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Baroness Hollis of Heigham: My Lords, did we accept it?
Lord Saatchi: My Lords, that has yet to be seen. We shall find out.
If Bills were persons, this Bill would be a kind and generous soul, rather like the Minister, who was kind and generous only last week in arranging a personal briefing for many of the speakers in this debate. There, I am afraid, the resemblance between the Bill and the Minister ends. While the noble Baroness is always admirably clear and straightforward, the Bill is the exact opposite: "a monstrous thing", according to the editor of the FT, of "paralysing complexity", in the words of the editor of the Economist.
As the Minister said, there is no doubt that the Bill is well intentioned. It aims to boost the income of people in low-paid jobs. That is a fine and worthy aim and we support it. But, before commenting on the Bill, perhaps I may mention the parliamentary procedure that has brought the Bill before your Lordships' House
today. We believe that it sets a new and dangerous precedent on the balance between what Parliament determines in primary legislation and what Ministers alone can decide in secondary regulations.In clause after clause of the Bill, periods, amounts, descriptions, definitions, rates, tests, entitlements, notifications, records and the whole paraphernalia of this system are left to regulation and to Ministers alone to decide. The fundamentals of the new tax credits scheme, some of which the Minister described today, were simply omitted from the face of the Bill as seen by another place. Who will receive how much and in what circumstances remained a mystery to the elected Chamber. Parliament was unable to judge whether the Bill's scheme would be beneficial or harmful to existing or potential recipients.
I give one example. Clause 8 deals with entitlement to child tax credit, but the elected Chamber was not told who is entitled, who is responsible for a child and which children qualify. All those fundamentals are left for regulations to provide for, or not, on whatever terms the Minister might choose. Ironically, while the elected Chamber could not scrutinise those details, we, the Chamber for whom financial Bills are famously strictly X-rated material, can do so, as we begin to do today. It is odd, is it not? We should like to see a more normal balance restored between Ministers and Parliament, and we shall bring forward amendments to try to achieve that.
I turn to the Bill itself. I would say that no Bill currently before your Lordships' House better reveals the philosophical gulf between the two Benches than this one. I should like noble Lords to consider for a moment a table in the Red Book. It is Table A1 on page 154. It is very helpful as it shows the impact of Budget changes. The first change is in lines 1 and 3: personal tax charges up £4.6 billion. The second change is on lines 18, 19 and note k: personal tax changes down £4.6 billion. The net change is nil, except for one thing.
In that pointless transaction, who benefits? The Government. What do they gain? Power. Who loses? The citizen. What does he or she lose? Independence. The Government like it that way because it puts the Government at the centre of events and centre stage. It is the Government who giveth and who taketh away. Most people believe that the tax system now takes around 39 per cent of GDP, but that is just the end result of the system. The total system collects a staggering total of 53 per cent of GDP. The citizen is then obliged to claim back 14 per cent of GDP—that is £143 billion—by navigating a mass of more than 250 complex tax allowances, reliefs, exemptions, credits, tapers, indexations, disregards and so on, to which list the Bill adds more.
Perhaps noble Lords will follow me for a moment in the strange history of the working families' tax credit. I believe that the Minister called what I am about to describe "sea changes". The Chancellor announced his intention to introduce that credit in his March 1998 Budget, to take effect on 6th April 2000. But before the first tax credit was paid by employers, the Chancellor
announced in his March 2000 Budget that it was to be abolished and replaced by the employment tax credit for working households.The working families' tax credit had a longer life than the employment tax credit because the latter never even made it to the statute book, let alone into the pay packet. In his Pre-Budget Statement, the Chancellor announced that the employment tax credit was to become the working tax credit. But that was a model of consistency compared to the history of the child tax credit. In the 1998 Budget, the Chancellor announced the introduction of the children's tax credit. That was to begin in April 2001, but it never made it. In his March 2000 Budget Statement, the Chancellor announced that the children's tax credit was to be replaced by the integrated child credit. Therefore, the children's tax credit had the distinction of being abolished before it was even introduced. But sadly, since then, the integrated child credit has itself disintegrated, and we are now left with only the child credit.
Perhaps I may tell your Lordships a little tale about the Bill before us. Under this Government, family credit, which had existed since 1988, has so far been replaced by the working families' tax credit, the employment tax credit, the working tax credit, the children's tax credit, the integrated children's tax credit and the child tax credit. To look at it another way, the average life of a tax credit is six months.
The result is that almost half the increase in government administration costs over the next few years—I am talking about £4 billion—is allocated to the collection of tax or the distribution of benefits. There are 140,000 government employees involved in the process. Yet billions of pounds of benefits and credits go unclaimed by millions of citizens who cannot fathom how to claim them.
The problem of take-up is endemic to the system that we are examining in the Bill. Many cities have a high level of social mobility and high population turnover. For many people in houses of multiple occupation, getting the post is a nightmare. Readership of local newspapers is low compared with that in other areas. The multiplicity of media outlets may be exciting but it means that it is difficult to get a message through to people. In addition, 130 languages are spoken in many cities. Thus, it is especially difficult to reach minority communities, which are among the poorest.
Therefore, the working families' tax credit's take-up has been estimated at 62 per cent. Only 72 per cent of entitled families with children had claimed the children's tax credit by December 2001. This year, following the introduction of the children's tax credit and the pensions credit, it is estimated that a further £2.6 billion of budgeted expenditure on tax credits will go unclaimed. Where is all this money? Who has it? We should very much like to know.
We all know about stealth tax. It is a tax charge unknown or incomprehensible to its victim. The Bill introduces us to a new concept in public finance—the
stealth credit. That is a tax relief unknown or incomprehensible to its beneficiary. But there is one crucial difference between a stealth tax and a stealth credit. The stealth tax is unerring in its reach. It achieves 100 per cent of what we call "take up". The stealth credit, on the other hand, reaches only 60 per cent of its beneficiaries. In other words, returning to my table in the Red Book, the £4.6 billion of tax rise from NICs, about which we heard in the Budget, will be paid to the Government, but the £4.6 billion of tax credit will not be paid by the Government.In a debate in Committee in another place, the Financial Secretary said that the Bill would give us a tax system like a television set; so complicated that no one would understand it. But she said that that did not matter as all people had to do was to turn on the switch. What nonsense. How many of us have to fill in a 16-page application form to turn on our TV? All this complexity might be well and good if it worked in achieving some sort of basic objective of the kind the Minister described in her opening speech. Perhaps that might be some form of redistribution from rich to poor, which would be fair enough, but sadly not. We already know that the Government did not achieve what they claimed they had; that is, taking 1.2 million children out of poverty. According to the latest figures the Government achieved taking out only 300,000 of 2.4 million children officially in poverty.
However, that is only the beginning of the awesome injustice of this system. Let us consider this. The Government regard a child as being in poverty if he or she lives in a household which has an income below 60 per cent of the median. Yet the poorest 10 per cent of people now pay a record rate of between 50 per cent and 63 per cent of their income in tax. The least well off pay the highest rate. It is a mad world with the poor paying higher taxes than the rich. According to Inland Revenue statistics for 2000-01, a total of £3 billion was received from 8 million taxpayers with annual gross incomes below £10,000. Incredibly, the Budget last week adds to the tax burden on those people. On page 12 we find that the poorest people will now pay £1.65 per week more in tax. Is it not outrageous that 3.6 million people, who earn less than half the national average and are officially defined as "in poverty", should pay any tax at all? They suffer not just because their incomes are too low but because even people on low incomes have their already low income further reduced by tax.
At present the Government first tax people on low incomes. They then means test their income; offer them benefits and credits such as these to restore their income back to where it was before they paid the tax; and then finally tax some of the benefits, with the poorest people bearing the heaviest tax burden. Meanwhile, the upper half of income earners, who should have nothing to do with the benefit/credit system, receive 30 per cent of all benefit expenditure. Now, with the Bill, if I have correctly understood it, households on £60,000 per year—that is three times average earnings—can claim a credit.
In the dependency culture at the root of the Bill, almost a quarter of the households in Britain are already means tested for benefits. The Bill and associated measures will increase that proportion to nearly 40 per cent in the next two years for everyone and to between 50 per cent and 65 per cent for pensioners. In a nation of dependent benefit claimants, only 10 per cent of families now fail to qualify for some sort of state hand-out. The Government have bizarrely devised a means-tested system not for the poor but for 90 per cent of families in the country.
As I said, the Bill shows the philosophical gulf between the two Front Benches. In a remarkable essay Immanuel Kant declared that
- "to be civilised is to be grown-up".
- "the benevolence of a ruler who treats his subjects as dependent children ... is the greatest conceivable despotism and destroys all freedom".
Like Locke, Rousseau, Jefferson and most of the champions of liberal democracy, Kant placed immense stress on independence, inner directness and self-determination. He wanted a free man to be able to say, "I am the captain of my soul". This Government want the exact opposite: the people as dependent children; themselves the master, the Bill the instrument of their power.
3.45 p.m.
Lord Rix: My Lords, those who were present at the extremely helpful meeting in the Moses Room last week, conducted so courteously by the Minister, will be all too aware that in discussing the Bill I shall focus my attention on childcare in the home and the effectiveness of the new working tax credit in supporting people with a learning disability who wish to work. It is slightly unusual for me to be debating Treasury matters. I usually find myself in fiscal rather than political exchanges with the Inland Revenue.
I thank the Minister for her explanation of the Bill and the thinking that lies behind it. I am delighted that after effective campaigning by Mencap—of which I have the honour to be president—and other voluntarily organisations, parents of disabled children will now gain tax credits for childcare which has to be undertaken in the home. It is gratifying to know that the Government have listened to the call for change, a welcome benefit to many parents of severely disabled children across the country.
I also welcome the main thrust of the proposals to create a working tax credit which gives additional financial support to people on lower incomes, with special provision for people with disabilities. My concern about the working tax credit, though, is about the continuing lack of employment opportunities for many people with a learning disability. That situation may be improved by greater flexibility in the tax credit regime, but I must remind your Lordships how pitifully few people with a learning disability are afforded paid employment.
Research by Mencap suggests that many people with a learning disability would benefit from financial assistance in employment. The Government's mantra on welfare to work seems to refer only to full-time paid work. That is borne out in the rules for the tax credit system known as the 16-hour rule. That means that people working fewer than 16 hours per week will not be able to access the new tax credit and will not receive any extra money to top up low-paid employment.
But for many people with a learning disability part-time work is a more realistic possibility. Part-time work can also be a source of extremely important training or experience and can develop the self-confidence of a person with a learning disability, a large proportion of whom work at the lower end of the earnings scale and never come close to boardroom salaries. Sometimes that can be as a result of discrimination or lack of support, but in many cases it can be attributed to the limitations of the individual's disability.
A phased entry into the tax credit would enable claimants to gain a foothold in the labour market by working fewer than 16 hours per week for a limited period. Working out a formula to phase in entry into the tax credit system is no mean feat. Certainly, it would defeat me. Mencap understands the complexities of such a solution. I said that I do not support over-complication of the tax and benefit system; to over-complicate is to lose the main thrust of the welcome proposals. However, I am all too aware that the 16-hour rule may well be set in governmental quick-drying cement.
Therefore, an alternative which may be preferred by the Government is to increase the income support disregard up to, say, £35, rather than its current limit of £20. People with a learning disability may do a limited amount of part-time work under what is known as the income support disregard. That allows them to work for up to four hours at the minimum wage without losing any income support. The £20 disregard was an advance on the previous £15, but did not restore the real-terms value of the disregard 20 years ago. A figure of £35 a week would enable disabled people to work part-time, up to eight hours, without being penalised and provide a fairer and a more progressive entry into full-time employment. If the Minister is not persuaded by the argument for a phased tax credit, perhaps she will give this alternative proposal some consideration. Having benefited from the Minister's understanding and help in the battle for the SERPS inherited rights, I can but live in hope.
In conclusion, I believe that the new tax credits will improve the situation of some low-paid workers and parents with disabled children, but there is a danger of missed opportunity for those who do not conform to the standard picture of working and family life. I look forward to the Minister's response and to the assurance that people with a learning disability will have the employment opportunities which the rest of us take for granted.
3.50 p.m.
Lord Howe of Aberavon: My Lords, I follow the noble Lord with respect for his expertise in the area of this topic. I am all the more conscious of my own current lack of expertise. The Minister and I happened to meet each other yesterday. She expressed a certain degree of surprise at my appearance on the List of Speakers for this occasion.
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