Draft Guardian’s Allowance Up-rating (Northern Ireland) Order 2015
Draft Tax Credits Up-rating Regulations 2015
Draft Guardian’s Allowance Up-rating Order 2015
Draft Tax Credits (Appeals) Regulations (Northern Ireland) (Amendment) Order 2015
The Committee consisted of the following Members:
† Barwell, Gavin (Lord Commissioner of Her Majesty's Treasury)
Blears, Hazel (Salford and Eccles) (Lab)
Campbell, Mr Gregory (East Londonderry) (DUP)
† Carmichael, Neil (Stroud) (Con)
† Dakin, Nic (Scunthorpe) (Lab)
Dobson, Frank (Holborn and St Pancras) (Lab)
† Farron, Tim (Westmorland and Lonsdale) (LD)
† Gauke, Mr David (Financial Secretary to the Treasury)
† Green, Damian (Ashford) (Con)
† Hemming, John (Birmingham, Yardley) (LD)
† Johnson, Gareth (Dartford) (Con)
† Kawczynski, Daniel (Shrewsbury and Atcham) (Con)
† Lavery, Ian (Wansbeck) (Lab)
Loughton, Tim (East Worthing and Shoreham) (Con)
McDonagh, Siobhain (Mitcham and Morden) (Lab)
† Timms, Stephen (East Ham) (Lab)
† Wharton, James (Stockton South) (Con)
Whitehead, Dr Alan (Southampton, Test) (Lab)
Fergus Reid, Committee Clerk
† attended the Committee
Thirteenth Delegated Legislation Committee
Wednesday 11 February 2015
[Mr David Crausby in the Chair]
Draft Guardian’s Allowance Up-rating (Northern Ireland) Order 2015
8.55 am
The Financial Secretary to the Treasury (Mr David Gauke): I beg to move,
That the Committee has considered the draft Guardian’s Allowance Up-rating (Northern Ireland) Order 2015.
The Chair: With this it will be convenient to consider the draft Tax Credits Up-rating Regulations 2015, the draft Guardian’s Allowance Up-rating Order 2015, and the draft Tax Credits (Appeals) Regulations (Northern Ireland) (Amendment) Order 2015.
Mr Gauke: It is a great pleasure to serve under your chairmanship, Mr Crausby. I confirm that the provisions contained in the orders and regulations are compatible with the European convention on human rights.
Committee members should note an amendment to the explanatory memorandum to the draft Tax Credits Up-rating Regulations 2015. The rate of consumer prices index to be applied to those regulations is 1.2%, in line with the rate of CPI published by the Office for National Statistics, rather than the 1.3% mistakenly written in the original document. A revised explanatory memorandum and accompanying section 41 report correcting the error was laid before Parliament on Friday 6 February.
Let me start by setting out the purpose of the regulations and orders. The regulations increase the maximum rates, in line with CPI, of the disability elements of tax credits, which are the disabled child and severely disabled child elements of child tax credit, and the disabled worker and severely disabled worker elements of working tax credit. That decision was taken to protect benefits that help with the extra cost of disability. The regulations also increase the earnings threshold for those entitled to child tax credit only, after which payments begin to be tapered away.
The orders increase by CPI the rate of guardian’s allowance, which is the payment made to provide support to those who look after a child whose parents are deceased. Child benefit and other elements of tax credits, including the basic element and the 30-hour element of working tax credit, the couple and lone parent elements of working tax credit and the child element of child tax credit, will be uprated by 1% by the Child Benefit and Tax Credits Up-rating Order 2015. That is a separate no-procedure instrument, so those increases are not before the Committee today.
The regulations and orders protect the most vulnerable by ensuring that the guardian’s allowance and the elements of working tax credits and child tax credits designed to assist with the extra costs of disability keep pace with the change in prices. The Government have ensured that
those elements of financial support paid to low-income and vulnerable households have kept pace with inflation and will continue to do so until the end of this Parliament. The regulations and orders will uprate the disability elements of tax credits by the consumer prices index. The rate of guardian’s allowance will also be uprated by CPI. In line with normal practice, we are applying the rate of CPI from September 2014, which is 1.2%.The Committee will be aware that the decisions on uprating contained in the regulations are part of a wider package of uprating measures that have been presented to the House. The Secretary of State for Work and Pensions has already presented to the House the Social Security Benefits Up-rating Order 2015, which fulfils the statutory duty on the Secretary of State to review the rates of social security benefits and provides for the uprating of certain benefits and pensions for 2015-16.
The draft Tax Credits (Appeals) Regulations (Northern Ireland) (Amendment) Order 2015 introduces small changes, none of which are of substance, to the Northern Ireland appeals regulations. The three consequential changes are tidying-up amendments and are due to the introduction of mandatory reconsideration and direct lodgement, which Committee members will recall we debated a year ago. Mandatory reconsideration took effect for the whole of the United Kingdom on 6 April, but direct lodgement was only implemented in Great Britain. It was delayed until 3 November in Northern Ireland because the IT system was not ready to process the appeals.
The Tax Credits (Appeals) Regulations (Northern Ireland) 2002 contain the general administrative provisions relating to tax credit appeals. That legislation is now out of date, due to the introduction of direct lodgement and a lack of reference to the upper tribunal. That means that three small consequential amendments need to be made.
Regulation 6 deals with making an application to extend the time to make an appeal. It states the appeal should be made to the “Board”. The “Board” means Her Majesty’s Revenue and Customs, and that is a leftover of when tax credit appeals were sent to HMRC, rather than the tribunal. The reference to the “Board” now needs to be substituted by a reference to the “appropriate office”—any office specified in writing by the Department for Social Development in Northern Ireland.
Regulation 5 deals with late appeals generally, and specifically with the power to treat an appeal as made in time under certain circumstances. Regulation 22 deals with late applications for a statement of reasons for a tribunal’s decision. It sets out how the application should be made and the special circumstances that are relevant to the application.
Both regulations say that, when HMRC or a legally qualified panel member is determining whether it is in the interests of justice to allow a late appeal, no account is to be taken of the fact that a commissioner—a social security commissioner in Northern Ireland—or a court has taken a different view of the law from that previously understood and applied.
However, the term “court”, as defined in the Northern Ireland appeals regulations, does not include the upper tribunal. Therefore, a consequential amendment needs
to be made to both regulations to include the words “Upper Tribunal”, in addition to the words “Commissioner” and “courts”, as already provided for by the regulations.I hope that explanation of the technical changes is helpful. I am sure right hon. and hon. Members will agree that these small changes to the Northern Ireland appeals regulations are essential to update them and to bring them into line with provisions for the rest of the UK. I commend the measures to the Committee.
9.2 am
Stephen Timms (East Ham) (Lab): I am very pleased to serve under your chairmanship this morning, Mr Crausby, and to face the Minister again in Committee. I used to do that regularly—on the Government and the Opposition side—but I have not done so for four-plus years, so this is a reunion. I am grateful to him for explaining the import of the Northern Ireland measure, and I do not propose to comment further on it.
As the Minister said, the way in which tax credits are uprated has been profoundly affected by the Welfare Benefits Up-rating Act 2013, which took many of these decisions outside the scope of our debate by applying a 1% uprating to tax credits. What we are left with is the regulations before us for uprating the disability and severe disability elements of tax credits by CPI. The basic element, the 30-hour element, the second adult element and the lone parent element will increase by 1%.
We also have before us the provision for uprating the guardian’s allowance, which is paid to those who raise children whose parents have died. The Treasury is mandated only to review tax credits—whether they have kept in line with prices—but the guardian’s allowance is, in contrast, subject to statutory uprating. Previous Governments have increased it annually, at least in line with the retail prices index. In the 2010 Budget, however, the current Government chose to adopt CPI, with effect from April 2011. Guardian’s allowance is one of the few benefits that remain unscathed by the 2013 Act. What we have before us, therefore, is a CPI uprating of the guardian’s allowance.
There has been a lot of discussion recently about the impact the Government’s tax and benefit changes have had on families. At the same time that the 2013 Act was passed, substantially reducing the real-terms income of working families right across the country, the Chancellor chose to give a £3 billion tax cut to the top 1% of earners, leaving those earning more than £1 million a year an average of £100,000 per year better off.
That is a dramatic contrast with the experience of most people, which has been helpfully illuminated recently by the Institute for Fiscal Studies. The opening sentences of its report state:
“Tax and benefit changes introduced by the coalition have reduced household incomes by £1,127 a year or 3.3% on average.”
The IFS says that it wants to analyse “the distributional impact” and goes on to explain that the reductions to average household income
“involve an average loss to households of £489 per year, comprising an average gain of £321 a year from cuts to direct taxes”—
of which Ministers often remind us—
“an average loss of £333 a year from increases in indirect taxes and a £477 a year average loss from benefit cuts.”
That is a helpful if troubling—for the Minister—analysis of the overall impact of the changes made by the Government in the draft order and its predecessors.
Tax credits are a significant part of the changes. The IFS states:
“Households with children lose out because they have greater entitlements to benefits than those without and…a number of benefits directed at families with children have been reduced (notably, through freezing child benefit, the high-income child benefit charge and means-testing child tax credit more aggressively).”
The IFS points out two things: first, working-age households with the lowest incomes are the households that have lost the most in this Parliament as a proportion of their incomes; and, secondly, the incomes of working-age households with children have been hit the hardest by the Government’s tax and benefit changes. The question that I would welcome the Minister’s answer to is this: why have the Government chosen to hit low-income families and families with children the hardest, as the IFS has shown? The figures I read out make it absolutely clear that the rise in VAT has more than outweighed the reduction in direct tax since 2010. Tax credit and other changes also mean that households are now on average significantly worse off. Lone working parents have lost more than £1,500 a year since 2010, and working couples with children have lost between £1,000 and £2,000 a year.
It is no surprise therefore that the Government have failed in their efforts to eradicate child poverty by 2020, although they have a statutory obligation to do so. I took that legislation through the House when I was in the Minister’s place before the previous election. Those statutory targets remain, but the reality is that since 2011-12, taking housing costs into account, relative child poverty has increased by 100,000 to 3.7 million, and absolute child poverty has risen by half a million to 4.1 million.
The coalition’s tax and benefit decisions, including the ones that we are debating this morning, have started to unwind the progress that we saw under the previous Government on tackling child poverty. We took 800,000 children out of relative poverty and 2.2 million children out of absolute child poverty between 1998 and 2010, but now things are going backwards.
The coalition’s cuts to tax credits have been a major part of the trend, as the Employment Minister said in 2013. She said that the 1% cap in uprating over the three years
“will result in around an extra 200,000 children being deemed by this measure to be in relative income poverty compared to uprating benefits by CPI.”—[Official Report, 15 January 2013; Vol. 556, c. 715-716W.]
It is no wonder, therefore, that the IFS in its recent assessment estimated that, after housing costs, relative child poverty will go up by 600,000 to 4.3 million by 2020 and absolute child poverty by 600,000 to 4.7 million.
The Government still say that they are committed to eradicating child poverty by 2020, but the reality is clearly a very long way indeed from that. That was confirmed by the Government’s advisers, the Social Mobility and Child Poverty Commission, which, in its most recent progress report, published last year, said:
“We have come to the reluctant conclusion that, without radical changes to the tax and benefit system to boost the incomes of poor families, there is no realistic hope of the statutory child poverty targets being met in 2020.”
That, unfortunately, is the position in which we now find ourselves, and the uprating decisions that we are being invited to make this morning will contribute to that.
The Social Mobility and Child Poverty Commission made five key recommendations that it argued are important if we are to have a social recovery alongside an economic recovery. It said that we should set out credible plans for fiscal consolidation; recouple earnings and economic growth; devolve more powers and funding to our city regions; tackle the housing crisis and the broken private rental market; and make Britain a living wage country by 2025.
We do not know what the Government’s response to those recommendations is, although it appears that they have not been accepted. I hope the Minister will face up to the fact that his colleagues’ decisions on tax and benefit changes, including cutting and capping tax credits in these orders while handing a £3 billion tax cut to millionaires, have hit ordinary working families—particularly those with children—hardest of all.
Were the Opposition to vote against the orders, the effect would be no increase at all, so I will not encourage my hon. Friends to do that. However, there can be no doubt that we need a new economic plan so that we can earn our way to raising living standards, not for a few people but for all. Fortunately, there will shortly be an opportunity to put an alternative plan in place.
9.12 am
Mr Gauke: It is always a great pleasure to follow and debate with the right hon. Gentleman. As he says, it is something of a reunion. For many years, we have sat on different sides of this Committee Room and debated these matters. However, as was the case for the many years over which we debated at the end of the previous Government and the beginning of this Government, I fear that we are not in agreement.
Let me make a few points in response to the right hon. Gentleman. First, predictably enough, he mentioned the fact that the 50p rate of income tax was reduced to 45p. Of course, that is higher than it was for the vast majority of the time that he was a Minister. He did not draw attention to the increase in the rate of capital gains tax and the measures that we have taken to deal with stamp duty land tax avoidance. Indeed, we increased the SDLT rates for top-end properties, restricted pensions tax relief and closed multiple loopholes. The wealthiest in our society now pay a greater share of income tax than they have ever done before. When it comes to the distributional allowances—the effect of the measures that the Government have taken—it is clear that the largest contribution has come from those who earn the most in this country.
The right hon. Gentleman spoke about our welfare and tax credit reforms. I must remind him of the situation we inherited, which one of his Treasury colleagues pithily summarised when he said: “There is no money left.” We have had to make a number of difficult decisions. Public spending increased substantially under the previous Government but tax revenues did not grow to reflect that. Our public finances were in a vulnerable state and
very reliant on corporation tax and income tax receipts from a booming banking sector. When boom was followed by bust our finances were left in a precarious position.To highlight one fact that is relevant to our debate, spending on tax credits under the previous Government increased by an extraordinary 340% compared with the benefits that they replaced. In those circumstances it is not realistic when considering how we can decrease the deficit and live within our means to exclude that substantial proportion of Government spending.
My understanding is that the Labour party has signed up to a welfare cap—a cap on overall welfare expenditure. I am not sure that I heard the right hon. Member for East Ham say anything about reversing our decisions on tax credits. If he wants to offer proposals on reversing the changes, and wants to uprate them, he should say so.
I am aware that the Labour party believes that child benefit increases should be capped at 1%. I do not know whether he thinks that would particularly affect the groups of people he spoke about. I think it is right to consider child benefit. Indeed, my party is in favour of freezing it, but I am not sure that his party’s policy is necessarily consistent with all the rhetoric that we have heard from him this morning.
I could point out that, notwithstanding the difficult circumstances we inherited and the difficult decisions that, I accept, we had to make, we have introduced measures, such as increasing the personal allowance, freezing fuel duty, and allowing councils to freeze council tax, that help people with living standards. However, if we want living standards to improve we need a growing economy and high employment levels.
The economy is now growing and 1.75 million more people are in work than in 2010. I accept that the last few years have been difficult for many people. The sustainable way to improve living standards is to make sure the economy creates jobs and grows. That is what the long-term economic plan does.
Stephen Timms: I would be delighted to set out an alternative plan, although that is probably not appropriate for this morning.
The IFS has said, as I pointed out, that the average gain for a household from cuts to direct taxes, which the Minister has been describing, is £321 a year; but there is an added loss of £333 a year from increases in indirect taxes—principally, of course, VAT. Is the Minister surprised to discover that, or is that what he understood?
The Chair: Order. Can we confine our remarks to the orders before us and not have a rehearsal for the general election?
Mr Gauke: I shall take your guidance very seriously, Mr Crausby, and follow it so as to avoid the temptation to set out a lengthy rebuttal to the points made by the right hon. Member for East Ham.
I conclude by saying that difficult decisions have had to be made, which have involved some tax increases, such as the VAT increase. There have also been difficult decisions on public spending. The choice for a responsible Government was very clear: we had to take action to get the public finances under control. Had we not done so,
the prospects for our economy would not be as strong as they currently are. Given that, as you so rightly say, Mr Crausby, we should not enter into a lengthy debate on economic, benefit and welfare policies this morning but remain focused on the orders before us, I will simply say that I am grateful for the support of the Committee for the orders, which I commend to it.DRAFT TAX CREDITS UP-RATING REGULATIONS 2015
That the Committee has considered the draft Tax Credits Up-rating Regulations 2015.—( Mr Gauke.)
DRAFT GUARDIAN’S ALLOWANCE UP-RATING ORDER 2015
That the Committee has considered the draft Guardian’s Allowance Up-rating Order 2015.—( Mr Gauke.)
DRAFT TAX CREDITS (APPEALS) REGULATIONS (NORTHERN IRELAND) (AMENDMENT) ORDER 2015
That the Committee has considered the draft Tax Credits (Appeals) Regulations (Northern Ireland) (Amendment) Order 2015.—( Mr Gauke.)