The Financial Secretary to the Treasury (Mr. Stephen Timms): I beg to move,

I start by welcoming you to the Chair and to our consideration of what I am sure will be a welcome change, Miss Begg. As hon. Members know, child benefit, together with tax credits, delivers financial support to families with children and is an important element in our commitment to tackling child poverty. The benefit is payable to over 7 million families for about 13 million children and young people. It provides almost every family in the UK with a contribution towards the costs of bringing up their children.

The Government are providing further support to families in these difficult times. We brought forward the commitment to increase child benefit to £20 for the first child and to £13.20 for subsequent children to come into effect in January, rather than in April as originally announced. For the first child, that is an increase above inflation and we continue to meet our commitment to increasing child benefit in line with prices. The rate for the oldest qualifying child, which we are now raising to £20, is over 25 per cent. more in real terms than the rate payable in 1997, reflecting our commitment to boosting the incomes of families with children.

In addition, although it is not part of these regulations, the Government are bringing forward the commitment to increase the child element of the child tax credit by £25 above indexation from April 2010 to April 2009, on top of existing commitments to over-indexation. Next year, as a result, a family with two children with a single earner working full time on the minimum wage will receive around £10 extra in tax credits per week. We remain committed to the Government’s long-term aim of eliminating child poverty within a generation and halving it by 2010. Child benefits and tax credits will remain a key part of that aim and I commend the regulations to the Committee.

The hon. Member for South-West Hertfordshire and I were in a debate this morning and we were able to celebrate the birth of his third child yesterday, so he is taking a particular interest in these matters of child benefit. I can confirm that babies born this week are in time to enjoy the full benefit of the increase. His son was born a few hours after midnight on Sunday, so the rules are that his family will not become entitled in respect of their third child until next Monday, 22 December. In fact, that is the longest possible period before child benefit becomes payable and I am assured that the rules have always been that way since child benefit was introduced. By the time the regulations come into force, the hon. Gentleman and his family will be entitled to a total child benefit of £46.40 per week in respect of their three children. That is a good bit of news to take us into the Christmas break.

Mr. David Gauke (South-West Hertfordshire) (Con): May I say what a pleasure it is to serve under your chairmanship, Miss Begg? I thank the Financial Secretary for his kind words and interesting information on what would appear to be unfortunate timing for child benefit purposes, although our position was that the sooner this measure was dealt with before Christmas, the better. I was going to declare an interest with regard to this uprating measure—

Philip Davies (Shipley) (Con): It has been declared for you.

Mr. Gauke: Indeed. As the Financial Secretary said, the measure will not prove hugely controversial. Having welcomed the benefit to the Gauke family finances, it would be unbecoming of me to say that the arrival of Henry Gauke will, of course, provide one more person who will over the decades ahead be able to pay off the £1 trillion-worth of debt. However, now is not the time of year, and nor is this the occasion, to introduce such cheap political points.

As the Financial Secretary says, the regulations implement the child benefit rate increase for the eldest child that was announced in the 2008 Budget and paves the way for the uprating to take place in January, rather than April. Clearly, it will bring support to families at difficult times, and that is to be welcomed. However, I want to question the Financial Secretary on the two points that he made about the uprating. First, he argued that the changes assist in the elimination of child poverty. I do not dispute that, but I should be grateful if I received his assessment of the role that child benefit in particular plays in achieving that objective, given that it is not means-tested. That is not necessarily a criticism of child benefit. There is a lot to be said for universal benefits with regard to issues of moral hazard, but to what extent is child benefit an effective method of tackling child poverty?

The 2008 pre-Budget report stated that since the 2007 Budget, some 500,000 children will be lifted out of child poverty. The same figure was used in the 2008 Budget, as demonstrated at paragraph 4.18 of the Red Book—since 2007, 500,000 children lifted out of child poverty. That means either that the Budget figures overstated the number of children taken out of child poverty, or that the measures announced in the PBR will not lift a single child out of relative poverty. I should be grateful if the Financial Secretary explained which is the case.

More broadly, the Financial Secretary referred to the fact that the Government remain committed to halving child poverty by 2010. Will he explain his assessment of the likelihood of that happening, given that we are many hundreds of thousands short of achieving that target? Indeed, child poverty rose by 100,000 last year. It is a worthy aspiration and objective, but is it one that the Government seriously think that they could still achieve, given that 2010 is not far away?

My second argument about the measure is that it is part of a wider package of policies that are putting a fiscal stimulus into the economy. That is an area where a considerable difference exists between the parties. It would be interesting to know specifically with regard to child benefit proposals what assessment the Government have made of how the additional £170 million, which will be paid in child benefit earlier than would otherwise be the case, will be spent, as opposed to saved. Presumably, the purpose of the fiscal stimulus is to encourage expenditure. That has certainly been stated explicitly about VAT reduction. Is that also intended to be the case with child benefit? Do the Government believe that child benefit is a measure that is particularly effective in encouraging spending?

We have broad concerns about the fiscal stimulus. It is not necessary for me to go into all the arguments about that now, but when the Government are borrowing as much as they are, the expectation of the population as a whole is that fiscal tightening will follow. The Government recognise that in their proposals to return VAT to 17.5 per cent., possibly increasing it further, and to increase national insurance contributions. We believe that any additional funds provided in the fiscal stimulus, such as these, are more likely to be saved than spent, given the realisation that we shall have record levels of debt and eye-watering borrowing figures. In such circumstances, people will look to the longer term and save, in order to pay for the higher taxes that we are set for under the Government’s current public finance proposals. We have our concerns about that.

None the less, within a framework of fiscal responsibility, things can be done to help our hard-pressed families and businesses. For example, we have argued that by cutting out wasteful spending on Government advertising, we could fund a freeze in council tax; and by simplifying corporation tax, we could make reductions in corporation tax rates and have a cut in national insurance contribution rates for the smallest businesses. The uprating of child benefit could fall within that category. Savings could be made elsewhere in the Government’s budget—in order to pay for the increases in child benefit—that would not require the increase to be funded through yet more borrowing. We could find savings, so that the increase would be sustainable and not leave future generations, who may be benefiting in the short term from the child benefit increases, with levels of debt that would be unsustainable and damaging to the UK economy in the long term.

While distinguishing between the measures contained in the regulations and how they will be funded, we support the increase in uprating. We shall not do anything to prevent that from happening by opposing the regulations; rather, we shall support them.

Mr. Colin Breed (South-East Cornwall) (LD): I give a wholehearted welcome to the regulations. A huge number of families in Cornwall, particularly in my part of the world, will certainly benefit and spend the money. Frankly, they are already finding life extremely difficult. The extra money will be welcome, particularly directly after Christmas. Even though there are strains and stresses on the family budget, they like to do something special at Christmas, and the money will be extremely well received. I wholeheartedly support the regulations.

The Treasury Committee continues to follow child poverty numbers closely, as the Financial Secretary knows. The increase will provide a modest contribution. I suspect that there will have to be some radical additional measures if the Government are to get anywhere near their targets.

On the fiscal stimulus, much depends on whether the funds are saved or spent. However, the money will be spent in those households on lowish wages in my part of the world, without any doubt whatsoever. Whether other families getting additional child benefit will need to spend it is another matter. It is a matter of degree, I suppose, but I am happy to support the proposals. Overall, they will be of benefit to a large number of families, and I am pleased that the Government have introduced the regulations.

Mr. David Winnick (Walsall, North) (Lab): The Conservative spokesman did his best to support the upgrading, giving the reasons, while recognising that his party is committed to cutting public spending. He tried to find a formula that would justify both—namely, increasing child benefit, while cutting public spending.

On the substantive issue, child benefit is an important weapon against child poverty. The benefit was more or less frozen in the years leading up to 1997. I do not doubt for a moment that other measures could be used, but child benefit—upgrading it, as the Government have done over the years—has certainly been a significant factor in what I hope we all want: to undermine family poverty and all that goes with it.

I have one or two questions about the regulations. I am sorry that I missed the Financial Secretary’s opening remarks. He will know that the explanatory memorandum mentions the Government’s ongoing efforts to combat child poverty, to which I will now refer. What concerns me is the report in today’s Guardian. Although the Treasury is not directly involved in child poverty, it has the overall concern and responsibility in combating the problem—to a very large extent, it is the lead Department.

The Guardian report states that a number of children whose families are on limited incomes do not qualify for free school meals. That issue may not be directly before us now, but it arises in the efforts to try to undermine child poverty. If a situation arises such as the one that I read about today—where the children ask their mother why they cannot have a hot meal at school and she has to explain that they do not qualify and that she cannot afford to pay—the Treasury should look at the matter with the appropriate Department. I do not want to stretch your patience, Miss Begg, but it is an important point; it is all part and parcel of ensuring that children have a fair deal, and the children who are most at risk of poverty are those whose families are on low or moderate incomes. Perhaps the Financial Secretary can advise us whether his Department is consulting the appropriate Department on this issue, because it is a matter that is bound to cause concern.

The Chairman: Order. The hon. Gentleman realises that he has strayed well beyond the order.

Mr. Austin Mitchell (Great Grimsby) (Lab): I should like to express my unbounded joy at being able to support unequivocally something coming deep from my own Government—this is a measure to be welcomed. One might say slightly carpingly that the increase is not big enough and that we should have given more to children, because that is an effective way to direct money where it is most needed. However, it is good that the increase is being paid early—from January. I enthusiastically support all that, but I question the Conservative position, although I am not sure what it was. Was it to welcome the regulations enthusiastically, as I am doing? That might give us an ode to joy about this kind of measure. Or was it imprudent—as Pope might have put it:

It was Pope, Miss Begg; do not look so puzzled.

The Chairman: Order. I have been patient, and I think that the hon. Gentleman realises that he is straying well beyond what we should be discussing today. I should be grateful if he kept his remarks to the operating of child benefit.

Mr. Mitchell: I am grateful to you, Miss Begg. The point is that this is an important measure, but how is it going to be paid for? The Conservative spokesman said that he would find economies elsewhere that would pay for it. I am not clear what those economies would be or where they would fall, but the alternative to making direct economies, which would be unpopular and silly, is to put it on borrowing, which the Conservatives have also criticised. As we agree to the regulations, we must ask how they will be financed. Since the leader of the Conservative Party has now taken a Montagu Norman—or Thatcherite—position on borrowing, is this permissible?

Apart from that, this measure succeeds in the two purposes of which I strongly approve. First, the money goes directly to deal with child poverty, which is likely to increase given the impact of the recession and will be diminished by this measure. Secondly, the measure is necessary under the Government policy of Keynesian reflation—putting money in the pockets of those who will spend it. Nobody is more likely to spend it than those with kids, constantly demanding expenditure. Fortunately, my children are off my hands, but I have clamorous grandchildren, so I realise the importance of directing money into the pockets of families. I welcome what the Government are doing, and I welcome the regulations and, for an unusual moment, strongly support it.

Mr. Timms: I welcome the strength of support across the Committee for this measure, and I shall respond to some of the points raised.

The hon. Member for South-West Hertfordshire asked me about the efficacy of child benefit as a tool for tackling child poverty. He will be aware that organisations, such as the Child Poverty Action Group and similar campaigning organisations, have always taken the view that child benefit is an important and valuable tool in tackling child poverty, alongside more targeted support such as child tax credits. We also believe that we should provide universally available support, with targeted support on top of that. To attempt to tackle child poverty purely through targeted support would be the wrong approach—we have made it clear that we will not means-test or tax child benefit. It is a strong foundation for raising the incomes of families with children and an important part of our armoury.

My hon. Friend the Member for Walsall, North was right to remind us that, under the previous Government, child benefit was frozen entirely for a period of years and its rate did not keep track with inflation. Since 1997, it has gone up by 25 per cent. more than inflation, reflecting the importance that we attach to raising the incomes of families with children. He also asked about the number of children lifted out of poverty. Most recent figures show that 600,000 children have been lifted above the relative poverty line since 1998-99. We expect the measures set out in last year’s Budget to lift a further 500,000 children out of poverty, on top of those who have already benefited, but it is not clear whether we can add those numbers together.

In the pre-Budget report, we provided additional support for families with children, in particular by bringing forward measures such as those in the regulations. However, although this will be a valuable improvement for three months, in April, we will be back in the position that we thought we were in before. That is why the numbers have not changed.

Mr. Winnick: If the Chairman allows me, may I ask whether it would be possible for the Financial Secretary to speak to his colleagues in another Department on the points that I raised about school meals, as part of a campaign to try to stop and undermine child poverty?

Mr. Timms: My hon. Friend is right. We are working closely with the Department for Children, Schools and Families, as well as the Department for Work and Pensions, on tackling child poverty. I, too, saw the article in The Guardian this morning, although I did not completely understand whether the point being made was that the take-up of free school meals under current entitlement conditions was 1 million fewer. The example quoted was about somebody who was a little bit above the threshold for free school meals. I was not sure whether the million people mentioned were also people above that threshold, or people who really should receive free school meals but have not taken them up. I will certainly ensure that my right hon. Friend the Secretary of State for Children, Schools and Families is aware of the concerns expressed. Free school meals are an important tool in our armoury.

Mr. Winnick: Would it be possible for the Financial Secretary’s colleague to write to me about that?

Mr. Timms: My hon. Friend might wish to write to our right hon. Friend the Secretary of State to raise the matter. I will ensure that he is aware that he will be contacted. I am sure that other hon. Members will be interested in my right hon. Friend’s perspective on the points in that article.

Let me make some general points about the stimulus that we are providing, of which this measure is a part. The hon. Member for South-West Hertfordshire is absolutely right when he says that there is a big disagreement between us about the right thing to do in such circumstances. Our view is clear that it is right to provide additional help to families at this very difficult time. The Conservative party does not think that additional help should be provided. As one of its representatives said recently, “We should let the recession run its course.” That is exactly what the previous Conservative Government did when they were confronted—as they were on more than one occasion—with a serious recession. We all saw the cost of that hands-off approach. Our view is that that is not the right support to get Britain through these exceptional difficulties in the world economy. What we should be doing is exactly what we are doing in this measure and in others—providing extra help to families. As a consequence, the downturn will be shorter and shallower than would otherwise be the case and the damage, in the form of house repossessions, company failures and job losses, will be a good deal less as well. We will maintain our support for families and businesses to get Britain through these difficulties in the best possible shape.

The hon. Gentleman suggested slightly mischievously that we were considering a proposal to raise VAT above the former rate of 17.5 per cent. I can assure him that we have rejected that proposal, as he will have heard in exchanges in the Chamber. Our measures to fund a reduction in borrowing will take effect when the economy is in recovery. They will be focused on those with the highest incomes, and that will be welcome to some of my hon. Friends who have contributed to the debate.

Mr. Gauke: The Financial Secretary mentions that the proposals to raise additional revenue will be focused on those on higher incomes. Will he confirm that the only big revenue-raising measure that has been announced so far is the increase in national insurance contributions that will apply across the board?

The Chairman: Order. I do not think that the Financial Secretary should reply, because we are way beyond the Committee’s remit. The hon. Gentleman was trying it on, so if the Financial Secretary wishes, he can wind up his remarks.

Mr. Timms: Am I allowed to refute that particular point?

The Chairman: The Financial Secretary should not do so really, but he can briefly.

Mr. Timms: I simply make the point that, if we compare the position last year with that in the future once the national insurance rise has taken place, we find that only people on incomes of more than £40,000 a year will pay more and that the 45p new rate will raise a substantial amount of revenue—well over £1 billion.

Mr. Gauke: Not according to the Institute for Fiscal Studies.

Mr. Timms: That figure has been endorsed by the IFS. It is true that the IFS figures are a little different from ours, but both of them are over £1 billion.

The Chairman: Order. The Financial Secretary should continue.

Mr. Timms: I apologise for allowing myself to be distracted and lured down a byway.

I am delighted that this measure has the broad support of the Committee. I particularly welcome the comments of the hon. Member for South-East Cornwall and confirm to him that 11,630 families in his constituency will benefit from the improvement. I agree with him that the measure will be welcome right across the country and that people will be spending the money and helping to rebuild momentum in the economy.