Examination of Witnesses (Questions 220-239)
MR DAVE
RAMSDEN, MR
MIKE WILLIAMS,
MR EDWARD
TROUP, MS
SARAH MULLEN,
MR CHRIS
MARTIN AND
MR SIMON
GALLAGHER
18 MARCH 2008
Q220 Nick Ainger: It is interesting,
on this social tariff issue, that nobody has been able to explain
so far who is going to qualify for this social tariff. Will it
be those on income support? Will it be those on pension credit?
How many people have you estimated would qualify for the social
tariff because if it is an extra ten million that is not a lot?
Mr Martin: No, that is a perfectly
reasonable point. The straight answer to that is that we need
to do the work and do the work with companies. One of the problems
there is around targeting additional spending, whether it is from
the Government or from companies themselves, on people who are
fuel poor, is identifying the groups. There are particular issues
around the data we have and the data the companies have, and,
to be honest, some of the instruments you use are quite crude.
You do not necessarily hit the people you really need to hit.
What we are hoping is that by having a process of discussion—and
we are pretty open-minded about what the right way to deliver
this is; it might be social tariffs, it might be other kinds of
mechanisms—the real priority for us and I think for the
energy companies as well is to make sure that that is really targeted
on the people that need it most so that you get, if you like,
the biggest bang for your buck, and that is an important part
of the way SERT works as well in that a large part of that obligation
is targeted on the over-seventies, but we hope we would get a
pretty efficient impact out of the spending. We do not have a
detailed design now. We want to sit down with the companies and
work out, as I say, what is the best way, within the constraints
of data protection, to match the information we have got and the
information they have got and make sure that the additional resource
is focused on the people that need it most.
Q221 Nick Ainger: Has the oil industry
been represented in the discussions that have taken place with
the Chief Secretary?
Mr Martin: The discussions were
with the energy supply companies.
Q222 Nick Ainger: So it is not with
the oil industry which supplies the energy companies?
Mr Martin: No. It is with the
energy suppliers.
Q223 Nick Ainger: If you cannot reach
a reasonable agreement voluntarily with the energy supply companies
on what criteria do you decide you are then going to legislate?
Mr Martin: We are confident, because
we had a very positive response from the supply companies, that
they see the need to do more in this area, that we will be able
to reach that agreement. We have said that if necessary we will
legislate but at the point at which we are going into discussions
we want to go into discussions with the presumption that we can
achieve agreement rather than waving the stick too much at the
moment.
Q224 Nick Ainger: Finally, on the
£570 million which is going to be spent from October of this
year with the winter fuel allowance, are you saying that the energy
companies for October 2009 would first of all be required to find
£570 million to substitute for the money that the Treasury
will withdraw from the winter fuel allowance?
Mr Martin: The payment this year
is a one-off, as the Chancellor made clear. We are expecting from
the following winter to be in a position where there is this trebling
in the support from the supplier companies, plus we have additional
measures and we want those measures to be very focused on the
fuel poor. We want to make sure we design a scheme that does that
with the ultimate ambition of making sure we achieve our targets
on fuel poverty.
Q225 Nick Ainger: So many pensioners
are likely to see their winter fuel allowance fall in 2009?
Mr Martin: The decision about
what happens in 2009 will be for the Chancellor to make in his
Budget next year.
Q226 Mr Fallon: Mr Williams, can
we come back to the poverty trap? Can you turn to page 62 of the
Red Book and explain to me why table 4.2 conceals the increase
of 200,000 people now facing a marginal tax rate of 60%?
Mr Williams: The table shows the
number of people who face deduction rates of over 60% in 2008-09.
Q227 Mr Fallon: Yes. Why does it
conceal the increase of 200,000 over the current year?
Mr Williams: I do not think it
does conceal anything, Mr Fallon. What it does is set it out in
conformity with what we have set out in previous tables. If you
look to the 2007 Budget document there are the figures there for
2007-08.
Q228 Mr Fallon: Will you confirm
that the increase in the number of people facing a marginal deduction
rate is of the order of 200,000?
Mr Williams: Yes.
Q229 Mr Fallon: Why is that?
Mr Williams: The main reason for
that is partly, indeed primarily, as a result of the 2007 Budget
measure that introduced extra help through tax credits from 2008.
That brought more people into tax credits, the result being that
more people then faced higher marginal deduction rates.
Q230 Mr Fallon: So it was a decision?
It is deliberately clobbering another 200,000 people? This is
deliberate?
Mr Williams: It is certainly a
consequence that follows from the fact that more people were given
access to tax credits.
Q231 Jim Cousins: I wonder if you
think you can achieve your broader social policy goals with these
very high marginal tax benefit deduction rates.
Mr Williams: I think, Mr Cousins,
that there are important trade-offs that you have to consider
in this area and we cannot pretend that there is a perfect answer.
There is not a perfect answer. You could go for universal support,
as, of course, has been done with child benefit, but in that situation
you are not targeting the public resource on those who need it
most and that leads inevitably to one of two consequences: either
you have to spend more to provide that level of support for the
poorest or on the other hand you support the poorest less, so
that is universal support. You could equally go for a very steep
cliff edge with very high marginal deduction rates which would
leave a smaller group of people affected by high marginal deduction
rates, but then you are leaving those people with a massive disincentive,
or, which is what the Government has done, you can focus resource
on the more needy and then gradually withdraw that through a taper.
Q232 Jim Cousins: What estimate do
you have of the number of childless couples or single people who
would be eligible for a working tax credit on income grounds but
who do not actually claim it?
Mr Williams: The best estimate
we have for that, I think, is from 2005-06 where there are a significant
number of those, but if I recall correctly that number fell then
by six percentage points, so the position is not as good as we
would like it to be but is improving.
Q233 Jim Cousins: That significant
number that you have referred to was four out of five people entitled
to the working tax credit without children who are eligible but
not claiming it. Four out of five did not claim it. That is the
significant figure you are referring to, is it not?
Mr Williams: I would need to check
that, Mr Cousins. Certainly there is less claimed in those circumstances
than, for example, with the child tax credit.
Q234 Jim Cousins: Mr Williams, taking
the various elements of policy together, the withdrawal of the
10% tax band, the income tax changes, the changes to tax credits
and child benefits, and, of course, the large numbers of people
who are not eligible for them, and then taking into account the
policies on public sector pay, how many people with incomes less
than £18,500 a year will be experiencing a fall in their
standard of living and real disposable income in the next tax
year?
Mr Williams: We have distributional
analysis, which I am just searching for, which I think shows that
overall, to the extent that there is a change in—
Q235 Jim Cousins: Mr Williams, do
you accept that at this rather important moment in the British
economy we have contrived a situation in which, on the basis of
the Government's policies, millions of people on incomes less
than £18,500 a year are going to experience a fall in their
standard of living? Do you accept that?
Mr Williams: If we look at the
analysis for the distributional impact, that analysis shows that
most people will gain from these changes, such as, for example,
tax credits, where—
Q236 Jim Cousins: But we have just
established that the great majority of people who would be entitled
to the working tax credit do not actually claim it, and then there
are all the people with growing numbers of jobs where the hours
worked are less than 30 a week so they cannot claim the tax credits,
and then there are all the people under the age of 25 who are
not eligible, unless they have children, for the working tax credit.
Then there are all the low-paid workers who will suffer because
of the loss of the 10% tax band. I am asking you how many millions
of low-paid, low income workers will there be who this forthcoming
year will experience a fall in their real incomes?
Mr Williams: That goes back to
whether or not they claim tax credits to which they are entitled.
Q237 Jim Cousins: But, Mr Williams,
if they do not claim them, for whatever reason, and part of the
reason they do not claim is because of the difficulties that people
on tax credits who are in insecure jobs at low incomes face and
who do not necessarily want to face these high tax benefit withdrawal
rates. The reality of the situation is that most people entitled
to the working tax credit do not claim it. That is the fact. Therefore,
Mr Williams, how many people will there be this year who earn
less than £18,500 a year who will face a fall in their standard
of living?
Mr Williams: The other reality
as regards the working tax credit—
Q238 Jim Cousins: How many people
will there be on less than £18,500 a year who will face a
fall in their standard of living because of a combination of the
tax changes and the policies on public sector pay? There will
be millions of them, will there not?
Mr Williams: The reality, Mr Cousins,
is that take-up of the working tax credit, which I agree has not
been as good as we would have liked, is increasing. That is also
an important reality to bear in mind, and steps are being taken
to draw the attention of people who can claim that tax credit
to the fact that it is available, and that is having some success.
More people are claiming the working tax credit.
Q239 Jim Cousins: A combination of
these policies is going to lead to a fall in the standard of living
of almost everyone earning less than £18,500 a year. That
is the fact, is it not?
Mr Williams: In most cases most
households in the bottom fifth of the income distribution will
gain from personal tax and benefit measures coming into effect
by April 2010 compared to this year, 2007-08. I think that is
the most significant fact.
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