up they are paying more and more in Corporation
Tax, oil taxation, et cetera. From research my own firm has done,
we see them as the UK's biggest taxpayers at the moment. They
are certainly paying a very substantial amount into the Exchequer.
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