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General Committee Debates
Delegated Legislation Committee Debates
|©Parliamentary copyright||Prepared 29th March 2011|
Publications on the internet
General Committee Debates
Delegated Legislation Committee Debates
Draft Guardian's Allowance Up-Rating Order 2011
The Committee consisted of the following Members:
Mark Etherton, Committee Clerk
† attended the Committee
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
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.
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
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.
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
“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—
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
“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.”
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
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.
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?
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.
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.
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.
That the Committee has considered the draft Guardian’s Allowance Up-Rating Order 2011.
draft tax credits up-rating regulations 2011
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.
draft guardian’s allowance up-rating (northern ireland) order 2011
|©Parliamentary copyright||Prepared 29th March 2011|