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14 Jan 2009 : Column 109WH

The Government have accepted the principle of a London premium, of course, with the introduction of the additional in-work credit—I congratulate them on accepting that principle—but that credit is time limited, and a London claimant would need a £3,000 a year net pay rise to compensate for its loss at the end of the fixed-term entitlement. That is another dimension to the “better off” calculation—how long can people expect to be better off in employment?

In many ways, the £25 a week—the Government’s basic figure when advising people whether to go into work—“better off” assessment is an illusion. It does not allow for fares to and from work or for child care. It does not cover school dinners. It includes no component for other working expenses, such as lunches or clothes, and has no element for the parental contribution to child care, as required under the child care tax credit. The £25 “better off” guarantee translates, therefore, into at least a £15 a week loss for a single parent with two children on school dinners requiring a two-zone travel card to get to work. I therefore urge the Government to do more, move faster to improve the quality of information underpinning “better off” calculations and address the substantial question whether families are better off in work.

The Government are piloting wider access to free school meals. I strongly recommend that this pilot be speeded up and extended to areas such as mine, where the loss of the benefit of free school dinners can make all the difference between work paying and not paying. Large numbers of people are out of work, but relatively few are on working tax credits, indicating that we have a problem of low-income working families who fall just above the working tax credit threshold. I urge the Minister to liaise with departmental colleagues and others to ensure that data modelling is carried out to establish how many people could benefit from the wider roll-out of the free school dinner programme.

If we are to make further progress in reducing in-work poverty among families with children—and in so doing improve work incentives, attract more people into work and sustain them in employment—we have to address the issues that I have outlined today. To those who ask, particularly given the difficult economic climate, how I can argue for more money to be invested, I say that the Government rightly look to putting money in the hands of those who will make best use of it in the local economy. I also point to the investment that we are making in raising employment overall.

The Freud report estimated that the average saving from moving a jobseeker’s allowance claimant into work to be £4,100 a year. If we are to carry on improving the rate of work entry and sustainability, especially over the long term, some of that money must be used to assist families in London communities such as mine, and in pockets around the country, where people have effectively been locked out of being better off in work.

2.53 pm

Hywel Williams (Caernarfon) (PC): I congratulate the hon. Member for Regent's Park and Kensington, North (Ms Buck) on securing this important debate; she has a fine and enviable record on such matters. Children throughout the UK are in her debt.

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I should say as an Opposition Member that I am glad that the Government have ensured that millions of pounds of credit claims are in payment, and that many people receive the money that they deserve. I have some criticisms of the system, but clearly it is very effective in alleviating the effects of low wages and poverty. What interests me is how many people do not claim the tax credits to which they are entitled, especially the child care elements, and the consequences, especially in respect of accessing appropriate but costly and scarce child care.

The eventual proof of the system will be whether it gets the right money to the right people. To what extent is it failing to deliver, or even getting it wrong? There is evidence of both over a long period. Despite the Government’s efforts, real hardship and poverty persist. I see that particularly clearly in my constituency surgeries, as do other hon. Members. I see people who do not know enough, or even anything, about the tax credits system. I see people who are fearful of claiming or reclaiming, because of what they have heard or experienced regarding overpayments and subsequent clawbacks. Some people have been overpaid, and now face a substantial and extended loss of income, because of the need to repay. By definition, those people are on modest and low incomes anyway, so are least able to repay.

Some people who have been overpaid informed the Revenue properly, clearly, fully and in time, of all their circumstances, but still the Revenue got it wrong. I am glad to say that that happens in a decreasing number of cases. I regularly meet constituents who owe £3,000 or £4,000, or something lower—sometimes nothing at all—rather than £7,000 or £8,000. I commend to hon. Members the practice of asking the Revenue for telephone call recordings. Under certain circumstances, constituents of mine have been able to prove that they had provided the proper information by, “very spookily”, as one of them said, listening to themselves some years ago telling the Revenue what their circumstances were.

I am glad to say that some of my constituents and I have had some success in removing the shadow of many thousands of pounds of debt. However, real hardship and distress persist. In preparation for this debate, I looked for some figures. The most recent Government figures that I could find, for 2003-04, show that 2.6 million UK families were paid the wrong amount. To anchor my point in a real case, may I recall a constituent who contacted me because she had received a summary demand from the Revenue for a £9,000 repayment? Through her tears, she told me that her annual income was only £8,000. We do not need Mr. Micawber’s arithmetic to convince us of the fear and misery that such a situation can cause.

Will the Minister ensure that when notices of overpayment are sent out, they are not merely statements of debt with an implied requirement for a summary repayment? They should provide full information about how the debt arose, about how to dispute the overpayment—people think that they cannot do so—and about repaying in instalments, as that has been a lifeline for some people who have had to repay thousands of pounds, allowing them to manage their debt at a modest rate.

Bob Spink: Will the hon. Gentleman ask the Minister to address the backdating system? Generally, if someone has been underclaiming or needs to make a new claim
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of which they were not aware before, they can backdate their claim only for three months. Surely the Government could be more generous when dealing with the most vulnerable people in society.

Hywel Williams: The hon. Gentleman makes a very good point. Debts can stand for years, but underpayments have a finite life. I refer in passing to a recent case of a firefighter who was overpaid. He could not foresee his likely earnings, because he was part-time and could not foresee how many times he would go out, yet he faced having to pay thousands of pounds, because his income forecast was wrong.

In my constituency, and in Wales in general, the local and national rates of economic activity are relatively low. Many people are on low wages in service industries. The predominant pattern of employment is self-employment, which is subject to low and insecure earnings that can vary greatly over a short time. One consequence, of course, is a variation in the need for child care. In some circumstances, that variation is very difficult to foresee. I agree with the Government that getting people back to work is a central plank of any anti-poverty strategy. Tax credits can help to get people into work, and keep them in work as well. They can show that work pays more than welfare, which gives people the incentive to move up the income ladder. I accept all those facts. However, it is becoming increasingly clear that, for some people at least, the tax credit system is a disincentive to getting back to work. In some cases, people prefer to work on a low wage and not even claim rather than become entangled in what they see as the tax credits web. Citizens Advice reports that half the claimants involved in overpayment cases in 2007 would be unlikely to claim again. Whether they do so or not is another matter, but their sentiments, after being involved in such cases, are that the credits are a disincentive. I have heard that directly from my own constituents.

I also accept that take-up rates of tax credits are much better than they were in preceding systems. I am afraid that I am old enough to remember family income supplements, family credit and, of course, the family tax credit, which had take-up rates between 49 and 76 per cent. I am very glad to say that we are doing a great deal better than that. In 2008, Her Majesty’s Revenue and Customs published the take-up rates for 2005-06. For child tax credits, they were between 80 and 84 per cent., and for working tax credits, between 59 and 63 per cent. The other side of the coin is that nearly four out of 10 people who could claim working tax credit were not claiming it. Those people are, by definition, people on modest incomes. Will the Minister tell us what more the Government can do to encourage fuller take-up or even, dare I say it, full take-up of tax credits? I am sure that more can be done in that area.

In April 2008, according to HMRC, Wales had 320,000 families claiming working tax credits, with only 20,000 claiming the child care elements, which reflects the figures that the hon. Member for Regent's Park and Kensington, North mentioned. The average take-up in Wales was about £60.50, compared with £65 on a UK basis. Clearly, people are claiming less for child care in Wales, which contrasts with the situation in inner cities, where child care is difficult because of the cost. I appreciate entirely the hon. Lady’s argument in that regard.

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A low proportion of claimants in Wales were claiming the child care element, compared with the UK as a whole. In Wales, fewer people are claiming, and they are claiming less, which is a cause for concern. Incidentally, the child care element in Wales is more likely to be claimed by single parents than is the case elsewhere. Although the working tax credit for child care is a vital part of alleviating and eradicating poverty among single parents in Wales, much more needs to be done. That is particularly true in respect of rural areas, which brings me to my last point.

There is a particular problem in rural areas, as there is in inner city areas. Let me refer briefly to a bilingual report that I commissioned some years ago called “Gofal O Fath Gwahanol” or “A Different Kind of Care”, which covered informal child care in rural north-west Wales. It is a bit long in the tooth, but it is the only report that I know that specifically considers that question. It shows that child care in rural areas can be scarce, of variable quality and possibly in the wrong place. People may have to drive miles in one direction to access child care and many miles in the other direction to go to work. One of the answers identified in the report is the possibility of supporting in-laws—grandparents mainly—by non-monetary means. Given that they provide free child care in such a situation, the report considers whether something further can be done to support them. I would be interested to hear the Minister’s comments on those matters as well.

In rural areas, as well as in the inner cities, there is a failure by the markets to provide affordable, high-quality child care. Child care is scarce, expensive, fragile and frequently in the wrong place. Last summer, I visited Sweden with the all-party Sweden group, which was very interesting. I need hardly contrast the universal system of child care that exists there with the situation in Wales and the UK in general. We need a more universal system of child care if we are to enable people to take up work so that they and their children can escape poverty. That is the answer for areas in which there is clear market failure. Such a system should be targeted not only on an income basis but on a geographical basis, and should come into force if there is market failure in the inner cities or in extremely rural areas.

The Welsh Assembly and local authorities in Wales are working hard on the issue, and I commend their efforts. We must look at diverting the money spent on working tax credits for child care to a more universal system. I therefore ask the Minister to tell the House what consideration he has given, or intends to give, to radical alternative models of providing child care other than the review of the tax credit system. Will he also look at providing universal child care in some areas and at supporting family members?

3.5 pm

Mrs. Maria Miller (Basingstoke) (Con): It is a pleasure to follow the hon. Member for Caernarfon (Hywel Williams). I agree that access to child care is an important issue. If we want to get families into work, they need good access to flexible child care.

I congratulate the hon. Member for Regent's Park and Kensington, North (Ms Buck) on her full outline of the benefits trap that faces so many of our constituents, and on securing this timely debate. Yesterday, we spoke a great deal about social mobility. Hon. Members from all parts of the House agree that worklessness is one of
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the problems faced by many families, particularly lone parents, in trying to overcome poverty, so helping people into work is an important part of improving their access to social mobility.

Two working parents are the norm in every part of the country, so child care provision is vital for all communities. I will focus my remarks on child care and the challenges that we face as a result of the problems with the child care element of the working tax credit. One in five women—I am talking about women because child care affects them so much—have problems finding affordable child care, which is something of a conundrum, given the emphasis the Government have placed on making child care affordable for more people in the country. From talking to people in my own constituency, I know that affordability is still a real problem throughout the country. The child care element of the working tax credit was designed to address that issue, but only one in four eligible families receive it, and it is not getting to the people who need it most. I was interested to note that the hon. Member for Regent's Park and Kensington, North said that only one in 10 of her constituents who was eligible was able to access it, which shows that this is an acute problem in certain parts of the country. I should like to focus on the impact of that problem. I want to talk not just about the implications of a tax credit system that is making overpayments and creating real heartache and anguish for so many of our constituents but the implications for child care in the long term and for the children who suffer.

The knock-on effects of the failure of child care tax credits are significant. The Government have expanded the number of child care places, predominantly through the Sure Start scheme, over the past 10 years to enable more people to access child care. However, because the child care element of the working tax credit is not working in the way it is supposed to work, many nurseries find it difficult to remain sustainable in the long term. The figures that I found in parliamentary answers show that, since 2003, the number of full day-care places has dropped. Four out of 10 nurseries are experiencing extreme financial problems. The National Day Nurseries Association recently issued a report that a third of nurseries are reporting that occupancies are down. The Government really have to wake up. They have expanded the number of child care places, but they still rely on the private sector, so the fact that their affordability programme is not working is creating havoc in the child care market. The Minister must reassure us that he understands that, and that he will do something about it by looking at how we can make the child care element of the working tax credit work as it was designed to work. It is almost as if the Government are turning their back on an over-engineered policy that, frankly, does not work, even though they had a decade to design it, rather than fixing it for the families that it was designed to help.

The second thing that I should like to talk about is the impact on children’s lives. Good-quality child care can have an enormously positive impact on the early-years development of children who live in the most deprived communities in our country. We also know, from Leon Feinstein’s work, that by age two, children from more privileged backgrounds can have advantages over children from poorer areas, and that the availability of good-quality
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child care at that age can help to reduce the gap between the most and least advantaged children in our society. At the moment, that gap is widening.

I am perplexed as to why the Government are not addressing the issue. They know that there is a problem, and that there is a problem with take-up. If we are not to see some quite catastrophic effects on the child care industry in the long term, the Government must act now. It is ironic that the Government, who have done so much to expand the amount of available child care, are now presiding over problems in the sector. Rather than simply announcing, as his colleague the Prime Minister did at the Labour party conference last year, more access to free child care for two-year-olds, before withdrawing it as a result of Conservative probing, I urge the Minister to look for a long-term solution to the problem of the affordability of child care in this country by fixing a policy that is manifestly not working at the moment.

3.12 pm

Paul Rowen (Rochdale) (LD): I congratulate the hon. Member for Regent’s Park and Kensington, North (Ms Buck) on securing the debate. She has an admirable record of speaking on such issues and I am delighted by some of her comments, especially on child care. I support some of her remarks, although I want to broaden the debate to include working tax credits more generally with reference to examples from my constituency.

The hon. Lady was absolutely right when she said that take-up in relation to child care has not been what the Government originally intended. As the hon. Member for Basingstoke (Mrs. Miller) said, that is because this is a highly over-engineered, inflexible product, and it is not meeting the needs of families for many reasons. There is a maximum cap of 80 per cent. of £175 a week for one child, or £300 a week for two children; any employer contribution is capped at £55; there is a rule that says that people must work at least 16 hours; and the availability of child care does not take account of some families’ flexible working practices.

The Government have an admirable record on the provision of child care places, but those things mean that the take-up of the child care element of working tax credit has not been what it should be. I hope that they listen carefully to this sensible and straight debate, because all hon. Members want the system to be improved.

Mrs. Maria Miller: The hon. Gentleman is making some important points about how the system works. Does he feel, as I do, that the Government could learn from the salary-sacrifice schemes that so many employers are putting in place, whereby employees can receive national insurance advantages by putting money into child care? It is a simple system—it avoids the complexity of the child care element of working tax credit—and it seems to work.

Paul Rowen: I agree entirely. The Prime Minister this week announced support to take people off the unemployment register. What greater fillip could there be than him, at the same time, encouraging and making it easier for employers to support people into employment? I agree with the hon. Lady that it would work out a lot cheaper all round.

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I welcome the opportunity to talk more generally about working tax credit, which is the title of the debate, because the wider debate needs to be addressed. I do not agree with the hon. Member for Regent’s Park and Kensington, North that the system is working. The fact is that five years after working tax credit was introduced, it is still a disaster for many. The figures on working tax credits for 2006-07 obtained before Christmas by my hon. Friend the Member for Cardiff, Central (Jenny Willott)—the latest figures—show that £1.2 billion was overpaid and that 1 million people were still affected by overpayment.

If we look at all the figures available from 2003, we see that more than 1.8 million families have been overpaid tax credits more than once in the four years that the system has been running, including 400,000 in 2006-07. Those 1.8 million families represent more than one in five of the families that claimed in the period. Some 461,000 of those families—nearly half a million—have been overpaid more than twice in four years, and 63,000 have been overpaid more than three times. The system is designed to help the poorest people and to help them into work, so those are frightening figures.

Hywel Williams: Does the hon. Gentleman accept that that involves an absolute loss to the Treasury, because many hundreds of millions of pounds of those overpayments are irrecoverable and have to be written off?

Paul Rowen: Yes. In fact, if the hon. Gentleman looks at the figures, he will see that overpayments since April 2003 amount to £6.7 billion and that the overall cost, including administration and so on, is £14 billion. The average overpayment in 2005-06 was £916. Those are frightening figures, as I said.

In response to those problems, the parliamentary ombudsman has published two excellent reports, the last of which came out in October 2007. The recommendations that she made in that report are pertinent to the current situation. She mentioned three problems with the tax credits system: its design, a failure in complaints handling, and the unfair and unreasonable application of code of practice 26, which is Her Majesty’s Revenue and Customs policy on what to do in the event of overpayment.

The ombudsman made six recommendations at the end of her report, all of which were accepted by the Government. In her 2007-08 annual report, she stated:

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