Examination of Witnesses (Questions 360-379)
RT HON
ALISTAIR DARLING,
MR DAVE
RAMSDEN, MR
MIKE WILLIAMS,
MR EDWARD
TROUP AND
MR SIMON
GALLAGHER
19 MARCH 2008
Q360 Mr Love: The inference of the
Committee was first of all whether they did pay tax. I think you
have resolved that issue for us. The question then becomes people
much further up the income scale are receiving very significant,
interest and tax free savings vehicles. Why does it not happen
for the low paid?
Mr Darling: Except that in the
scheme there is an element of match funding so that people saving
this way will get money from the state in a different way to getting
it through tax relief. We will keep all these things under review.
The most important thing is to get the scheme properly established
on a national basis. It has been one of our objectives as a government
for over ten years now to encourage people to save who historically
have not done so. Inevitably, we are going to have to do this
in stages but I think it is a pretty good thing to be encouraging.
Q361 Nick Ainger: I have some questions
about fuel poverty. We were told yesterday that the one off payment
which will be for the winter of 2008-09—
Mr Darling: The winter fuel payment?
Q362 Nick Ainger: Yes. The extra
£50 for the over sixties and the extra £100 for the
over eighties, we were told yesterday, was going to cost £575
million. We were also told that the negotiations with the energy
suppliers with a view to bringing in a new social tariff regime
for 2009-10 would produce hopefully £150 million which is
100 million more than is currently available. Is it your intention
for the Treasury to make up that shortfall because there is a
shortfall in what people will be expecting, having received their
additional winter fuel allowance in this coming winter. The following
winter, if they even receive a social tariff, it will be substantially
less than they will have been receiving with the additional winter
fuel allowance.
Mr Darling: I see the two measures
as being complementary rather than one being in substitution for
the other. Any decisions in relation to future payments on winter
fuel are taken on a Budget or pre-Budget basis. I know there have
been times when we have balanced things in the longer term but
basically these decisions are rather like pension increases and
so on and are taken on an annual basis. There is a broader issue
in relation to what we are asking the energy companies to do.
As you rightly say, they have been paying about £50 million
a year into social tariffs. We think they could be doing more
than, especially at this time, so we are working with them to
raise that to £150 million or thereabouts. The second element
is also worth mentioning because I think it is important. People
accept that if you have a prepayment meter there is an additional
cost. I have seen evidence to suggest that some people using a
prepayment meter are paying up to £400 more a year than people
on direct debit. That cannot be right because the people on the
prepayment meters are usually on low income. One of the things
that we are working on is to reduce that discrepancy. I am told
that the cost of a prepayment meter is about £80 a year more,
not 400, but I think it is important that when people get into
difficulties or if they are on low incomes they should not be
put in a position where they are paying an awful lot more than
somebody who may be very well off.
Q363 Nick Ainger: We were told yesterday
that the discussions on the social tariff just involved the energy
supply companies.
Mr Darling: That is right.
Q364 Nick Ainger: Who are regulated.
The massive profits that have been made in the energy sector have
not been made by the energy suppliers. They have been made by
the oil and gas producers.
Mr Darling: The generators, you
mean?
Q365 Nick Ainger: Yes.
Mr Darling: The European Emissions
Trading Scheme windfall?
Q366 Nick Ainger: No. I am talking
about purely the profits that Exxon, Mobil, Shell, BP, etc., have
made because of what has happened in the energy market globally.
Their costs have not really increased but their profits have massively
increased. I just wonder why, as they are if you like the suppliers
of the energy supplying industry in this country, they have not
been involved in any way in the discussions trying to involve
them in a contribution to the social tariff, rather than just
looking to the energy supply companies to make their contribution.
Mr Darling: Quite simply because
the present regime which allows the payment of social tariffs
which is covered, I think, in the current Energy Bill affects
electricity and gas suppliers. The corporations you refer to—the
oil companies if you like—would pay corporation tax or,
if they are operating in the North Sea, they will pay under the
North Sea tax regime there. They pay their taxes that way. The
regime governing the supply of energy to consumers is dealt with
separately and the legislation is separate. That is why we decided
we would concentrate on the energy companies.
Q367 Nick Ainger: I am not suggesting
we use taxation. The social tariff is not suggesting it uses taxation.
It is a voluntary scheme and I am just surprised that major players
in the energy supply industry, the oil companies themselves, have
not been involved or been invited into the Treasury to take part
in the social tariff contribution.
Mr Darling: Quite simply, we want
to make progress on this and we think it is appropriate that we
should deal with the suppliers. The further back you go in the
supply chain, I suppose the wider the group of people you have
to talk to. My general observation is that they make their contribution
through the taxes that they pay.
Q368 Nick Ainger: The social tariff
will only cover mains electricity and mains gas. What about rural
consumers who are dependent upon central heating oil supplied
directly by the oil companies and LPG? Those two sources of energy
have seen the biggest percentage rises and have significantly
increased fuel poverty particularly in rural areas but there is
no social tariff to cover those two products. Should we not again
be looking to the oil companies to come up with some sort of social
tariff for those products?
Mr Darling: I appreciate the point
you make in relation to that. I cannot say that we have resolved
the problem but it is certainly something we can look at.
Q369 Nick Ainger: Finally, the concern
that I know one energy supply company has is how to identify consumers
that should be in receipt of the social tariff. Obviously there
is reluctance for the DWP to provide information on those in receipt
of income support or pension credit, for example, if you are going
to use that criterion. Have you given any thought to how and how
many people are going to qualify for the social tariff and how
that information should be passed to the energy supply companies?
Mr Darling: This is something
that we are discussing in government. On the face of it, you might
think: why do we not just give the electricity companies or the
gas companies the names of people receiving benefits. There is
a real difficulty in that there are some people who just do not
want that information passed on. They have every right to have
their privacy respected just as you or I have. What we are doing
is to see whether or not there is some way round this. We are
discussing it within government. There ought to be a way round
it because we know who people are who are likely to be fuel poor.
I can quite see the difficulty that, if somebody is getting benefit
and they do not want their name passed on to a supplier, they
are entitled to say, "Sorry, I do not". I would have
thought it was possible to resolve this by at some stage asking
somebody, rather like you tick boxes on your postal vote for example,
"Do you wish to appear on the general register or do you
not?" It ought to be possible to get round that.
Q370 Mr Fallon: Turning to marginal
rate deductions, why will there be nearly 1.9 million people,
an increase of 200,000, losing over 60% of their earnings in tax
in the year starting April?
Mr Darling: Quite simply because
if you increase the amount of tax credits that people get—and
we do that for perfectly good reasons because we want to increase
their income—it follows of course that when they come off
the working tax credit, depending on how long the taper is, there
will be a point where the marginal rate deduction increases. This
is always a problem. When you decide you want to increase people's
incomes through the tax credit system, the down side is that when
they come off it there might be a disincentive there. You try
and avoid that by a taper but of course the taper will then take
you further up the income scale. There are ways in which you can
mitigate that but I would not want to get myself into a situation
where frankly I did not increase the incomes of people if I thought
that was the right thing to do.
Q371 Mr Fallon: Your former Cabinet
colleague, Stephen Byers, said in the House on Thursday that this
was "an unacceptable situation for a progressive government."
He said that was because it mainly affects people earning less
than 20,000 a year with children, who are school dinner ladies,
hospital cleaners and so on. You have been running your tax credit
system for five years now. What I want to know is why is it getting
worse?
Mr Darling: It is not getting
worse. It is benefiting an awful lot of people in this country.
Q372 Mr Fallon: This figure is getting
worse. It has gone up 200,000.
Mr Darling: If you take the view—I
do not know whether you do or not—that tax credits are a
bad thing and you want to get rid of them, then say so. If you
give people in work benefits or even out of work benefits, you
always run a risk that there comes a point when they come off
the tax credit system or the benefit system, as the case maybe,
when there could be a disincentive in the system unless you taper
it out on a longer basis.
Q373 Mr Fallon: Why is it getting
worse? Why are there another 200,000 people caught in this trap?
Mr Darling: Because what is happening
is that we are giving various groups of people more money in order
to boost their incomes. You may think that is a bad thing. I think
that is quite a good thing, though I accept that the penalty one
pays is that, if one does that, there can be a higher marginal
rate of deduction.
Q374 Mr Fallon: Will it get better
ever?
Mr Darling: What do you mean by
"better"?
Q375 Mr Fallon: Will the number of
people caught in this trap reduce over time?
Mr Darling: You mean are we going
to reduce the amount of tax credits we pay?
Q376 Mr Fallon: No. When you came
into office there were three quarters of a million people caught
in this trap. Now there are 1.9 million. What I want to know is
whether you structure that number ever going down.
Mr Darling: There are two great
advantages of the tax credit system. One is that we can get money
to people who need it most. The second thing is it has meant that
unlike in the past it makes work pay. I think that is a good thing.
One of the reasons that we have nearly three million people in
work is because work has paid for a lot of people. You are right
though that if, as a matter of policy, you decide that you are
going to give more money to people on tax credits, then you do
have this marginal deduction rate problem but I think that is
a better problem than a situation where frankly it does not pay
to work or, put another way, you are not giving people on low
incomes sufficient money so that they reach the conclusion that
it does not pay to work.
Q377 Mr Fallon: You are not going
to do anything about it?
Mr Darling: I did not say that.
Q378 Jim Cousins: Do you not accept
that there are millions of workers who cannot go on tax credits
or who choose not to, whose incomes are likely to fall in these
next few months because of a combination of withdrawal of the
10p tax rate, the 2% pay policy and the absence of any firm proposals
in the Budget to deal with every day shopping costs which are
rising steeply and every day heating and lighting costs which
are also rising steeply?
Mr Darling: In relation to heating
and energy costs, I was discussing a moment ago through Nick Ainger's
questions some of the things we are doing there. Also in relation
to the tax credits, I accept the point that I think you raised
yesterday that there are some groups—
Q379 Jim Cousins: Very large numbers.
Mr Darling: That is right. There
are particular groups who would be eligible for the working tax
credit who are not taking it up and that is something that we
need to do something about. Sometimes people do not know about
it. There may be other reasons as well but if it is available
for people in work then I would like to see them take advantage
of that. Of course in addition to that, the fact is that there
are more people in work who have increased their incomes. The
pay policy I will come back to. It is a slightly different issue.
On top of that, through normal pay progression, people will be
earning more. I accept that we still have more to do to make sure
that progressively through the system, as people go into work,
it actually pays to work. On the public sector pay position, you
know our position in relation to the inflationary pressures that
we were facing a year ago. However, it has to be said that if
you look at the amount of increase in public sector pay, the percentage
increases over the last ten years, there are many people working
in the public sector who have seen very considerable rises compared
with ten years ago.
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