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Lord Higgins: That was an extremely helpful explanation. I am sure that those outside concerned with the problems of the disabled will be extremely interested in what the Minister has said. I therefore thank the Minister very much indeed and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

16 May 2002 : Column CWH19

[Amendment No. 9 not moved.]

Lord Higgins moved Amendment No. 10:

    Page 1, line 20, leave out paragraph (e).

The noble Lord said: Amendment No. 10 in this series of amendments is concerned with paragraph (e) which states:

    "increases in benefits in respect of children under sections 80 and 90 of the Social Security Contributions and Benefits Act 1992 (c.4) and sections 80 and 90 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c.7)".

It is proposed by the Government that those benefits should be superseded and incorporated—that is perhaps the most accurate way of putting it—into the child tax credit.

Again, I have to ask the Minister whether that involves any specific change in the allowances, rather than just a change in terminology. We also have to consider the position with regard to child benefit, which the Prime Minister recently suggested—the subject of some controversy—might be reduced as some form of penalty. I sought to clarify the position on that by way of a Parliamentary Question. I asked the Minister to what extent any reduction in child benefit would result in the benefits which we are now discussing being increased, for example, so that the effect was totally nullified.

Perhaps the Minister could tell us in regard to the benefits which are dealt with in paragraph (e), or the new benefits which are dealt with under the new title of "child tax credit", whether, if the Government have decided that they ought to penalise people having child benefit for this or that social reason, it would in fact result in both the present benefit or the replacement benefit being increased so that the effect was largely nullified. I beg to move.

5.15 p.m.

Baroness Hollis of Heigham: The noble Lord, Lord Higgins, pressed me on two points. The first was on child benefits and sanctions, and the second was whether it was simply an alteration by name or whether there was any substantive change in the structure of CDIs.

On job benefit and sanctions, it is the case at the moment that if one is on income support or JSA, one's child benefit counts as income and therefore has an effect on the level of income support and JSA which one currently receives. Clearly, in any proposals to connect payment of child benefit with any sanctioning of behaviour, those arrangements could be adjusted accordingly. I hope that answers the noble Lord's question.

CDIs are the child dependency increases which go with current national insurance benefits like incapacity benefit, such that they receive those benefits almost as an alternative to being topped up by income support benefits for their children.

I burned the midnight oil on this about a year ago to get my head around its implications. Ultimately, it did not seem sensible to continue to keep child dependency

16 May 2002 : Column CWH20

increases for those social security benefits of which the major one is incapacity benefit, for two main reasons. The first, and the main one, is that if we are trying to simplify the system so that all child support is based on one benefit—child tax credit—it is foolish to have some other benefit like incapacity benefit retaining its own provision for children. Therefore, in the name of simplicity, it is right to take that out.

Secondly, it is also the case that over the last few years the level of CDIs have effectively been frozen because of the growth in child benefit, which has offset them. In any case they were diminishing in value. I can assure the noble Lord, Lord Higgins, that at the moment, there are around 250,000 families in receipt of one of those child dependency increases. They will be protected. What we are saying is that, in future, new claimants to that benefit will have their support for children carried through the new tax credits.

I hope that noble Lords are reassured that the existing CDIs will begin to wither on the vine; that in any case and for the sake of simplicity we believe that all child support should be carried with the children's tax credit, but that existing recipients of those CDIs will have their position protected. I hope that, with that explanation, the noble Lord will feel able to withdraw his amendment.

Lord Higgins: That certainly was an interesting reply in two respects. What the Minister describes as CDIs, which I presume are the benefits covered by subsection (e), will continue for existing beneficiaries, but new beneficiaries will come under the child tax credit system. I hope that I have understood that correctly.

I am not entirely clear whether that means any of those beneficiaries will now receive less than they would otherwise have received. Clearly the people—I was going to say "grandfather", which would really confuse the issue—who are already in receipt of the benefits covered by subsection (e) will continue to do so and will not lose out. However, I am not entirely clear whether new claimants who would have received those benefits, and who will now receive child tax credit, will get the same amount as those who are already in receipt of it.

The other part of the answer from the noble Baroness was extremely interesting. The Prime Minister proposes that one should use a reduction in child benefit on families who are behaving in a manner of which he does not approve. I have pointed out—the noble Baroness has confirmed it—that that would not be effective because they would simply receive other benefits instead.

Baroness Hollis of Heigham: I did not say that. I said that were the Government, after reviewing these proposals, to proceed with them, they would have the option of ensuring that, as a result, other benefits would not compensate. I say simply that that would be an option were Government to pursue those proposals.

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Lord Higgins: What the noble Baroness has said is that unless the proposal is to be totally ineffective, what they will do is not merely clobber child benefit, but other benefits as well. That is an aspect of the Prime Minister's proposal which perhaps had not previously emerged.

Baroness Hollis of Heigham: Perhaps the noble Lord could repeat that. I become nervous when the noble Lord starts attributing views to the Prime Minister via myself. I would be very grateful if he would say those words again.

Lord Higgins: The Prime Minister made a proposal that, in certain circumstances, child benefit should be withdrawn from families because the family concerned was performing in a way which, for various reasons, he felt was wrong. The point I sought to make earlier was that apparently this would be ineffective. If he were to do that, then all that would happen would be—this was confirmed by the noble Baroness's Parliamentary Answer—that in effect such families would receive other benefits instead.

Baroness Hollis of Heigham: I wonder whether—

Lord Higgins: Perhaps I may finish and then the noble Baroness can respond. That is what I understood her to say. The noble Baroness went on to point out that if that were to happen, then one might need to make adjustments to other benefits. Thus if this proposal were to go ahead, and apparently the Prime Minister is persisting with it, we would find either that it would not be effective—because the other benefits would not be reduced—or it would be made effective by clobbering not simply child benefit, but any other benefits which might replace it.

Baroness Hollis of Heigham: That happens at the moment. It is a little hard for me to say that this is "wide of the Order Paper" when earlier we were talking about Keynes. However, child benefit will not be taken into account as income for child tax credit. The amount of child benefit as payment is therefore not in fact relevant to child tax credit.

Having said that, it remains the case that, at present, if one is on income support or JSA, child benefit is counted as income, which is therefore taken into account when determining the level of IS or JSA. We have established that. One of the highly desirable features of moving on to child tax credit is that we will not have such incidents of netting-off taking place as they did in the past. What I made clear is that, if on reflection the Government decide to go ahead with these proposals, then they would have the option of ensuring that they were effective by taking into account child benefit as income, and therefore not simply compensating for it with an uplift in other forms of benefit. That should not surprise the noble Lord. Were these proposals to be pursued, I do not doubt that this would be one of the considerations informing further reflection.

16 May 2002 : Column CWH22

Lord Higgins: It is certainly a point that we would wish to return to at Report stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 11 not moved.]

Clause 1 agreed to.

Clause 2 [Functions of Board]:

Lord Saatchi moved Amendment No. 12:

    Page 2, line 8, at end insert "or in cases where an individual is not paying tax, the Department of Work and Pensions"

The noble Lord said: As this is the first time I have spoken, I should like to draw the Committee's attention to the declaration of interest that I made at Second Reading. I thank the Minister for her gracious apology at the start of our proceedings today and for her entire attitude towards the problems that arose as a result of what she described.

So far as we are concerned, the Bill has a fine, worthy aim—that is, to help to boost the income of people in low paid jobs—and we support that. I hope that it will be recalled later that the amendments moved by my noble friends Lord Higgins and Lord Northesk and myself, and all the amendments moved from our Benches, were brought forward in a spirit of our working to assist the Government to make the Bill as effective and as workable as possible.

Having said that, Amendment No. 12 relates to the wider issue that we discussed earlier and to which we will return at several stages during the Committee stage of the Bill—that is, the question of whether tax credits will be paid to people who do not pay tax. The Minister will recall my second question in a letter I wrote to her on 23rd April. I asked how much of the total cost of the Bill will be paid to those who do not pay tax—that is, those who will be receiving credits as benefit? Unfortunately, although I have received a reply from the Minister, that point was not dealt with. I should be grateful if she can say what is the answer to that question.

The question seeks figures—how much of the total cost of the Bill will be paid to those who do not pay tax—and in order to answer it the Minister will have to say what is the total cost to the Exchequer of all tax credits; what will be the cost of these particular tax credits; and, of those amounts, how much will be paid to people who do not pay tax—that is, to people who receive credits as benefit.

Having said that, and given that the reply to my letter did not deal with that point, perhaps I may pursue the amendment, the purpose of which is to suggest that where an individual is paying tax the Inland Revenue should deal with that person via the tax credit procedure set out in the Bill; but where an individual is a non-taxpayer, he or she should deal with the Department for Work and Pensions.

Having brought forward the amendment, I can immediately see many problems with it. But it does touch on a central aspect of the Bill—my noble friend Lord Higgins has referred to it and we will certainly be returning to it—that is, the question of tax credits being paid to people who do not pay tax. I should be

16 May 2002 : Column CWH23

grateful for the Minister's view of a situation where individuals who are not working, either through choice or otherwise, and are therefore paying no money to the Inland Revenue, will nevertheless be receiving money from the Inland Revenue. I beg to move.

5.30 p.m.

Lord Newby: There is a certain logic in what the noble Lord, Lord Saatchi says, in that when somebody receives tax credit, it should be dealt with by the Inland Revenue and when he receives a benefit, it is not. He possibly underestimates the extent to which people are not, for long periods, in one category or another. During the course of the year, many people will be in work for some of the time and out of work for other periods. My own experience of dealing with the Inland Revenue is that it is difficult enough to establish an understanding of one set of rules and one department. For people on low incomes—shuttling in and out of work, sometimes having jobs for very short periods and then, for family or other reasons, not being able to continue with them—there may be an accurate question as to whether the Inland Revenue is the right department, but it must make sense for one department to be responsible for a particular benefit rather than two.

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