The
Committee consisted of the following
Members:
Chair: †
John
Robertson
†
Barwell,
Gavin (Croydon Central)
(Con)
Birtwistle,
Gordon (Burnley)
(LD)
†
Bruce,
Fiona (Congleton)
(Con)
†
Cairns,
Alun (Vale of Glamorgan)
(Con)
†
Field,
Mr Frank (Birkenhead)
(Lab)
†
Goodwill,
Mr Robert (Scarborough and Whitby)
(Con)
†
Greening,
Justine (Economic Secretary to the
Treasury)
†
Hemming,
John (Birmingham, Yardley)
(LD)
Hoey,
Kate (Vauxhall)
(Lab)
†
Leslie,
Charlotte (Bristol North West)
(Con)
†
McCarthy,
Kerry (Bristol East)
(Lab)
†
McClymont,
Gregg (Cumbernauld, Kilsyth and Kirkintilloch East)
(Lab)
Mearns,
Ian (Gateshead)
(Lab)
†
Morris,
David (Morecambe and Lunesdale)
(Con)
†
Murphy,
Paul (Torfaen)
(Lab)
Ruddock,
Joan (Lewisham, Deptford)
(Lab)
†
Skidmore,
Chris (Kingswood)
(Con)
Wilson,
Sammy (East Antrim)
(DUP)
Mark Etherton, Committee
Clerk
† attended the
Committee
Second
Delegated Legislation
Committee
Monday
28 March
2011
[John
Robertson
in the
Chair]
Draft
Guardian’s Allowance Up-Rating Order
2011
4.30
pm
The
Economic Secretary to the Treasury (Justine Greening):
I
beg to
move,
That
the Committee has considered the draft Guardian’s Allowance
Up-rating Order
2011.
The
Chair:
With this it will be convenient to consider the
draft Tax Credits Up-rating Regulations 2011 and the draft
Guardian’s Allowance Up-rating (Northern Ireland) Order
2011.
Justine
Greening:
It is a pleasure to serve under your
chairmanship, Mr Robertson. Before we begin, I am required to confirm
that the provisions in the orders and regulations before the Committee
today are compatible with the European convention on human rights, and
I am happy to do so.
The
Government inherited an exceptional fiscal challenge and, faced with
the deepest recession since the war and the largest budget deficit in
modern history, it would have been irresponsible of us not to take
decisive action to tackle the deficit. In carrying out that duty, we
had to make tough choices in our Budget and the spending review about
how to allocate taxpayers’ money. Fairness means taking the
right decisions to tackle the deficit proportionately and responsibly,
and we need to ensure that those who can contribute do so and that
those who are less able to contribute are supported. Analysis shows
that after combining the impact of tax, tax credits, benefits and the
public service spending changes announced by the Government, the top
20% of households will make the greatest contribution towards reducing
the deficit as a percentage of their income and benefits in kind from
public
services.
The
regulations and orders before the Committee put into effect a number of
reforms to tax credits announced in the June Budget and the spending
review. The changes will ensure that we tackle the deficit fairly and
that tax credits are targeted at those who need them most. Tax credit
elements, which were previously uprated by the retail prices
index, will be uprated this year by the consumer prices index, apart
from the basic and 30-hour elements of working tax credit, which will
be frozen. The rate of guardian’s allowance will also be uprated
by the CPI. The CPI rate to be applied is 3.1%, which means that
payments will be uprated by the same amount as the previous Government
intended. In addition, significant above-indexation increases to child
tax credit will help those households with
children.
Under
the current system, tax credits are available to families earning up to
£58,000. If households have an income increase of up to
£25,000 in a year, they can
earn up to £83,000 and still benefit from tax credits, due to the
earnings disregard. That means that people in the top income decile are
eligible, which is simply unjustifiable in the current economic
climate. The regulations and orders mean that support for higher income
households will be reduced by increasing the rate at which tax credits
are withdrawn while reducing the threshold at which tax credits are
paid. Households will also no longer be able to experience an increase
in household income of up to £25,000 without their tax credit
eligibility changing. Under the current system, about nine in
10 families with children are eligible for tax credits. That
will reduce to more than seven in 10 once the tax credit changes have
been
introduced.
The
previous Government spent more than £150 billion on
tax credits since 2003. Spending on tax credits was not only fiscally
unsustainable, but unrealistic in terms of meeting the stated policy
objectives. From 2004, progress on relative child poverty stalled. The
Institute for Fiscal Studies estimated that meeting the 2020 child
poverty target would require an extra £19 billion of welfare
transfers. The previous Government had a static and naive view of
poverty, believing that it could be reduced, or even eradicated, by
simply directing money at it. The way child poverty is currently
measured means that, perversely, reducing the income tax paid by
millions of low earners, by increasing the personal allowance, or
providing additional support to low income pensioners could push the
poverty line up and increase the number of children calculated as being
in poverty. The Government want to take a long-term, strategic view to
tackling poverty, which is about more than just welfare transfers. This
is not about moving families and children above an arbitrary line where
one day they are in poverty and the next they are not—perhaps
even unknown to them, because the change happened simply due to changes
in the personal allowance—but rather it is about transforming
their lives and the lives of future
generations.
The
Prime Minister asked the right hon. Member for Birkenhead, who I can
see is here today, and the hon. Member for Nottingham North (Mr Allen)
to undertake reviews of poverty and life chances. The findings of both
reviews have fed into the child poverty strategy, which will be
published
shortly.
Kerry
McCarthy (Bristol East) (Lab):
Will the Minister give
way?
Justine
Greening:
May I finish my comments and then I will be
happy to respond to the hon. Lady’s
questions?
While
awaiting the conclusions of these reviews, the Government used some of
the savings from withdrawing child benefit from families with a higher
rate taxpayer to fund significant above-indexation increases in the
child tax credit over the next two years. This means that the child tax
credit will increase by £255 in 2011, benefiting 2.4 million of
the poorest families. Despite the previous Government’s spending
on tax credits, working-age poverty increased under Labour. There are
now more working-age adults in poverty than there were in 1997 and the
current welfare state too often traps people in
dependency.
Changes
to the personal allowance introduced by this Government will provide
support to individuals on low
and middle incomes and will increase the rewards for work. Our aim is to
ensure that no one earning less than £10,000 will be caught in
the income tax net. We took a further step towards realising that goal
with our announcement last week in the Budget that the personal
allowance will increase again this year by a further £630. In
combination, the increases in the personal allowance announced in this
Budget and the previous Budget will benefit 25 million individuals in
2012-13 and take 1.1 million of the lowest income taxpayers out of tax
altogether.
As well as
helping those already in work, our changes will provide those who can
move into work with a real incentive to do so. Almost 2 million
children live in workless households. The spending review announced
radical plans to reform the welfare state. The new universal credit,
which will be introduced over two Parliaments, will replace the current
complex system of means-tested working-age benefits with a single,
streamlined payment. It will cut through the complexity of the existing
benefits system and ensure that work pays. The regulations are part of
that strategic shift to support our lowest income families, but also to
ensure that they will no longer be trapped in poverty and I commend
them to the
Committee.
4.38
pm
Kerry
McCarthy:
This may be the first time that I have served
under your chairmanship, Mr Robertson and it is a pleasure to do
so.
I shall start
by talking about the guardian’s allowance which the Minister
touched on only briefly. Obviously in the light of the cuts or freezes
to other benefits for families, the index-linked uprating of the
guardian’s allowance is a welcome acknowledgment of the
importance of this payment to people raising a child in often difficult
circumstances. However, it will not compensate them for the freezing of
their child benefit and the rising costs of their day-to-day
expenditure.
The
measure of inflation is now the CPI, which was 3.1% last September,
compared with RPI at 4.6%. The Government’s policies, not least
the decision to raise VAT, mean that both measures of inflation have
continued to rise still further above the 2% target, with the CPI at
4.4% while RPI has reached a 20-year high of 5.5%. It is clear that
high inflation, together with rising unemployment, will increase
welfare payments. I reluctantly accept that that there is a case for
the temporary adoption of the CPI for a defined period. That
may also be why the Chancellor chose last week to increase taxes over
the long term with the further switch to the CPI. It is a great shame
that he chose to address the symptoms of his policies by raising
revenue in this way, rather than addressing the issues of high
inflation, unemployment and poor
growth.
Nevertheless,
the Opposition have made it clear that we are willing to support a
temporary move to the CPI index for the benefits uprating as part of a
balanced deficit reduction programme. We do not, however, think it is
an appropriate permanent measure and in no way could the
Government’s narrowly focused discriminatory and regressive
cuts, with little consideration for the consequences, be considered a
balanced programme. The permanent change to the CPI means that it is
not about reducing the deficit, but a calculated decision to
reduce over time the value of much needed benefits to families, the
unemployed and the disabled, and the retirement income of public sector
workers. Would the Minister comment on the Royal Statistical
Society’s conclusion? It
said:
“While
the consumer price index (CPI) is acceptable for macroeconomic purposes
and for international comparisons within the EU we do not believe its
coverage is generally appropriate for inflation compensation
purposes.”
I
would also appreciate clarification on future entitlement to
guardian’s allowance. Given that eligibility depends on
qualifying for child benefit, will higher rate tax-paying guardians
still be entitled to guardian’s allowance in
2013?
On
Friday, Members may have seen some of the television coverage of
Labour’s big policy event in Nottingham. At that event I talked
to people involved with the kinship carers’ campaign. They are
grandparents who have ended up taking responsibility for their
grandchildren, perhaps because the parent has died, is in prison or is
otherwise incapable of looking after a child. There are similar issues
with older siblings, who also have difficulty in gaining eligibility
for child benefit and the guardian’s allowance. I would be
interested to receive assurances from the Minister that she is aware of
those problems and will do all she can to help such people access such
benefits if they are taking on such a
responsibility.
John
Hemming (Birmingham, Yardley) (LD):
I have some questions
for the shadow Minister. Why does she not think that CPI is a good
mechanism in the long-term? Is it because of its use of the geometric
mean, or is it because it does not include mortgage
calculations?
Kerry
McCarthy:
As I said, the Royal Statistical Society has
said that CPI is not appropriate because it does not look at the living
costs of individuals. The figure basically means that people will be
losing out over a significant period of time. I do not know the view of
the hon. Gentleman’s
party—
The
Chair:
Order. I think we should return to what we are here
to
discuss.
Kerry
McCarthy:
It means that, over the long-term, people will
lose out gradually, gradually, gradually. The benefits that they
receive will be cut when compared with what they have received in the
past, which is something of an attack on their living
standards.
The
Chair has already said that that is going slightly off the mark, so I
will move on to the tax credits. Regrettably, on this side of the
Committee we do not share the consensus on the draft regulations. It is
difficult to know where to start on the somewhat disjointed proposals.
Some of the proposals, such as the rise in the child tax credit, appear
to have been drawn up with the intention of grabbing a few headlines,
but other things are being swept under the
carpet.
I
am sure that the above-inflation increases in the child and disability
elements of the child tax credit will be a very welcome contribution
for families struggling with rising bills, but it seems to come at the
expense of a cut in child care support, including a £60
real-terms cut in the basic element of working tax credit; a £25
real-terms
cut in the 30-hour element of working tax credit; and a £20
real-terms cut in the family element of the child tax credit. All of
those use the CPI measure and, of course, the baby element will be
abolished.
Citizens
Advice has
said:
“Taken
together, however, the freezing of WTC payments, along with the
freezing of child benefit and—where relevant—the
reduction in help with childcare, will more than offset the relatively
small gains from the increase in
CTC.”
These
cuts seem very ill-considered for an Administration who claimed they
would be the most family-friendly Government we have ever had and who
at least profess to want to get people
working.
The
abolition of the baby element, though, is perhaps not so surprising
given that the Government recently abolished the health in pregnancy
grant, and the child trust fund, and restricted the Sure Start
maternity grant to the first
child.
I
am also concerned about the impact of the substantial increase in the
withdrawal rates for workers, especially given that Ministers were so
preoccupied in the days of opposition with marginal tax rates.
Additionally, the lowering of the second-income threshold will have a
particularly adverse effect on single-earner households paying the
higher rate of tax, given that they, and most importantly their
children, will be additionally hit by the withdrawal of child
benefit.
The
cut to the income disregard is also particularly troubling. I am sure
that all Members present will know from their constituency casework the
stress and financial hardship that tax credit overpayments can cause to
claimants and the expensive administrative burden that they place on
the tax credit office. I fear that overpayments will only increase with
the slashing of the income disregard. Indeed, the citizens advice
bureau has estimated that there may be as many as 300,000 more
overpayment cases as a result. It could also be considered a
disincentive to working more hours. I would appreciate the
Minister’s comments on the expected impact of the change, and
what Her Majesty’s Revenue and Customs will do to ensure that it
is widely understood and overpayments are minimised.
Two ill
considered changes in the regulations are the increased working hour
requirement for couples with children and the reduction in help with
child care costs. Like the cuts to Sure Start, the reduction to 70% of
child care costs seems to betray Ministers’ lack of
understanding of the difficulties parents face and the balances they
have to strike. It is not clear how they can be expected to increase
their hours while support for child care decreases. Indeed, families
could lose up to £1,560 per year in child care assistance,
making the conveniently headline-grabbing child element increase look
far less generous. Despite the Prime Minister’s promises, the
right to flexible working is no longer being expanded. Why are this
so-called family-friendly Government increasing the obstacles for
working families and lowering their
incomes?
Most
importantly, Ministers across Government need to realise that people
cannot work if jobs are not available. I ask the Minister how parents
are expected to increase their hours, when so many workers are facing
redundancy, and 2.53 million people are looking for
work. Will she tell us how many families will be affected by the
increase in the hours requirement from 16 to 24? If couples cannot
increase their hours, parents will otherwise lose a substantial
proportion of their income. If one parent loses their job, the loss of
tax credits, combined with the high cost of child care and travel, may
well mean that the other parent is better off giving up a part-time
job. I find it hard to believe that was the Government’s
intention, but it seems to be the obvious consequence.
The benefits
and tax credits we are discussing have to be considered together with
the freezing of child benefit for the next three years, the VAT
increase that will cost families with children an extra £450
this year, and welfare and spending cuts that have predominantly
targeted women and children. With an estimated 70% of tax credits and
94% of child benefit being paid to women, will the Minister provide
more information on the impact on gender equality of the draft
regulations we are discussing, and this women-and-children-first
Government’s decision on child benefit, which we are not
discussing today, because it is being
frozen?
The
Minister focused heavily in her opening remarks on the
Government’s child poverty strategy. I am interested to hear her
further assessment of how these changes will affect child poverty, in
particular the Government’s chances of reaching their target. It
sounded from what she said that the Government are thinking seriously
of scrapping the relative poverty target. That is something that
children’s charities have raised with me over the past week.
Perhaps the Minister could enlighten us: are they planning to move away
from that target of reducing relative poverty?
The Minister
will be well aware that the Government are meant to be publishing their
child poverty strategy by the end of March. I was told on Friday that
it is not being published until Tuesday 5 April, which is conveniently
close to the House going into recess for several weeks. Perhaps the
Minister could assure us that the child poverty strategy will, as
promised, be published by the end of this
month.
4.48
pm
Justine
Greening:
I will do my best to address a number of the
issues raised by the hon. Member for Bristol East. First, I shall talk
briefly about the rationale behind the switch to CPI. I welcome the
fact that the hon. Lady said that the Opposition understand and
accept—in fact, agree with—the measures we are taking
over the course of this Parliament to switch to CPI. There are three
main reasons why we believe the switch is
better.
First,
CPI provides a more appropriate measure of benefit and pension
recipients’ inflation experiences than RPI, because it excludes
the majority of housing costs faced by home owners. As the hon. Lady
will be aware, low income households, when necessary, are subsidised
separately through housing benefit and, of course, the majority of
pensioners own their home outright. Secondly, differences in
calculation mean that it may be considered a better representation of
the way consumers change their consumption patterns in response to
price changes; in other words, it reflects the fact that people can,
and do, shop around to get better deals. Finally, it is consistent with
the measure of inflation that the Bank of England uses.
How that
affects uprating this year is interesting. The hon. Lady knows that
when the previous Labour Government announced the uprating last year,
they stated that they intended to uprate this year by applying the RPI
figure minus the 1.5% increase that they applied in April 2010, just
before the election. As she said, the September RPI figure was 4.6%.
Therefore, RPI minus 1.5%—the previous Government’s
intention for this year’s uprating—would have been 3.1%,
which, as it turns out, is exactly the CPI uprating that we are
proposing today. In practice, there is no difference between what her
party would have done in government, had it stayed in office, and what
this Government are doing.
The hon. Lady
briefly mentioned guardian’s allowance, and I assure the
Committee that we will bring forward any necessary legislation and
regulations to ensure that higher rate taxpayers in receipt of
guardian’s allowance will not be caught by the switch to remove
child benefit from higher rate taxpayers in 2013. Such people,
therefore, will not lose out.
The hon. Lady
also mentioned tax credits and the variety of changes that the
statutory instruments make. My response is that, broadly, the proposals
have to be taken as a whole group. Of course, the Government have been
concerned about the cost of tax credits to the Exchequer. We have to
recognise, however, that what we want from both tax credits and the
broader welfare package we have proposed is a move from a system that
traps people in dependency to one that enables them to climb out of a
situation where they need financial support from the Government. The
system should reward people for moving into
work.
The
hon. Lady must recognise that as we move from the complex system of tax
credits that we inherited to a more streamlined universal credit
system, where it will be clear that people are rewarded for going to
work, a lot of the disincentives that are baked into the current system
as a result of its complexity will be tackled. She should also not
forget that last week’s Budget brought forward a second increase
in personal allowance.
I accept that
the previous Labour Government thought that tax credits were a good way
to target support. This Government, however, want to ensure that the
lowest income earners are not paying tax in the first place. That is
surely the best way to target support to encourage people to get back
into work, so that they are able to keep more of what they earn and are
incentivised to go into the workplace, rather than being incentivised
to stay at home.
Mr
Frank Field (Birkenhead) (Lab):
I am grateful to the
Minister for giving way, and I am very pleased that the response from
the Opposition is to accept the new indexation, in that the new formula
that the Government are proposing will ensure—will it
not?—that benefit increases are higher than wage increases will
generally be. In that sense, one is protecting people on benefits.
Given that I support the Government’s general drive to move from
some benefit increases to increases in services for the foundation
years, when the Government finally publish their anti-poverty strategy,
will they adopt that approach, so that in some years they will not
increase all benefit rates for children but will use some of that to
increase services in the foundation years for
families?
Justine
Greening:
The right hon. Gentleman makes a good point; we
need to think more carefully about the balance of investment of public
money, between direct money transfers and the investment that we can
put into providing additional support, particularly
through early years. It is probably unwise of me to pre-empt the child
poverty strategy paper, which will be published imminently, as the
right hon. Gentleman knows. However, the point he made played very
heavily in that paper. It recognises that the child poverty agenda has
too often been purely about income. In reality, for those children and
their families, poverty is a far broader issue. It is not just about
money, although that is part of it; it is about poverty of aspiration,
services and opportunity. The right hon. Gentleman will be aware that
we have brought forward measures to offer free early education. We want
to make sure that children are supported in their development and that
when they get to school they are ready to take advantage of the
education opportunities that the school system can
provide.
Mr
Field:
My hon. Friend the Member for Bristol East pointed
out that the Government are legally obliged to respond by the end of
this month on their anti-poverty strategy. Presumably they do not want
to set a bad example by breaking the law. Will the Minister take back
to her Department the message that they have three more days in which
to keep within the law and publish that
paper?
Justine
Greening:
My colleagues across Government understand the
terms of the Child Poverty Act 2010, including the dates for publishing
the
strategy.
Kerry
McCarthy:
A question as to whether the child poverty
strategy would be published by the end of the month as the law requires
was raised at business questions on Thursday. I understand that civil
servants then did a big ring-round of the various organisations
involved and were told that it would be published. But there seems to
be some confusion: some people were told that it would be published
tomorrow, but others are convinced that it will be published on Tuesday
5 April, the last day before the recess. Does the Minister know what
they were
told?
Justine
Greening:
I, of course, did not do that ring-round. It was
not done by the Treasury. I do not even know whether there was a
ring-round, so I cannot comment. I am sure that hon. Lady is very
capable of posing questions to the Ministers who might have been
involved.
The
Chair:
Order. I think you can move on Minister. This does
not have a lot to do with the
order.
Justine
Greening:
I do not agree with the hon. Member for Bristol
East that reducing the earnings disregard is a bad thing. Instead of
tackling overpayments by pretending that they are not happening and
having an earnings disregard of £25,000, which for many families
will be more than they earn, let alone how much they might expect their
income to go up during the year, we have to find a balance. We have to
ensure that there is flexibility in the system so that an overpayment
is not triggered by a minimal increase in income, but at the same time
we have to recognise that people who have suddenly started to earn more
need less support from the Government.
That has never been more important than now, as we go through the
process of tackling the fiscal deficit over the coming years.
It is
absolutely right to reduce the earnings disregard. That is the right
direction of travel. I should point out to the hon. Lady that one of
the reasons why we have had so many issues with overpayments and
underpayments is that the tax credit system itself is incredibly
complex. It is difficult for people receiving tax credits to understand
what they are getting and why. Therefore a move to the universal credit
system will have the added benefit that people will clearly understand
what support they are getting and what they are entitled to, and how
that support will change if they move into work. They will also
understand why moving into work is worth their
while.
Finally,
the hon. Lady referred to the increase in hours that need to be worked,
a measure which is not covered by these regulations, and asked whether
there will be jobs for people to go into. I assure her that the Budget
was all about creating jobs and stimulating enterprise. I urge her to
look at the independent Office for Budget Responsibility report that
was produced alongside the Budget. It clearly shows
employment rising from next year onwards and that by the end
of this Parliament there will be a net creation of 900,000 jobs. Those
are not our figures; they are the figures of the Office for Budget
Responsibility.
We
picked up an economy that had become incredibly imbalanced. It saw
growth over the past decade focus too much on one sector, financial
services, and too much on one region, the south-east, leaving other
sectors and other parts of the country behind. In the outcome of the
growth review, which will be the first of many times that we look at
how to support businesses and job creation, we are determined to ensure
that growth takes place across the country, and that the communities
that can most benefit get a chance to do so. That is one
reason why enterprise zones are a key part of our package to generate
growth and jobs across the economy.
I might not
have answered questions in the order they were asked, but I hope I have
dealt with them all. I commend the order to the
Committee.
Question
put and agreed to.
Resolved,
That the
Committee has considered the draft Guardian’s Allowance
Up-Rating Order 2011.
draft
tax credits up-rating regulations
2011
Motion
made, and Question
put.
That
the Committee has considered the draft Tax Credits Up-Rating
Regulations 2011.—(Justine
Greening.)
Kerry
McCarthy:
On a point of order, Mr Robertson. If the
Opposition want to record an abstention, is it permissible to call for
a recorded
vote?
The
Chair:
You cannot have an abstention without saying no. I
know what you are saying. If you want to vote, you have to call no. Are
you calling
no?
Kerry
McCarthy:
I am calling
no.
The
Committee proceeded to a
Division.
The
Chair:
Order. The Division does not count because although
a Member said “No vote”, no one said no. Therefore, there
is no division and the ayes have it. I did explain that somebody had to
vote
no.
Resolved,
That
the Committee has considered the draft Tax Credits Up-Rating
Regulations
2011.
Paul
Murphy (Torfaen) (Lab):
On a point of order, Mr Robertson.
Will the interchanges between you and my hon. Friend the Member for
Bristol East be on the
record?
The
Chair:
The hon. Lady raised a point of order, so it will
be on the
record.
draft
guardian’s allowance up-rating (northern ireland) order
2011
Resolved,
That
the Committee has considered the draft Guardian’s Allowance
Up-Rating (Northern Ireland) Order 2011.—(Justine
Greening.)
5.4
pm
Committee
rose.
