Previous Section Back to Table of Contents Lords Hansard Home Page

Lord Higgins: My Lords, the noble Baroness rightly says that Amendment No. 9 deals with savings in relation to WFCs. I was seeking to make a wider point which I made to the noble Lord, Lord McIntosh of Haringey, at Question Time. We are now extending the payment of these new benefits to people on what would normally be regarded as relatively high incomes while at the same time taking away benefits from people on, say, income support simply because they have a small amount of capital--10 per cent or so--of this amount of income. At some stage, one needs to sit back and look at the structure as a whole in order to see whether it is sensible.

Baroness Hollis of Heigham: My Lords, I take the wider issue, but we are not paying benefits to people on higher earnings. We are offering tax credits as incentives for the most part to people on low to middle incomes to go back to work and to hold down a job. The reason it goes so high is the cost of childcare. That would normally apply where a couple is working and therefore it would be rare that one of them would be a high-rate tax earner. If one of them were a high-rate tax earner, almost by definition the other person is likely to be at home because of the way the sums work. Therefore, the tax credit would not arise and would not go up that income scale. The noble Lord is correct in saying that in regard to savings the figure begins to be reduced at £3,000 and tapers out at £8,000. We shall return to this issue when we consider Amendment No. 9.

Amendment No. 2 would stop tax credits going to families with a joint income equal to the higher rate threshold.

As I said in Committee in response to Amendment No. 12, I do not think that the amendment would work, even if I agreed with its basic premise. I do not want to overdo the point about technicalities, but it is worth saying that because the amendment appears in the same format for a second time, even though I pointed out its defects at Committee stage, it appears to limit the opportunities to pay applicants WFTC. It would mean that families above the threshold given in the amendment that met all the conditions for eligibility would remain entitled to an award that they could not be paid. That would obviously be inappropriate.

According to the amendment, you could be entitled to some WFTC each week, but the Inland Revenue could not pay it because the family had a joint income above the limit. That would mean applying an additional and overriding income limit on top of the normal threshold and taper which would act to target awards of WFTC.

That is not all that I believe is wrong with the amendment. As I said in Committee, the amendment links the award, which is based on a snapshot of current circumstances, to a ceiling, the higher rate threshold. The threshold can only be set by reference to an individual circumstance of the whole tax year and it cannot finally be known until the end of the tax year.

18 May 1999 : Column 255

There is clearly a mis-match and it is not clear how it would work. It could in practice mean that the Revenue would need to hold that payment until after the end of the tax year, when the figure could finally be worked out, and in some cases until after submission of the individual's tax return. The ceiling that the amendment uses, the higher rate threshold, is not a set figure but will differ from person to person and from year to year, depending on a number of factors.

In addition, the amendment would introduce an undesirable and harmful cliff edge. A family below the limit would get help; a family that earned £1 more a week above that limit would lose perhaps £10 or £20 of WFTC to which it would otherwise be entitled.

I understand the concern that money is going to those on higher incomes; however, WFTC tailors the amount of the tax credit to family circumstances, with the threshold and the taper ensuring that the amount they receive is gradually reduced as they earn more. It avoids a situation where it is a positive disadvantage, because of the high marginal tax rates, to earn more.

Amendment No. 3 seeks to steepen the taper to 75 per cent where family income rises above 25,000. Again, the change from 55 per cent to 75 per cent at that income point will provide, if not a cliff edge, then a steep slope, which is a better situation than the previous amendment but still damaging in terms of encouraging people to earn more.

In the few cases where large income families would get some help when earning relatively high incomes because of their high childcare costs, the proposal is to introduce a complex second taper for this group only which increases the reduction rate and current withdrawal rate of 70 per cent in family credit to 55 per cent in WFTC. It takes it back up to 70 per cent as family credit and then, for good measure, adds another 5 per cent on top.

I believe that the single taper is easy to understand. It will allow applicants to see the rewards of work more clearly. Multiple tapers and special rules would bury the clear effects of what we are trying to achieve in a mathematical fog. I would not wish to go down that route simply because of the few numbers of people involved with large families that get help through family credit for their children and childcare.

The issue is how many would gain and what the numbers are of those on high earnings. There is a strict trade-off between incentive, the pitch of the taper and the scope of the help. A simple, single, shallow taper applied to all people is easier to understand and will send a positive message about working longer hours and getting better jobs, but it does mean that a few large families with children, where both parents are in work, will get help they would not have got under the preceding benefits. We accept that.

Perhaps I may give some examples as an instance of the figures for which the noble Lord, Lord Blackwell, asked. We calculate that only about 80,000 families--that is, about 5 per cent--of the 1.5 million eligible families have a household income of more than £17,000 per year. We calculate that about 5,000 families of the

18 May 1999 : Column 256

1.5 million will be eligible for WFTC with household earnings of over £25,000. That is less than half of 1 per cent of the total for which one would introduce that extremely complicated second taper.

There is a balance, and the truthful answer is that we do not believe that it is worth it. The proposals to do away with that small number of gainers--less than half of 1 per cent for those earning more than £25,000 and less than 5 per cent for those earning more than £17,000--are not worth the complexity and the blurring of the message that that would cause.

I understand the concerns but I honestly believe that it would be a case of--I use a clumsy metaphor--the tail wagging the dog. We should lose so much in simplicity for very little clawback from a very few relatively comfortably off families, with large numbers of children, entitled to help with their children's care. Therefore, under the circumstances, I hope that the noble Lord will feel able to withdraw the amendment.

Lord Higgins: My Lords, the noble Baroness was in sparkling form in knocking down that amendment. I find her arguments very largely convincing and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 3 not moved.]

Lord Astor of Hever moved Amendment No. 4:

After Clause 2, insert the following new clause--


(" . Regulations made by the Board under section 2(1)(c) shall provide that where a couple is entitled to working families' tax credit the credit shall be paid to the principal carer.")

The noble Lord said: My Lords, in moving this amendment, I wish also to support Amendment No. 6 which is grouped with it.

Amendment No. 4 is designed to protect the family by ensuring that payment is received by the primary care giver. The Labour Party manifesto stated:

    "We will uphold family life as the most secure means of bringing up our children. Families are the core of society". This amendment addresses closely the arguments put forward by organisations across the spectrum--from the TUC and the Low Pay Unit to the Institute of Directors and the CBI.

The assumption of the Department of Social Security has always been that the best way to get money to the children is to pay the mother. After all, why pay child benefit to the mother if it is not the best way to ensure that it is spent on the children? Those concerns should not be readily dismissed by the Government. I urge them seriously to consider their approach. I beg to move.

Lord Goodhart: My Lords, I rise to speak to Amendment No. 6 which is the second of a pair of amendments in this group, both of which cover the purse-to-wallet issue. I should say that until now the noble Lords, Lord Higgins and Lord Astor, and I have largely agreed with each other and supported each other's amendments. However, on this occasion, I am

18 May 1999 : Column 257

unable to support Amendment No. 4 because, although there is a good deal to be said for it in principle, I must regard it as a wrecking amendment. It would mean the automatic payment of the tax credit to the non-working parent of a couple even though the couple wished the payment to go to the working parent. I recognise that that is what happens in respect of family credit at present but the main purpose of the Bill is to change that situation. Therefore, it seems to me that this is a wrecking amendment and like it or not--and I do not like the Bill very much on this point--I feel unable to support Amendment No. 4.

Therefore, I turn to Amendment No. 6. The background is that the Government have not accepted the principle that in cases of disputes between parents as to which of them should receive the working families' tax credit, it should normally go to the caring parent rather than through the pay packet.

The Inland Revenue stated that in a memorandum published in March, and that was strongly emphasised as being the Government's intention by the noble Baroness in Committee when the amendment was debated. However, the draft regulations said only that the working families' tax credit in the case of a couple should go to whichever of them they agreed, and the draft regulations said nothing about what happened in the event of a disagreement.

Apparently, the Government are anxious to keep any references to disagreement or the consequences of disagreement between a couple off the face of the regulations. The result of that appears to me to be that the regulations give no authority to the Inland Revenue to pay working families' tax credit to either member of the couple in the absence of an agreement between them as to which of them is to receive the tax credit.

The noble Baroness said that the Inland Revenue proposed to deal with that matter under its statutory powers of care and management. In Committee, I expressed doubts as to whether that power could be used to authorise payment to a person not entitled to it on the face of the statute or on the face of regulations made under that statute.

The Inland Revenue have taken advice and, as I understand it, they have concluded that whether or not they agree with my arguments, there is at least enough force in them to make it advisable to give the Inland Revenue a discretion under the regulations to decide who is to receive the payment in the case of disagreement. That provides a legal basis of payment to the carer parent. Therefore, we are prepared to accept the Government's undertaking as to the way in which the discretion is intended to be exercised, subject only to one outstanding point.

That point concerns the application forms and the explanatory notes. The drafts which the department produced and which I saw said nothing whatever about the procedure if a couple were unable to agree which of them should claim. The remarks of the noble Baroness on the 26th April at col. 114 of Hansard gave some degree of comfort, but not enough. On that occasion she said:

18 May 1999 : Column 258

    "As consultees have suggested, the form and guidance notes set out what needs to be considered by a couple when making the choice. More recent comments have suggested further changes which refer specifically to what happens in the case of a dispute or tell applicants where to go for help. We are looking for these. We very much hope that we shall be able to embody them to the satisfaction of all concerned in the forms that go out as of next April. In addition, the working families' tax credit helpline is always available and our guidance will be made public".

We would like an undertaking that either the form or the notes, or preferably both, should contain information about the procedure if the parties are unable to agree. If not, a woman may come under pressure to agree to payment to her husband simply because of a belief that if she does not agree to that there will be no money. Now that the Government have agreed to extend the regulations to cover situations where there is no agreement, can the noble Baroness undertake that the forms given to the applicants will explain what happens if there is no agreement?

10 p.m.

Baroness Hollis of Heigham: My Lords, the new clauses introduced by Amendments Nos. 4 and 6 bring us back to the subject, first, of whether couples be given the choice of who should be paid and, secondly, whether the safeguards we described in Committee are sufficient. They deal with choice and the disputes procedure which are made clear to potential applicants.

Amendment No. 4 seeks to replace the Government's approach with a rule which would result in the addition that WFTC provides going to the principal carer. Not only do we believe that this is the wrong way in which to approach the issue, but even if we were to subscribe to the sentiments behind it, that would not be the way in which to put it into practice.

The second amendment would support the Government's approach of giving the couple a choice, but seeks to ensure that legislation deals with the situation where a couple cannot come to an agreement.

Let me return to Amendment No. 4. I shall seek to show why the new clause would be unworkable and say something about why the Government's approach is preferable. In the light of that I shall seek to address the concerns expressed by the noble Lord, Lord Goodhart.

The new clause introduced by Amendment No. 4 looks deceptively simple. It says that if a couple is entitled to WFTC, then make payment to the principal carer. But there are problems with both of those statements. The technical problem and the reason why that new clause would not work is that there needs to be an applicant. That is the core of the application procedure where the applicant fills in the left-hand side of the form--I have copies here should your Lordships wish to see them--and the partner fills in or supplies details for the right-hand side. Together the two sides of the application form comprise the family circumstances. So the new clause is defective.

The amendment seeks to resolve the problem of what to do where couples may disagree by providing a statutory rule, and I sympathise with that purpose. But as I said in relation to defining principal care, there are difficulties in that regard. The clause, even if it worked,

18 May 1999 : Column 259

would simply shift the issue of who is to be the applicant, which is what it is now and therefore the forms set it out, to who would be the principal carer. Therefore the tax credit would not necessarily be paid to the applicant, but to whoever was determined to be the principal carer.

Let us think about that. Given that three-quarters of married women work, how would we determine who was the principal carer? Would the test be the hours that each party worked? Would it be the earnings, who did the school run, who went to the parents' evening or who did the dentist visits? Or if she were in waged work and he was self-employed at home, would the presumption be that he was paid because he was self-employed and working from home? Deciding who the applicant is on the basis of the choice that the couple have made is simple; deciding who the principal carer is when both of them may well be in work or have a complexity of family arrangements is much harder and much more intrusive. Therefore, we believe as a matter of principle that the way we have set out the provisions, to pay the tax credit to the applicant rather than to the principal carer though the applicant may well be the principal carer, is the right way to proceed.

WFTC is a work incentive measure designed to help families; it is not a family support benefit paid to families; it is not child benefit paid to families. It is paid to someone in work. The way we dealt with it is for couples to have a free choice as to which of them is to receive the money. It is not a choice about how they are to be paid. If they choose for it to be paid to him and he is in work, it must be paid through the pay packet. If the choice is to pay it to her and she is in work, it must be paid through her pay packet. If the choice is to him and he is at home, it will be paid to him directly. If the choice is to her and she is at home, it will be paid to her directly. But it is their choice as to whom it is paid and following what their circumstances are--whether they are in work or at home--will follow a decision as to how it is paid. We do not expect that to be a problem in the vast majority of families. I hope that explanation is reasonably clear. It can go to either him or her, but according to whether he is or is not in work or she is or is not in work, so the payment will follow.

Next Section Back to Table of Contents Lords Hansard Home Page