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Lord Avebury: My Lords, will the Minister confirm that the forthcoming G8 meeting in Alberta will feature a special session devoted to NePAD, which will be attended by some of the countries concerned, including Angola? Will the Government take that
opportunity to impress on the Government of Angola the need to comply with the advice that has been given by the IMF and others on the need for greater transparency, particularly on oil revenues? What is the Government's attitude to the proposal by a number of distinguished NGOs that all states, not just the G8, should encourage those companies that are resident in their territory to make full disclosure of payments made to other countries for the use of development resources?
Baroness Amos: My Lords, there will be a discussion in Kananaskis at the end of June on the G8 Africa action plan. The five steering committee members of NePAD will be invited to attend that meeting. The G8 countries believe that peace and security have to be a priority for that action plan. Some of the issues that have been raised this afternoon will be part of that discussion.
We continue to encourage the Government of Angola to stay on track in their discussions with the IMF, because economic reform is important for Angola. Transparency in the oil account is important for Angola's long-term development. It is important to pay tribute to BP, which has done some good work on that.
The noble Lord asked me one further question, which I have managed to forget.
Lord Avebury: My Lords, the question was about the proposal by a group of distinguished NGOs, including Oxfam and Christian Aid.
Baroness Amos: My Lords, I am aware of that proposal. It would be difficult for G8 countries to regulate business. As we know, a number of international companies take corporate governance very seriously indeed, and a number of multinationals have signed up to the UN global compact. Through such voluntary initiatives we must try to ensure that our concerns about events in Angola are represented in those forums.
Middle East
3.1 p.m.
Lord Blaker asked Her Majesty's Government:
- What steps they are taking to assist progress towards a settlement of the problems between Israel and the Palestinians.
Baroness Amos: My Lords, the Government are profoundly concerned at the violence in the Middle East and the terrible humanitarian situation in the occupied territories. We continue to press the Israeli Government to allow full access to humanitarian relief agencies. We support UN Security Council Resolution
1405 which calls for a fact-finding mission into events in Jenin. We support continuing US efforts to end the violence and resume political negotiations. We urge Israel and the Palestinian Authority to implement UN Security Council Resolution 1402, which calls for Israeli withdrawal from Palestinian cities, and for both parties to move immediately toward a meaningful ceasefire and work toward a political settlement.
Lord Blaker: My Lords, has not the recent brutal behaviour by Israel put at risk the cohesion of the coalition against terrorism and made it more difficult to prevent Saddam Hussein proceeding with his programme for making weapons of mass destruction? Is it not imperative now that steps should be taken to resume some form of peace process? Is it not clear that the best and perhaps only country to initiate such a programme is the United States, using the economic levers which it has against Israel? Will the Government put that point of view to the Government of the United States?
Baroness Amos: My Lords, noble Lords will know—we have had a number of discussions in this House on events in the Middle East—that we are in constant contact with our US partners on this matter. On 18th April, Secretary Powell said that the US has a vision of,
- "two states living in peace, side by side",
- "only solution to this conflict".
With our European Union partners, the United States and the United Nations, we are working very hard to end the violence in the region and to bring both sides back to the negotiating table. We are very pleased that the UN fact-finding mission is intended to go into Jenin towards the end of this week or early next week.
Lord Wright of Richmond: My Lords, will the Minister confirm that the British Government still regard the Palestinian Authority, under the elected President Yasser Arafat, as the legitimate administrators of the occupied territories? Will she also tell us what specific representations have been made either directly or indirectly to Israel about what appears to be the systematic destruction of the Palestinian Authority's infrastructure, including their computers and health and school records, and their continued restriction on the freedom of movement of President Arafat?
Baroness Amos: My Lords, we have made specific representations. Indeed, my right honourable friend the Foreign Secretary has asked our ambassador in Israel to talk to the Israeli Government about the alleged abuses which have been said to have taken place. That is why we have welcomed the UN fact-finding mission. It is precisely because we are receiving contradictory information about what is happening
and what is alleged to have happened that we require an independent fact-finding mission under the auspices of the UN.
Lord Howell of Guildford: My Lords, I agree with what has been said about the key role of the United States. I am also sure that the Minister will agree that European Union officials, provided that they can get the balance right, may have a role to play. However, does she agree with the comment this morning of a leading and very wise Arab leader that, of all the countries and major powers in the world, the United Kingdom has the most expertise and most experience in handling the appalling complexities of the Middle East? Will she encourage her colleagues in the Foreign Office to make a more direct contribution to the building up of a regional conference within which, out of all this bloodshed, the seeds of some kind of peace can be sown?
Baroness Amos: My Lords, first, I thank the noble Lord for his comments on the experience and expertise that exists in this country. However, it is important to remember that, as we have all said, this issue requires an international response. We have taken the lead within the context of the UN, but Saudi Arabia and Crown Prince Abdullah have also played a key role. The US has an absolutely critical role, and the countries within the region themselves have a key role to play. The key factor is that we should all work together and recognise that military action will not deliver a solution. We know that the two sides have to sit down and negotiate. In the long term, they have to be able to live together.
The Lord Bishop of Bradford: My Lords, is the Minister aware of the deep concern felt on these Benches about the deteriorating situation in and around the Church of the Nativity in Bethlehem, a place of the utmost significance for Christians and Christian sensibilities throughout the world? Among other concerns, am I right in my understanding that the people currently inside the church have water but no food although they have been there for 20 days or so? Can she please tell us what steps the British Government might be able to take to support local efforts by people of different faiths to bring this appalling solution to a peaceful and acceptable solution?
Baroness Amos: My Lords, I entirely share the right reverend Prelate's concern. There are at least 150 Palestinians—including about 80 members of the Christian orders—in the church in Bethlehem, and they have been there since Israel began its incursion into Bethlehem. It has been quite difficult to get accurate reporting on water and food. The last report that I saw indicated that water and food were running out, but I have certainly not seen a report indicating that there is no food. We are closely engaged in
diplomatic efforts to resolve the stand-off, and we will continue to do all we can to bring this situation to an end.Tax Credits Bill
3.7 p.m.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham): My Lords, I beg to move that this Bill be now read a second time.
Last week, in his Budget Statement, my right honourable friend the Chancellor of the Exchequer made clear the Government's continued commitment to building a welfare state fit for the 21st century. We are determined to improve the support available to families with children, to streamline administration, and to tackle child poverty by targeting help to those who need it most. At the same time, we want to tackle the unemployment and poverty traps by making sure that work pays. Working within the constraints imposed by the systems we inherited, we took action in the previous Parliament to achieve those aims. We introduced the working families' tax credit, which is currently benefiting almost 1.3 million families, and the children's tax credit, a tax cut of up to £520 annually for about 4.6 million families.
Our reforms to date have been a success. However, the practical constraints imposed by the existing systems meant that they could not go far enough. Existing forms of support are divisive. Support for children depends on whether the parents are in work and whether they pay tax. Support for workers with a disability focuses on their disability rather than on the fact that they work; and some people, such as students and student nurses, fall through the gaps between those systems, excluded from all but child benefit.
Existing forms of support are also inflexible. WFTC and disabled person's tax credit are paid as a six-month fixed award, based on family circumstances and a snapshot of income at the point of claim. Once an award has been made, it cannot, except in limited circumstances, respond to changing circumstances and changing levels of need.
So, while the Government are not changing their objectives, we are—with this Bill and with the new tax credits it introduces—improving the way we deliver them.
The new tax credits represent the next, and important, step forward, allowing us to make further progress through a system which is fairer, more inclusive, better targeted and more flexible. The new credits will rationalise the existing systems of support, delivering more effective help to families with children and to working households.
Building on universal child benefit, the child tax credit will tackle poverty and provide targeted support to parents. For the first time, there will be a single credit to support families with children—one framework for income-related support for children,
reducing stigma, smoothing the transition from welfare into work, and broadening the scope of support.The working tax credit will improve work incentives, tackle in-work poverty, and remove barriers to work. It will provide a single, inclusive credit for those in work, so that workers with a disability receive the support they are entitled to under the same framework as other working households; and it will extend support to working households facing poverty without either children or a disability.
Last week's Budget set out detailed information about the structure of the new credits and the levels of support they will provide. That is why the Second Reading was tailored to follow the Budget rather than precede it. Together, the new tax credits will provide initially an additional £2.7 billion to support families with children, tackle poverty and make work pay.
The child tax credit will, in total, target around £13 billion of support to around 5.75 million families with children. The credit will be made up of two elements. The family element will be available to all families with at least one child, recognising the additional responsibilities that come with parenthood. From April 2003, this will be worth up to £545 a year (£10.45 a week). It will be worth double that for families with a child under one year-old—extending the extra support provided to families with a new baby through the children's tax credit down the income distribution so that families on lower incomes who do not pay tax can also benefit. On top of that family element, an additional amount of up to £1,445 a year (£27.75 a week) will be available for each child, tailoring support according to the size of the family. This child element will rise to £3,600 a year (£69.05 a week) for children who have a disability, and to £4,465 (£85.65 a week) for children who are severely disabled.
This is an inclusive system. These amounts of child tax credit will not start to be withdrawn until family income reaches £13,000 a year—meaning that around a quarter of all families will receive the maximum amount of child tax credit on top of their child benefit. Together, this will ensure that these families are guaranteed £54.25 a week for the first child. So a family with two children and income of less than £13,000 is guaranteed support of £92.75 a week.
The family element of the child tax credit will not start to be withdrawn until family income reaches £50,000. Your Lordships will recall I explained that the child tax credit replaces the children's tax allowance. Some 80 per cent of families will receive at least this full family element on top of their child benefit, guaranteeing a family with income of up to £50,000 at least £26.50 a week for the first child. A family will continue to benefit from the child tax credit until family income reaches £58,000.
The working tax credit is designed to tackle poor work incentives and persistent poverty among working people. As I say, the child tax credit is designed to support children. The same level of benefit applies whether one is out of work or in work. One ports it from one to the other. It is a secure, portable
bridge of income. As I say, the working tax credit— the adult element—is designed to tackle poor work incentives and persistent poverty among working people. It will broadly replicate the support for adults provided through WFTC and DPTC but, for the first time, will extend support to those on low incomes without children or a disability aged 25 or over and working 30 hours or more a week. In other words, the adult element is available to those without children, unlike the current WFTC, unless they are disabled.The working tax credit will consist of a basic element for all those who are eligible of £1,525 a year (£29.20 a week). Additional elements will provide targeted support according to household circumstances. For example, there will be additional elements for couples and lone parents worth an additional £1,500 a year (£28.80 a week), and a top up of another £620 (£11.90 a week) for those working at least 30 hours a week. People aged 50 or over returning to work from welfare will also be eligible for extra support from working tax credit for the first 12 months, helping them to settle back into work.
The working tax credit will be available for households with incomes up to a maximum of around £13,000 for part-time workers with children and almost £15,000 for full-time workers. On its introduction, it will guarantee a minimum income from full-time employment for those aged 25 or over without children or a disability of £183 a week for couples and £154 a week for single people. That is well above the minimum wage for the same number of hours. A family with one child and one earner working full-time on the national minimum wage will have a guaranteed minimum income of £237 a week.
Working tax credit replaces DPTC, bringing people with disabilities into the same system of support as other workers, but providing additional elements to recognise disability. The basic tax credit available for a disabled worker will increase to £68.35 a week—around £5 more than would be payable under DPTC. The minimum income guarantee for a single disabled full-time worker will rise from £172 currently to £194 in 2003-04. In addition, work incentives will improve for couples with two disabled workers, as the disabled worker element of WTC will be available for each person who qualifies.
We are also building on the success of the childcare tax credit in WFTC and DPTC by including a childcare element within the working tax credit. The childcare tax credit is already helping around 160,000 families in WFTC and DPTC with their childcare costs—around three times the number who benefited from the childcare disregard in family credit. Levels of employment among lone parents are now at their highest for 20 years. One message comes over consistently from lone parents when asked what is their greatest barrier to work: it is being able to afford reliable, quality and safe childcare.
In designing the working tax credit as a modern mechanism for removing barriers to work, we have listened to what parents and childcare providers have had to say about the existing arrangements, as one
would expect. As a result, we will make sure that help with childcare costs, provided through the working tax credit, is paid directly to the main carer, alongside the child tax credit. And, so that couples can decide themselves how to share responsibility for looking after their children, we will allow couples with children to add their hours together to qualify for the 30-hour top-up.The Government will introduce changes to ensure that the childcare tax credit can in future meet the needs of even more parents. From April 2003—this is something I am sure the House will welcome warmly—eligibility for the childcare element of the working tax credit will extend to those who use approved childcare in their own home, as opposed to a child having to go to a nursery or a childminder outside, benefiting families who need home-based care, such as those with disabled children or parents who work outside conventional hours.
The working tax credit and the child tax credit will form an integrated part of the tax system. Based on annual income for a tax year, they represent a sea change in the way support is targeted. By basing entitlement on annual income before tax and national insurance contributions are deducted—in other words, on gross income—and aligning the measure of income more closely with that used for income tax, the new tax credits will extend the light touch income test currently enjoyed by middle and higher income families—what we all take for granted—to all families.
Assessing income on an annual basis, which the system will do, reduces hassle for claimants, who will be required to report their income only once a year and will be able to use information that is already available for tax—for example, on their P60—to do so. It also provides a fairer measure of income than the "snapshot" approach used in WFTC and DPTC, which bases entitlement for six months on income around the date of the claim.
Looking at gross income for the year—many commentators have not picked up this point although it is vital in the new system—will improve work incentives for second earners, who will be able to get the full benefit from their personal tax allowance when they move into work rather than seeing the effect of that allowance eroded, which can happen now because entitlement to WFTC and DPTC is based on their net, after tax, income. One of the by-products of the older social security system, as noble Lords will be aware, is that second earners have always been penalised by very high deduction rates that go as they move into work; otherwise, their partner would be eligible for support. Going for gross rather than net income reduces the deduction rate. It introduces additional income into and stabilises income in low-wage families. Moreover—in my view, this is extremely important—perhaps three-quarters of lone parents have come from couple families and they might have been encouraged to work through the arrangements while in a couple family. We should give them the best possible financial insurance, should they go on to become lone parents in future, to remain attached to the labour market.
Second earners stand to gain by virtue of going for gross rather than net income. Overall, the move to the new tax credits will mean that the gain to work for a second earner taking a part-time job at typical entry wages will increase by around £14 a week where the first earner is on half average earnings.
The new tax credits will also provide a system that combines continuity of support with the flexibility to respond quickly to changes as they happen, ensuring that support is targeted where it is needed and when it is needed. There will no longer be any need for families to wait for up to six months for their awards to respond to their changing circumstances, as people receiving WFTC and DPTC do now. Where circumstances change after an award of new tax credits is made—for example, if the composition of a household changes or a family's childcare costs change significantly—the awards will be able to respond to that change straightaway.
Awards will initially be based on family income for the previous year, ensuring that claimants have a known starting point and a degree of assurance about the level of their award. But awards will also be able to respond to rises and falls in income in comparison with the previous year—that is, going on to a current year figure—ensuring that resources are targeted effectively and, in particular, that those who experience a fall in income can have their awards increased to reflect that fall and thus prevent any perverse drive to drop out of work altogether.
After careful consideration of the available evidence, having examined similar systems in other countries and having discussed possible arrangements with representative groups, the Government have decided that awards should be able to adjust for all falls in income in comparison with the previous year. That means that recipients who experience a fall in income that will increase their award will be able to inform the Inland Revenue that they expect their income in the current year to be less than last year's, giving them the opportunity to get increased payments when they most need them.
However, we have decided that the system should be less responsive to rises in income. In other words, there is an asymmetry of generosity. Responding to all rises in income could lead to significant numbers of recipients having overpayments of tax credit—through, for example, wage increases or extra hours worked—which would need to be recovered. The Government have therefore decided that awards should respond only to rises in income in the current year of more than £2,500. Any increase below that amount will be entirely ignored. Rises of more than that amount will be taken into account only to the extent that they exceed the threshold. The first £2,500 of any rise will be disregarded. That will mean that the system provides certainty for people who enjoy small rises in income—they will not have an overpayment to make—and that people who are able to increase their income will know that they will see the full benefit of the first slice of their additional income. In other words, if one's circumstances worsen, one can get one's
increase in working tax credit and child tax credit immediately; if one's circumstances improve, one need have that figure adjusted for the current year only if the increase is of more than £2,500. That asymmetry allows for a decent response by the Government.Finally, I should not neglect to mention that the Bill also provides for the transfer of child benefit to the Inland Revenue, as announced by the Prime Minister in June last year. Child benefit is a key part of the Government's strategy for eradicating child poverty. I assure noble Lords that it will remain an identifiable stream of income and universally available. The child tax credit builds on the foundation that is provided by universal child benefit. Universal child benefit remains the response of those without children to support those with children. The child tax credit allows a further redistribution that is targeted at those on lower incomes.
It makes sense to streamline the administration of financial support for parents. Transferring child benefit to the Inland Revenue alongside the introduction of the child tax credit will mean that the Government can deliver a joined-up service to parents, who will need to deal with only one department to get the support to which they are entitled for their children. The majority of the 7 million families who receive child benefit will also receive help through the child tax credit, so it makes sense for them both to be run by a single department. That will help to reduce hassle and red tape for families.
During the previous Parliament, we embarked on a wide-ranging programme of reform of the tax and benefits systems. We had to take action quickly, and we did so. But it is now time to take the next step forward by rationalising and modernising the support that is available to families and working households and by improving the way in which it is delivered. The introduction of the child tax credit and the working tax credit, and the transfer of child benefit to the Inland Revenue, will deliver that next stage of reform.
The new credits provide a fairer system. Awards will be based on family income for the whole of a tax year, giving a fairer picture of a family's financial position than the "snapshot" used in WFTC and treating single earner and dual earner couples alike, rather than continuing the bias in the existing children's tax credit towards dual earner couples. At the same time, however, the new system will improve work incentives for dual earner couples, for whom the fact that awards will be based on gross income will mean that they can keep more of what they earn. Treating income from savings just like any other income means that the system will also improve incentives to save, because families will not be penalised for their savings.
The new credits will also be more generous than existing systems. For example, most families with two children on income support will gain more than £9 a week from the child tax credit. One of the matters that most delights me about the child tax credit—this was not picked up very much by commentators—is that for at least this current Parliament it will be earnings linked, not price linked. A single earner couple with
two children working full time at the national minimum wage will receive about £400 a year more from the new tax credits compared to WFTC and the existing children's tax credit.In addition, the fact that families will continue to receive child tax credit when they start work—with no need to submit a new claim and with the credit continuing to be paid at the maximum rate until income reaches £13,000—will improve security for families as they move from welfare into work.
The Bill introduces a fairer, more generous, more responsive system, which streamlines administration, reduces red tape for families and working households, which has been welcomed by business and which improves incentives to work and save. Those are important reforms that will allow us to progress towards our goals of tackling child poverty and delivering employment opportunity for all—goals that I am sure the House shares. I commend the Bill warmly to the House.
Moved, That the Bill be now read a second time.—(Baroness Hollis of Heigham.)
3.29 p.m.
Lord Saatchi: My Lords, I thank the Minister for her introduction of the Bill to your Lordships' House. On these Benches we have often said that there is a great deal of expertise in your Lordships' House on matters of this kind. I believe that Parliament is very fortunate to have the Minister, my noble friend Lord Higgins and the noble Earl, Lord Russell—perhaps three of the greatest experts in the land on such matters—to lead on this Bill.
As an introduction, I shall try to give a Treasury perspective to your Lordships. Before doing so, I am told that, under our new rules, I must declare an interest, which I now do. I am a shareholder in a company which provides consultancy advice to the Inland Revenue and I am a director of the Centre for Policy Studies.
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