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Tax, Benefits and the Family

6.25 p.m.

Lord Skidelsky rose to call attention to the effectiveness of the current tax and benefit system in supporting the family structure; and to move for Papers.

The noble Lord said: My Lords, I believe that the debate which I have the honour to open comes at a turning point in the fortunes of the family. For two decades opinion makers have been proclaiming the family to be economically obsolete and politically incorrect. But suddenly politicians on all sides have at least started to pay lip service to the value of the family. I believe that the time has now come to translate those words into action.

People do not all agree about what the family is. There are many kinds of families and we are told that we must not be judgmental about different lifestyles. I make no apology for saying that the family structure most in need of support today is the traditional, mainly one-earner family. That is not because other forms of family life do not deserve respect, but because it is the traditional family which is and has been under the greatest threat and whose disappearance, or even further weakening, would inflict the greatest losses on society. Putting it simply,

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well-functioning labour markets and strong families are the best guarantee of a free society and a limited government, as the East Asian economies show us.

If family networks are weakened, expenditure on social security will become uncontrollable and the increased taxes needed to pay for it will undermine families still further. We would then not have a welfare state of the familiar kind but a state on which a large fraction of the population would depend from cradle to grave. Such a state would be far more repressive than the most oppressive of traditional families.

I also believe that supporters of the traditional family have public opinion on their side. Attitude surveys show that most young people want and expect to get married and to have children. Indeed, 64 per cent. of women believe that being a housewife is just as fulfilling as working for pay. Over 60 per cent. of men and women believe that the mother should stay at home when there is a child under school age.

Despite that support, evidence of family breakdown is striking and alarming. Fewer people are getting married and more are getting divorced; fewer children are being born to married couples, more to unmarried mothers. More and more children are being brought up in lone-parent households. The trend in all those areas has become dramatic in the past 25 years.

I shall not bombard your Lordships with figures, but one set of statistics is particularly striking. In Henry VIII's time, church registers recorded that 4.4 per cent. of births were to single mothers. When our present Queen Elizabeth came to the throne in 1953 the percentage was almost identical--namely, 4.8 per cent. In the intervening 400 years the percentage had moved within a very narrow range. Even in 1976, only 9 per cent. of children were born out of wedlock. By 1993 one birth in every three--over 30 per cent.--was outside marriage. In absolute numbers, 217,000 of the 674,000 births registered that year were out of wedlock, the vast majority to never-married mothers--children for whom the father, as Charles Murray put it,

    "will be a fleeting presence in their lives or missing altogether".
With a 13 per cent. increase a year in births to unmarried mothers, the majority of our children will be born out of wedlock in 20 years' time. A feminist Utopia or a social nightmare?

I suggest it will be the latter, for three reasons. First, lone-parent households are poorer than most two-parent households. Seventy per cent. of lone parents obtain all or most of their income from public assistance, whereas only 12.5 per cent. of families headed by a couple are on income support. Lone parenthood has become the chief cause of poverty.

Secondly, illegitimate children and children from broken homes get a much poorer start in life than children of married couples except at the highest income levels. They have higher mortality and sickness rates, are more likely to be abused, do less well in schools and are more likely to turn to crime. One-half to two-thirds of prison inmates come from broken homes or never-married parents. Illegitimacy is the best predictor of childhood and adult failure, the single most important cause of a self-perpetuating and expanding underclass.

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A high proportion of these children become wards of the state, supported by public funds from cradle to grave, in and out of custody. Again, research confirms what common sense has long known: children flourish best in loving, stable and committed families; a father, especially, is an indispensable role model for young males.

Finally, there is the budgetary cost of all this. The cost to the social security budget of lone parents comes to £9.4 billion a year, an increase of 200 per cent. in real terms since 1978-79, and equivalent to £1,500 in tax for every working family. That does not include the indirect costs of lifelong care and surveillance, the wasted human capital, the physical and moral degradation which show up in the law and order budget, the health budget, the education budget and so on.

In considering how to try to retrieve this situation, it is important to ask what has caused it. Some causes of family breakdown reflect general changes in society. Of these, the foremost is the increased earning opportunities for women, which both raise the opportunity cost to them of having children and reduce the gains from co-operation. The less specialised the roles of men and women become the less sense does the family make as an economic institution, a partnership to rear children. Two-earner families have fewer children and are more likely to divorce than one-earner families. This trend, of course, is likely to continue, and it would be foolish to deny the gains it has brought to many women.

Another cause of this breakdown which is, perhaps, more special to the last 20 years, goes under the gradiose title of "depletion of the marriageable male pool". This chiefly affects the family structure at the lower end of the income scale. The basic idea here is that males become superfluous except as casual lovers unless they can provide women with the resources they require for rearing children. However, the employability as well as earning power of brawn has been steadily declining relative to brain. Since the 1960s Britain has lost 3 million relatively well paid full-time jobs for semi-skilled and unskilled male factory workers, with a corresponding decline in the labour force participation rate of men. There has also been a large increase in the inequality of male earnings, leaving many unskilled men with wages below the level of income support. Women are faced with a reduced pool of useful husbands; not surprisingly, an increasing number of them choose to marry the state.

Getting young unskilled males back into work must be a priority for any government seriously concerned to protect the family, not least because it will relieve the pressure on women to take wretchedly paid part-time jobs as an alternative to child rearing. I am not at all sure how this can be done. It is a very difficult problem because, in many cases, we are dealing not just with economic casualties, but with social casualties--young people who lack not only skills but also motivation. We need to consider very seriously the use of the state as an employer of last resort. Might it not be reasonable to incur the short-term economic costs of creating or

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subsidising jobs which, strictly speaking, do not pay in order to prevent the much greater costs of complete family breakdown at the lower end of the income scale?

Faced with these general trends to family breakdown, the least we can ask of government is that they do not give them a helping hand. However, in two respects, I suggest, government have done just that.

The first is by what Patricia Morgan has aptly called the "legal disestablishment of marriage". As a result of changes in the divorce laws, marriage has been transformed from a binding contract into one which can be terminated at will, a fact which is reflected in the explosion in the divorce rate. Do we really believe that what both the Prime Minister and the Leader of the Opposition have called "the bedrock of society" is not entitled to legal protection against the pressures of modern life and against the selfishness of human behaviour?

I shall not say anything tonight about the Family Law Bill, except to regret that it was felt necessary to have a Bill at all at this moment. It would have been much better to wait for five or 10 years to allow the growing pro-family sentiment to crystallise.

Secondly--and here I come to the heart and conclusion of my speech--the tax and benefit system operated by governments since the 1970s has progressively reduced the fiscal advantages of having children in traditional families, while enhancing the attraction of single parenthood to women with poor earning opportunities. It gives two-earner families a higher net income than one-earner families, even when both types of families earn the same before tax. It gives a married couple with two children less take-home pay than a lone parent with two children earning the same before tax. It makes a lone parent with two small children who works part time better off than a family in which the father works full time but at a low wage.

A lone mother who works 20 hours a week at £5 an hour ends up with a net income, when family credit is added, of £188 a week; a married father of two small children who works 30 hours a week at the same wage takes home £142. If you raise the gains from lone parenting relative to the gains of marriage, it is hardly surprising that you get an increase in the number of lone parents and a decrease in the number of marriages.

The details of all this are fiendishly complicated, but the outline is clear enough. Although tax rates have gone down since 1979, taxes have started to bite much lower down the income scale for families with children, largely because of the withering away of dependants' allowances, coupled with increases in national insurance and local taxes, while the Government at the same time have been improving the means-tested benefits package available to lone mothers. The net result of these changes has been to leave low-waged traditional families too rich to gain from means-tested benefits, but too poor to gain from general tax cuts; it has left most lone mothers too poor to escape poverty, but too rich to marry low-waged men. Support for lone parent families increases their number, while the supply of intact families falls as resources are transferred away from them.

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The only remedy favoured by all political parties is to force more and more lone mothers into the labour market, where they drive down the wages, or increase the unemployment, of low-skilled men, thus making them even less eligible as marriage partners. This in turn increases the pressure to provide subsidised child care. As Martin Woolf has written:

    "The state would then provide the child-care, which is what women offered in traditional families, while the working mother would play the traditional male role".
Is this what we want?

How can we break this chain of perverse effects? As a first step governments should ensure that all changes in taxes and benefits should be explicitly considered from the point of view of their impact on families and should be accompanied by a family impact statement. Within this framework we should begin to shift tax and social security benefits towards the family, and particularly towards the father within the family.

I return to my starting point. We stand at a fork in the road. We can either do nothing and watch the social life of large parts of our society replicate that of the black ghettos of the United States, or we can start to translate words in favour of families into deeds in favour of families. If we have the courage to do the second, I believe public opinion will be overwhelmingly on our side. I also believe we shall be occupying the moral high ground. After years of welcoming every symptom of family breakdown as a sign of progress, we return to the basic realisation enshrined in Article 16 of the Universal Declaration of Human Rights that,

    "Everyone has the right to marry and found a family. The family is the natural and fundamental unit of society and is entitled to protection by society and by the state".
I beg to move for Papers.

6.41 p.m.

Lord Haskel: My Lords, on this occasion I am doubly grateful to the noble Lord, Lord Skidelsky, first, for introducing this important debate about tax and the family and, secondly, for giving me the opportunity of reminding your Lordships that since April 1993 there have been 22 tax changes affecting a typical family, all but one of which have been tax increases. These have resulted in a total increase in the family's tax bill of £668.25 a year, and that from a Government that promised no tax increases, and claim to be committed to helping the family.

I should like to consider how these tax rises have affected the family. In doing so, I do not wish in any way to criticise single parents. Single parents are equally valuable as members of society as married parents, but the Motion on the Order Paper refers to "the family" and therefore I shall stick to using that term.

In April 1993 there was the first of five alterations to the married couple's allowance. It has not been uprated in line with inflation in any of the three Budgets since then, and has been restricted first to 20 per cent., and then to 15 per cent. That means that since April 1993 our average family has been £202.50 worse off per year.

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The interesting thing about the married couple's allowance is that since the previous Budget the allowance has in fact become a tax credit. Noble Lords will have seen it as a new item on their tax codes; namely, "allowance restriction". During the time that the married couple's allowance has been frozen and then restricted, by contrast the single person's allowance has been marginally increased. Perhaps this is what drew Patricia Morgan, who published a paper in January last year about the family and tax, to say,

    "The state is making it abundantly clear that it is not prepared to support a man's efforts to provide for a family and does not recognise his costs when his wife cares for his children".

According to Monday's Daily Express, next Saturday the Prime Minister is to introduce a scheme described as,

    "a plan to bolster the family. It will offer tax incentives to encourage mothers to stay at home and look after the children instead of going out to work...In his Budget Speech in March 1990 when Chancellor, Mr Major said ... 'we have always made it clear that it is not for the Government to encourage or discourage women with children to go out to work'".
Is this going to be another U-turn?

I shall quickly pass over the tax increases on vehicle excise duty and fuel duties, which of course affect our average family. I come to the reduction in mortgage interest relief in April 1994 to 20 per cent., with a further reduction to 15 per cent. a year later. That adds £240 to our typical family's tax bill.

I do not need to explain to your Lordships that the most important element in supporting the family structure is a home in which to live. This is another U-turn in government policy, from using the tax system to encourage home ownership to discouraging it by reducing mortgage interest relief. It has resulted in making home buying more expensive and has helped the slump in the housing market. Apart from contributing to insecurity, this has also resulted in a powerful disincentive to move. That has always seemed to me a curious policy for a Government which are constantly telling us how important it is to have a flexible labour market. Surely an important element of a flexible labour market would be to enable families to move easily in order to find work, or to move with their employers. Yet the tax system now puts difficulties in their way.

The next tax change to hit the family structure was in April 1994 with VAT on domestic fuel. That added £65.99 to the costs of our typical family. In the past the Government argued that VAT was made less regressive because the essentials of family life were zero-rated. That is why food, children's clothing, public transport, books and education, and domestic fuel were all zero-rated. The Prime Minister himself promised on several occasions that that would remain so. Indeed, when the European Commission asked for VAT to be charged on some fringe items of food, to their credit the Government objected vigorously. Then, in complete contrast, they imposed VAT on domestic fuel. I remind your Lordships that without Labour's opposition the tax would have been levied at 17.5 per cent. instead of 8 per cent. This is not only contrary to the Government's promises but is directly aimed at the family. It is indiscriminate and hits the poorest families hardest.

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The next tax rise to hit our typical family arrived in October 1994 when the Government introduced a tax on insuring the contents and structure of our homes. That added £5.14 to the tax paid by our typical family. That is hardly a factor which contributes to the support of families.

Car insurance tax then went up, and the following month so did fuel duties. Then we had the airport tax. All these taxes have affected family mobility.

Then last October we had a new tax on mortgage protection insurance policies. It is either a demonstration of extreme cynicism or of the fact that the Treasury or the Inland Revenue just do not talk to the Social Security Department that the Minister's department can remove mortgage protection from the benefits system and exhort people to protect their mortgages themselves by taking out an insurance policy, and at the same time cheerfully see a tax imposed on that insurance policy.

In November 1995 we had fuel duties increased by 2.3p above inflation, which added another £35 to our typical family. But as the election approaches there is a tax reduction on the horizon. From next month we should have a 1p basic rate cut in tax which would benefit our typical family by £179.95. However, I should add that prescription charges and school meals have gone up. Council tax is also going up, and all these will affect our average family.

What has been the effect of all this on children? In recent years the benefits system has certainly tried to target children but, as the noble Lord, Lord Skidelsky, told us, little has been done by the tax system to take into account the costs of bringing up children. As Patricia Morgan said, the tax system now penalises married couples with children. Is that why more children than ever are now living in poverty? According to the Child Poverty Action Group, one in three children were living in poverty in 1992-93, compared with one in 10 in 1979. It is couples with children who account for the largest group in poverty and not, as the noble Lord, Lord Skidelsky, said, single parents, with 37 per cent. of those in poverty falling into that group in 1992-93. To help them escape from this poverty, families need child care. At present the only tax incentive for child care is tax relief when an employer provides workplace nurseries. This tax relief was announced by John Major when he was Chancellor in March 1990 and he said that he had introduced it to,

    "help the labour market to work better".

If this tax allowance is designed to help the labour market to work better, why is it only limited to nurseries or play schemes at the workplace? Employees may find it hard to transport their children to a nursery at their own workplace, especially if the parent commutes into a city centre. Also, very few employers are in a position to provide that benefit. Small businesses certainly would find it difficult to set up nurseries.

This litany of increasing tax burdens on the family clearly demonstrates that the Government's words supporting the family have not been carried out. I welcome the call by the noble Lord, Lord Skidelsky, to put those words into action; otherwise, in practice we shall have a clear case of saying one thing and doing another.

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6.51 p.m.

The Lord Bishop of St. Edmundsbury and Ipswich: My Lords, I too am grateful to the noble Lord, Lord Skidelsky, for providing the opportunity for this debate. The family and family life are the bedrock of society. Anything that undermines the family undermines society itself. I am sure that every Member of the House would agree with that.

The General Synod Board for Social Responsibility produced a report recently called Something to Celebrate. The media attention focused on some perhaps rather unwise comments in it on cohabitation, which led to the rest of the report being totally overlooked. However, in answer to the question: "What do families need in social and economic terms in order to thrive and fulfil their caring roles?", one requirement which the report highlighted related to the essential material needs of families: a secure and reliable income, secure housing, access to education and health care, and special help which may be needed at extraordinary times such as chronic illness or family conflict.

I do not believe that total security and upholding and support of family life in this country can simply depend upon legislation. They depend on a great many other factors which include the Church, the culture in which we live, public perceptions and many other matters. I recognise that legislation--the law--has a substantial part to play.

We need to see whether we can define what we are talking about. The noble Lord, Lord Skidelsky, referred to the traditional family. I wish to articulate that a little further. The traditional family is the tradition of the Judaeo-Christian history, which is our past. I am sure that noble Lords will expect me to say this. The traditional family is that which consists of a man and a woman, husband and wife, who are committed to each other for life in love and who, as part of their loving of each other, are committed also to bringing up children within their family.

The roles played by both the father and the mother are vital. I believe that their roles, even in the traditional family, are changing and I have no quarrel with the change. Greater father involvement in upbringing and greater mother involvement in wage earning seem to me to be the way that life is now, until the children are brought up, leave home and found families of their own, within the context of an extended family which consists of aunts, uncles, grandparents and so forth. When it works, that is the best model that we can conceivably have. Though there are times when it certainly does not, when it does work it is the most secure bedrock that society can require.

I say that that is in the Judaeo-Christian tradition, because it is. I believe it is also God-given and is the best response to the deepest needs of our human nature. The fact that it exists very much within those terms in other major faith traditions than our own is an indication that that is true.

But--and there is a but--the noble Lord, Lord Skidelsky, focused on the family structure and at the beginning he referred to other alternatives and other models. I do not believe that we can simply ignore the

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other alternatives and models, whatever we might think about them in terms of moral judgments. We live in a mixed society today. All family structures where parents or parent and children live together are families. Some of the family structures are consequential on the breakdown of the traditional model in their own circumstances; some are experimental. Cohabitation has become a much greater factor in our social life, sometimes cohabitation with total commitment of the couple to each other. I suppose one could say that it is common law marriage. Some family structures are experimental, some are serial. I do not wish to uphold those as a model in any sense. Some are the result of breakdown or death.

The Church of England Children's Society sought in a paper last year to define what there might be in common to all examples, to see whether, as a society, we could go forward. The society came up with five points which I will list: disruption and insecurity are always unhelpful; inadequate living standards are damaging to families; extended family links should be fostered and encouraged; men's parental responsibility should be given greater emphasis; families should be enabled to help themselves. Noble Lords might feel that the list is thin, but it has been worked out and all would have it in common. If legislation enabled that to occur across the whole spectrum, society would be better off than it is.

My concern is that, although I uphold vehemently and vigorously the Judaeo-Christian tradition of marriage, I am well aware that what we are talking about at root is the well-being and welfare of children. Large numbers of children are now born outside marriage, as the noble Lord, Lord Skidelsky, said. Thirty two per cent. of births take place outside marriage; 1.8 million children live in single parent families. Many of those women--and 90 per cent. are women--are not in that situation because they wish to be, but because circumstances have forced it upon them. Whatever one might think about the morality of the mother's position--and each individual case must be considered in its own right--the children are never responsible for it.

Anxieties have been expressed to me which will come out further in the course of the debate about the legislation as it stands or as it is proposed, and its effects upon the children outside the traditional standards of marriage. Concern is expressed about the Social Fund mechanism and its current inadequacies, about married couple's allowances and housing benefit proposals. The particular concern expressed to me is about the proposals to freeze the levels of lone parent and one parent premiums. If they are frozen and if there is any inflation at all, there will be a reduction in benefits. I know that the House is sensitive to the subtleties of what faces us. I believe that we need legislation that supports the traditional structure, and if anything undermines that traditional structure or fails to support it or encourage it to grow, it needs close examination, but not at the cost, I plead, of support for children who are brought up outside that structure.

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One of the greatest Archbishops of Canterbury this century, William Temple, talking at the end of the Second World War about social arrangements, suggested that the society we then needed to build was one that suggested fellowship rather than rivalry. I suggest that that is still true today.

7 p.m.

Baroness Young: My Lords, I, too, add my thanks to my noble friend Lord Skidelsky for introducing this very important debate. I might almost say that it is one of the most important debates that we have had for a very long time. I believe that central to our society today is a real concern about the breakdown of marriage and the family, to which the tax/benefit system has in itself made a contribution. My noble friend made that very clear indeed.

This debate follows logically from our many discussions on the Family Law Bill. My views on that Bill are well known. Certainly they have not changed in the course of the debates. Whatever our differences, there is broad agreement right across the political spectrum that the breakdown of marriage and the traditional family--the high divorce rate, now running at some 42 per cent. of marriages and the number of births out of wedlock, now over 30 per cent.--has had disastrous effects on the whole fabric of society. Having listened to the remarks of the noble Lord, Lord Haskel, I hope that he shares that general view, although I was not clear whether he felt quite as strongly as I do.

During the course of our debates on the Family Law Bill, I said that I considered most unhelpful the statement by the Law Commission that the high rate of divorce and births out of marriage was not having any effect on the fabric of society. The evidence is quite to the contrary. It is there for everybody to see who cares to look at it. My noble friend Lord Skidelsky gave examples. Anyone who teaches knows perfectly well that the high divorce rate, the high number of single-parent families, does have, and has had, a very marked effect in the education system. To put it absolutely at its lowest, the cost of counselling services required to help the children is money out of the education budget. It is not being spent directly on education at all.

My noble friend Lady Elles quoted on at least two occasions during the course of debates on the Family Law Bill the evidence from the Home Office that the large numbers of (as it usually is) young men aged between about 16 and 22 who commit crimes are nearly all from broken homes. A great deal of research evidence shows that it is the children of divorced and separated parents, of single mothers, who have worse health, do less well at school, are less likely to be able to get a job, take to crime and, finally, repeat the pattern of a broken marriage. Very few people dispute those facts. As a society, we are paying an immensely high price--some £9 billion--supporting this state of affairs. If we pause to think of other desirable objectives in our society on which we might spend just a portion of that money, we see what a terrible situation we have brought ourselves to. As we know, all this has happened within a generation, stemming from the 1960s. No one knows

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where it will end unless this trend is halted and reversed. We are in uncharted waters. Quite a number of people think that the number of divorces will equal the number of marriages in a very short time.

I believe that one of the purposes of law on social matters should be to buttress marriage. I have said so on many occasions. In preparation for this debate I looked again at the book by Patricia Morgan, Farewell to the Family? It is quite clear from what she says that the tax/benefit system has helped lone mothers and their children, and has disadvantaged married couples with children. Indeed, the majority of lone parents depend on welfare help of one sort or another and are usually considered to be the poorest families.

However, I believe it is true--the noble Lord, Lord Haskel, made this point--that couples with children outnumber lone parent families in the lowest income groups. At the same time, the burden of taxation has increasingly been shifted onto married parents to support, through the tax system, single parents. The traditional concept of the family wage has to a large extent been abandoned, together with the recognition that taxation should be related to the number of dependants on a particular income. The very elaborate means-tested and selective benefits that have taken its place are almost entirely for the benefit of lone parents.

I believe that that trend should be halted and reversed. I cannot believe that it was ever the intention of Parliament, however this may have come about, that so much legislation in the tax/benefit world seems to have failed to draw a distinction between marriage and cohabitation; that married families should in fact be disadvantaged vis-o-vis those of single parents, and that this has continued for some time. Can my noble friend who is to reply to the debate tell us whether the interdepartmental working party on marriage has had anything to say about the way in which the tax/benefit system has operated in this way?

We have had much talk of reconciliation. It would be helpful to know whether there has been any research into the effects of the lack of money on married couples, particularly at the birth of the first child, and whether that has been a contributory cause of divorce. The pattern of women's lives is that they work until they have their first child and then take a career break. Curiously, the effect of the tax/benefit system has not necessarily been to enhance the opportunities for women. It has made it much more difficult for the woman who wishes to stay at home and bring up her child to do so.

I do not want in any way to be seen as someone who is trying to punish one-parent families. There are single parents who, against all the odds, do very well. But all law sends out a signal, and the signal of tax law is very clear: you are financially better off if you are not married than if you are married. And it appears to be a message that is being listened to. A lot of young people simply say: why marry at all?

I was pleased that the last Budget made an attempt to redress what has been a trend for a very long time. We have lower income tax. The married couple's allowance has been increased. We had the removal, referred to by

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the right reverend Prelate, of the discrimination in favour of lone parents that has come from the one-parent benefit and the lone parent premium. Whatever may be said about that, is it right that lone parents should have more money than the married couple? That is the question that we need to address. I was pleased to see that that, too, is being put right, as well as such matters as the doubling of the level of capital disregard from £8,000 to £16,000 for those who have to go into long-term care.

I very much hope that that trend will be continued in future Budgets. I say that because I believe we are on the verge of an unprecedented social experiment. So far as I know, there has never been an open, democratic society that has not been based on the family. There has never been a society of any sort that has not been based on the family.

We are creating now a society in which, as my noble friend Lord Skidelsky pointed out, men are becoming peripheral. That is creating daunting problems for us. Quite apart from the complications of the labour market, there are fewer male role models for boys and less adult supervision of children, particularly by men, which leads to more indiscipline. Most dangerous of all, through the tax/benefit system, the state is moving in as the provider of the missing parent's functions. The traditional father is rapidly being replaced by the state. The state takes on the functions of the father, particularly as the provider of the income, and then moves on to take over the nurturing functions of families.

What conclusions can be drawn? I believe that the state should treat married parents as well as it treats single parents. That should be the first objective of the tax system in that regard. That ought to be a top priority for a future Budget. I hope very much that my noble friend the Minister can assure us on that point when he comes to wind up.

7.11 p.m.

Lord Simon of Glaisdale: My Lords, we are deeply indebted to the noble Lord, Lord Skidelsky, for this debate, which is in every way a suitable adjunct to our deliberations on the Family Law Bill. We are also indebted to him for the moving and informative speech with which he introduced the debate, though I am bound to say that, as he developed his argument, I heard it with increasing concern for the welfare of our society.

It is a great privilege to follow the noble Baroness, Lady Young, who gave so valiant a lead on the Family Law Bill, in which the tide of parliamentary opinion on the whole was against the integrity of the family, notwithstanding that lip service was paid to it. The noble Lord, Lord Skidelsky, made it clear that he was talking about the traditional family; that is to say, as I understand it, a husband and wife joining together with promises to live together exclusively during their joint lives, with the object in general of raising a family. As such it is also a primary agent for sociologists considering the welfare of society.

I suppose that most Members of your Lordships' House attach some importance to tradition. The reason is that tradition is generally the fruit of a process of

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reasoning, part of which may have disappeared from society's memory; it is the result of a series of experiences which may have vanished from the communal sense. But they can be recovered. So far as traditional marriage is concerned, a great deal was recovered on the Family Law Bill and more has already been recovered this evening.

Of course, the right reverend Prelate was right to say that legislation cannot do everything. Indeed, it cannot operate by itself. Other things are required, if we are to restore the faith and cohesion of our society.

I speak with diffidence in the presence of a historian of the eminence of the noble Lord who introduced the debate. But there is the striking example in history of the Emperor Augustus, who inherited a completely demoralised society and, by patient and detailed adjustments, much legislative and some not, reconstituted and affirmed it, so that it lasted to the general benefit for another 400 years and, indeed, bequeathed its spirit to the Papacy, the Holy Roman Empire and, more recently to the Concert of Europe.

There is a good deal that can be done by legislation, some of it outside the scope of this debate. Three Law Commission Bills are outstanding, dealing with matrimonial property. They translate into legislative terms the promise that was made at marriage to share worldly goods. It seems a matter of profound shame that the Government, during the past four or five years, have devoted themselves to a measure relating to the dissolution of marriage, while leaving those Law Commission proposals waiting--it is 15 years now and we are told that it will be another three years before they can be taken on.

There is also devolution of property on death. The Scottish system is much more user-friendly--I am sure that the noble Lord will bear me out--and much more family-friendly than our own, but nothing has been done there.

This debate valuably concentrates our minds on the fiscal and social security systems. Before venturing to make one or two specific proposals, perhaps I may make two general points. The first is that discrimination in favour of the family can always be made to look as though it is discrimination against those outside it. Discrimination in favour of married people living together can be made out to be discrimination against cohabitants without marriage.

The second point is that there is no doubt, and we must face the fact, that fiscal purists--I see that the noble Lord, Lord Lawson, is present--dislike the system of allowances because it operates particularly to the advantage of those who least need it, perhaps because it operates on marginal rates of tax. Similarly with social security, the purists will say that social security is designed to relieve need. Once one goes outside that to relieve those whose needs are not immediate, one is wasting the taxpayers' money.

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We must recognise the force of those arguments. The answer to them is the one that is being given in this debate: that the family is a fundamental unit of society and society is entitled, even at the cost of fiscal purity, to discriminate in favour of the family.

Having said that, perhaps I may mention one or two other matters. I know that the married couples' allowance is not popular with the Inland Revenue, for the reasons that I gave. Nevertheless, also for the reasons that I ventured to give, it is justifiable that we improve it further. It went back for some years; it was improved at the last Budget but not so as to restore its former value.

The second fiscal measure I wish to mention is the substitution of a succession duty in place of an inheritance tax--a succession duty which favours the family specifically in comparison with those outside. The third measure is capital transfer tax. At present that favours the family in that transfer to a spouse is excluded from capital transfer tax. Remembering that the family is not just two persons, but those two and their children, should we not also make the same tax concessions on the capital transfer tax to transfers in favour of children?

I have completed my time. What I would have said about social security has already been said better than I could possibly put it, by the noble Baroness, Lady Young. Therefore I shall merely end as I began. We are justified in discriminating in favour of the family even at the cost of fiscal purity.

7.21 p.m.

Baroness Elles: My Lords, I too thank my noble friend Lord Skidelsky, not only for introducing this debate, but also for choosing this specific subject and the way in which he introduced it. After so many weeks of debate in this House on the Family Law Bill, and after hearing so many different views, it was a great pleasure to hear what he had to say about the family and his concept of the family in society today. I am sure that he evoked many feelings of support from what he said.

We are well aware that the cost of benefits to the taxpayer is increasing annually, from around £30 billion in 1971 to over £90 billion recently or, as it is often described, £15 per day from every person in work. The Secretary of State's initiatives in considering methods of controlling expenditure while retaining the fundamental purpose of welfare--this was repeated by various noble Lords--to alleviate poverty and assist those who need financial support are to be welcomed. It is paradoxical that, as the country's standard of living and wealth increases, poverty also seems to increase relatively so that around half the population live in households dependent on one of the means-tested benefits. That surely cannot be right.

There are a great many issues involved--whether benefits are or should be means tested; at what levels they should be introduced and to whom; the great difficulty of discontinuing one form of assistance without being sure of genuine suitable alternatives; above all, how to move from dependency to self-support or to avoid the poverty trap; the changes in life expectancy and the question of income support.

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In recent weeks we have had the opportunity to debate at some length the position of the family in today's society and I do not intend to cover that ground again. Problems of family structure cannot be isolated from the question of the range of benefits and taxes that we are considering this evening. For example, it has been said that it is not unemployment which is the biggest burden on the benefit system, which is often assumed; it is single parenthood whose annual claims amount to £8 billion a year and are the major cause of family poverty. The same author of those words, the honourable Member for Birkenhead, Mr. Frank Field--who I am sure is widely respected in this House and in another place for the work he has done for many years--in his book Making Welfare Work, said,

    "No system of welfare can be independent of values. Is it right for example that young never married mothers should gain additional income support premiums when few if any voters hold that such behaviour is acceptable, let alone rewardable?"

It should be emphasised that this is not a party matter; it is the way we view the way in which poverty can be relieved and how we can best help those who need that relief. Yet the figures in his book show an escalation. In 1971 there were 571,000 single parents, of whom 90,000 never married; and in 1993 there were 1.4 million single mothers, of whom 490,000 never married; and, in all, they were responsible for 2.3 million children. It is not the parent or deserted parent that we are discussing; it is the effect on the children. Many noble Lords have emphasised that that is what we are considering--how we can help the children of disadvantaged parents.

Is there any difference in the tax treatment of married couples which might act as encouragement to the young to get married and establish a home together? My noble friend Lord Skidelsky gave some examples. The House of Commons Third Report, Review of Expenditure on Social Security, Session 1994-95 Annex A, does not give much encouragement. It says that a married couple with one child of three years old, with a gross weekly income of £100, after rent and council tax are left with £112.92; a lone parent with one child aged three, with the same relevant reductions, has a net income of £115.40. Again, with a gross weekly income of £140, a married couple is left with £114.14 and a single parent is left with £118.26.

That surely does not make sense. Although there is only one adult to be fed and clothed, in the latter case there is a one-parent benefit paid to lone parents as well as child benefit. That can add up to £6.15 a week extra. The lone parent also has tax advantages in that he or she is entitled to the additional personal allowance, rendering the tax position equal to that of a one-earner couple. The lone parent has further benefit compared with the married couple, paying 75 per cent. of the council tax, whereas the married couple pays 100 per cent.

From that comparison between the tax and benefit treatment of lone parents and married couples, there is little incentive, at any rate on financial grounds, to marry. This year's increase in the tax allowance for married couples, raised from £1,720 for 1995-96 to £1,790 for 1996-97--which is to be welcomed, of

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course--applies equally to the lone parent in the form of additional personal allowance. The discrepancies in the figures therefore remain.

My noble friend Lord Skidelsky quoted from a study by Dr. Patricia Morgan, of the Institute of Economic Affairs, who kindly allowed me to quote from some of the things she has written. The conclusion to which she came from the figures quoted by my noble friend was that,

    "At every wage level a lone parent has more than two adults and two children even if she is not claiming child care costs, and far more when she does. There is nothing for the support of a second parent providing the child care in the two parent family. Instead, the family earner has less for more people!"
She continued,

    "When a lone parent claims for child care costs, she gets more for part time work than a family breadwinner gets for full time work ... All the father's income goes against the family's entitlements, but everything the lone parent's boyfriends provide is extra".

That is a clear indictment of the balance between tax and benefits relating to single parents and also with regard to married couples. The tax regime clearly does not help married couples. If we want support for the family, regardless of measures being applied to benefits, the tax system must be more positive. In saying that, I am not decrying the benefits that the single parent receives; I am trying to emphasise the need for married couples to have better tax treatment.

Can anything be learnt from other European Union countries where the divorce rate is lower and the number of illegitimate children is also lower? If we look at some of the figures, some comparisons may stimulate my noble friend the Minister into taking some positive action. Income tax and social security as a percentage of gross salary (£17,000 or equivalent) taking global figures, in the US is 12 per cent.; Japan, 15 per cent.; and Switzerland, 16 per cent.; yet the income tax and social security as a percentage of gross salary in the UK for married couples is 26 per cent.

In each of those three countries, unemployment is considerably lower than in the United Kingdom, and while not being able to pin down the cause, it could well be a greater incentive to come out of the dependency syndrome if tax burdens were lighter and thresholds for the imposition of tax were raised. In France income tax is geared to help the family. Deductions for health insurance and other social security contributions are allowed. Although on a different system, the quotient is two for a married couple, regardless of whether the wife earns, and one unit for a child.

We had a debate recently on the elderly, so I will not repeat what was then said except to draw attention to the question of inheritance tax, to which the noble and learned Lord, Lord Simon of Glaisdale, rightly referred. It causes so much despair to the elderly who have put their life savings into a house and then have to sell it to be able to pay for residential care. After all, grandparents and parents are still part of the family, whatever age they may be. One has to consider the whole range of ages of the family. It is suggested that the seven-year rule should not apply in those cases where the family home is left to the descendants of the owner, so that he or she can enjoy remaining at home

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without having to enter a residential home. There are more than a quarter of a million people in residential homes. They could stay in their own homes with the comfort of their spouses and with home help.

I should like to set out two or three measures which I should like to see considered in order to alter the tax burden on married couples. The personal allowance should be double that of a single person, where the wife does not earn. This could also encourage her to stay at home while her children are below school age. The family allowance for children should be reinstated, increasing according to age, as expenditure increases. How I agree with the statement of the noble and learned Lord, Lord Simon of Glaisdale, that tax purity is not always the best reason for changing and helping families. There should also be changes in inheritance tax, either by abolition or by exemption on passing the family home to direct descendants. There should be encouragement for personal tax exempt savings schemes--possibly a lump sum exemption on marriage, with limitation on size and on date of withdrawal of the contributor. Finally, to help those who have become dependent on benefits, the tax threshold should be raised on taking up work. The margin of gain at present does not seem to encourage the taking up of work. This syndrome must be broken and would be possible with a tax threshold higher than the personal allowance for the first year in work, or some other equal period.

It is appreciated that each country has its own traditions and problems, and it is to the credit of this Government that unemployment is lower than most western European industrialised countries, as well as people in Britain having put aside nearly £600 million for their retirement. If the distant future for the national debt, according to the OECD, is encouraging, there is nevertheless urgent need for encouragement to be given to families in the immediate future.

7.33 p.m.

Lord Harris of High Cross: My Lords, I am grateful to the noble Lord, Lord Skidelsky, for introducing this Motion and I have learnt much from the other speeches made so far. I have one quibble with the Motion. It refers to,

    "the effectiveness of the current tax and benefit system in supporting the family structure".
It should refer to the "ineffectiveness". There is no dispute about that. I understand that the noble Lord, apart from natural courtesy and gentleness, has to be better behaved on the Tory Benches than I can allow myself to be from the Cross Benches.

In the short time available to me I do not wish to qualify all I have to say. I wish to declare some missionary truths as they have struck me not only recently but in watching the developing situation of the welfare state since I taught this subject back in the Scottish university of St. Andrews 40 years ago. Then there were high hopes in the wake of Beveridge that we could solve all the pre-war problems of want, hunger, idleness and so forth. With social benefits now roaring towards £100 billion, those high hopes of post-war reformers have been totally shattered. Multiplying

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benefits have not only failed to usher in the millennium or satisfy the general social aspirations; they have had unmistakeably a perverse effect: they have aggravated the problem by attracting ever more claimants.

This perversity of outcome is no accident. Indeed, market economists used to distinguish between what they called the income effect and the price effect of a subsidy. Thus when the Government offer cash or free services to help particular groups of people judged to be deserving, the direct, immediate and intended effect is to raise the real incomes of the recipients. Alas, inevitably, at the same time the indirect longer term unintended effect is to offer an inducement for other people to put themselves in the position of beneficiaries enjoying these new subsidies. If sceptics doubt that, the noble Lord, Lord Skidelsky, might confirm from his great knowledge that such a sensitive observer as Lord Keynes acknowledged that even the inadequate and derisory dole of the 1930s had some effect in diminishing the incentive to work. In a radio discussion reproduced in the Listener in 1930 Keynes, talking to Lord Stamp, acknowledges that,

    "the existence of the dole undoubtedly diminishes the pressure on the individual man to accept a rate of wages or a kind of employment which is not just what he wants or what he is used to".
These effects at the margin of decision, of people going for jobs or not going for jobs, switch people into totally the wrong direction and those marginal changes build up to massive redirections in lifestyles and employment.

In economic terms, if you offer a higher price for the unemployed, you will get a larger amount of unemployment. That is what Keynes taught. He called it voluntary unemployment. He did not wish to stand in judgment. That was just an effect that these subsidies had. If you offer a higher price for single parent families, you will get more single parent families. That is a matter of ordinary common sense. I do not regard the cost of £9.4 billion a year as the major cost to our society of this development. I regard the main cost to our society as the effect on children. The noble Baroness, Lady Young, has told us about presenting young children, the victims of this system, with the prospect on average of much worse life chances in employment and education and of future delinquency and so on. It is on the children that the handicaps are visited.

A number of speakers have quoted from a study, Farewell to the Family? by Patricia Morgan of the Institute of Economic Affairs. Some statistics have already been deployed so I shall add just two or three others from this splendid volume, priced £9 while stocks last. Of all families with dependent children, lone mothers and fathers, excluding widows, increased two-and-a-half fold, from 7 per cent. in 1971 to 18 per cent. in 1991; while the proportion of the total population living in single parent families increased fourfold, from 2.5 per cent. in 1961 to 10 per cent. in 1991.

The noble Lord, Lord Skidelsky, said that single parent families also suffer disproportionately from poverty. According to Patricia Morgan, that is not exactly the position. In the bottom decile of income distribution in 1991, pensioners accounted for 11 per cent., single and married persons without

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children accounted for 30 per cent. and single parent families with children accounted for only 11 per cent. Couples with children--theirs is the burden and the handicap--accounted for 49 per cent.

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