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Earl Russell: I am most grateful to the noble Baroness, Lady Hollis of Heigham, for this. As she says, it recognises the shift in the direction of government policy on family law, which is all towards encouraging contact with both parents and encouraging the sharing of responsibility wherever possible. It is not, of course, the right treatment for every child in every broken marriage. There is no such thing as the right treatment in every case. However, where a choice exists it is clearly to be encouraged and where care is shared, often on nearly an equal basis, clearly the financial rewards should also be shared as far as possible.
I entirely understand the case for flexibility that the noble Baroness has made. It is a stronger case in this Bill than in most others. We are in a rapidly moving landscape. The future of the CSA is in question, as is the future of much of the Family Law Act 1996 and a great deal else, including housing benefit. Were the noble Baroness to attempt to lay anything down in
tablets of stone, she might find that stone is a rather more fragile material than we sometimes think, as most quarrymen know.I understand why the noble Baroness wants flexibility. It is the right way to go about it. I hope she will keep in touch with her noble and learned friend the Lord Chancellor and his department on this, and I look forward to any future developments on this front.
Finally, the assumption that there is such a thing as the primary carer is not necessarily valid in all cases. I remember one cheerful group of people in which the parents had swapped partners. They spent the summer together in a very large farmhouse. The primary carer was whoever happened to arrive first when a child fell over and cut their knee. It is not always as simple as that, but the assumption that there is a primary carer in all cases should not be made lightly.
I thank the Minister very warmly for what she has done and look forward to developments with a great deal of interest.
On Question, amendment agreed to.
Clause 8, as amended, agreed to.
Lord Higgins moved Amendment No. 58:
- Page 6, line 35, after "credit" insert "up to a maximum of £545 in any tax year"
The noble Lord said: We come to a series of extremely arithmetical but none the less important amendments. We have sought to write on the face of the Bill the proposals made by the Chancellor in his Budget. We may or may not have been successful in that attempt. No doubt the noble Baroness will tell us whether that is so. The key to the argument is on the face of the Government's own documentation, in Table 3.4 on page 16 in Child and Working Tax Credits—Modernisation of British Tax and Benefits System which was published in April 2002. It is apparent from that table that there is to be a massive increase in the extent of means-testing.
Baroness Hollis of Heigham: Could the noble Lord repeat the citation?
Lord Higgins: I refer to page 16, table 3.4, of the document Child and Working Tax Credits - Modernisation of the British Tax and Benefits System, which gives marginal rates. I said "means testing"; I should have said a massive increase in the numbers of people affected by high marginal rates. It looks as though there will now be a marginal deduction rate of more than 60 per cent and that the number of people subject to that will increase from 94,000 to 1,450,000, which is certainly a startling achievement. The increase in numbers facing the marginal deduction rate of more than 60 per cent is evidently largely due to the extension of in-work support for those without children through the working tax credit.
Overall, if one looked at the Budget, the increase in expenditure on this overall exercise was something like £2.7 billion. It is a rather strange aspect of the Budget. If one looks at the changes that the Chancellor made, effectively the impositions on business would pay for
the increase in National Health Service expenditure. The other increases in taxation are effectively all going towards the proposals made in the Bill. In terms of the orders of magnitude—although not necessarily the allocation between raising and spending tax revenues—broadly speaking, that is the situation.We see here a massive increase not only in the number of people subject to high rates of marginal taxation—or, alternatively, benefit withdrawal—but we see also a very big increase in the extension of means testing. I know that the Minister does not like the expression "means testing" and would prefer to use the expression "targeting". None the less, the effect of the Bill is fairly apparent so far as concerns what is really happening.
There is a huge redistribution of income here. We have gone from new Labour to old Labour. A rather curious feature of it—perhaps the Minister can give the Committee some explanation—is that this applies only to people over the age of 25. As I understand it—I may be wrong—the effect of this redistribution of income does not apply to those under 25. We are not quite clear why this arbitrary line has been drawn at that particular level.
The overall effect of the proposals is clearly very radical indeed, extremely expensive, and it has the undesirable side effects that I have mentioned. It is also the case that the tapers run right the way up the income scale to £58,000. Is it £58,000?
Baroness Hollis of Heigham: It can be before the tables finally taper out.
Lord Higgins: To £58,000. So we get this huge extension of the taper into those who have previously been beyond the scope of this kind of Government action.
On Second Reading I said that the gap between those who were not involved with the Inland Revenue at all because they did not complete tax returns—but who were going to be in the benevolent scope of the Department for Work and Pensions—and, at the other end of the scale, those who were subject to the Inland Revenue because they paid tax, seems to have disappeared altogether. Perhaps it has not disappeared altogether, but could the Minister give some idea of what percentage of the population at the moment is not involved with the Inland Revenue at all, and what percentage of the population will no longer be involved with the Inland Revenue if these proposals are adopted? The gap appears to be growing smaller and smaller.
Baroness Hollis of Heigham: I would need an abacus to work that out.
Lord Higgins: The noble Baroness does not need an abacus or a computer—hand-held or otherwise. It is not a laughing matter. It means that the amount of form-filling intervention and so forth which is going on is vastly increased. We have grave doubts about the way in which the Government's proposals are working. More and more people are being drawn into
the clutches of the Inland Revenue. That is perhaps a rather pejorative way of putting it, but it is the case that the extent of government intervention in people's day-to-day lives—or more exactly the extension of the number of people with whose everyday lives the Government are directly concerned—is increasing very rapidly indeed.Having said that, we have sought to write it onto the face of the Bill. No doubt the noble Baroness will say one ought not to do that; one can do it all by regulation and so forth. But it is important to bring home to people exactly how far the Government are now going in extending the scope of their activities. I beg to move.
7.15 p.m.
Earl Russell: I agree with the noble Lord, Lord Higgins, that the Bill does have a redistributive effect. I would regard that as neither Old Labour nor undesirable. We on these Benches are not raving egalitarians. On the other hand, we have noted that over the past 20 years inequality has increased faster in this country than anywhere else in the developed world except New Zealand. We think the pendulum has swung too far and that it is time it swung the other way. The fact that the Bill does have a redistributive effect is one of the reasons why on these Benches we are prepared to welcome it.
I take the point that it must involve an extension of means-testing in the use of these very long tapers. But we have already been through the fact that we cannot avoid poverty traps except by the use of very long tapers. We worked that out in Labour and in vain in the Parliament of 1992-97. The conclusions we reached then appear to be sound.
There is also a major tactical disadvantage in the amendment of the noble Lord, Lord Higgins, if he should think at any future stage to press it. He is writing the amounts of these credits into primary legislation. If he has any means of uprating them I have not seen it, and if I failed to spot it, I make my apology. Incidentally, the matter of uprating is one that I hope we may address in a future amendment. As things stand, these sums could only be uprated by primary legislation, and if I were a Member of the Legislative Committee of the Cabinet—which, thank God, I am not—I would not welcome such a proposal because I would expect to be bombarded with more requests than I could comfortably accede to.
Baroness Hollis of Heigham: The noble Earl, Lord Russell, has made the substantive point in response to this amendment, which is that it is daft putting figures on the face of a Bill because we are going to need primary legislation to keep amending it—unless the noble Lord thinks he seeks to end redistribution by freezing the amount in perpetuity until Parliament can find more time.
Perhaps I can reassure him, however. Under Amendment No. 214 tabled in my name, to which we will come in due course, he will see that the Government are effectively committing themselves to an annual uprating assessment of these awards. He will also know that the Chancellor of the Exchequer made
it clear that the child tax credit, which is the high value benefit in all of this, will for the life of this Parliament be uprated in line with earnings. I hope that he will take on board the serious point made by the noble Earl, Lord Russell, that it is never desirable to put figures that properly need to be regularly amended and updated on the face of a Bill because of the method of seeking to overcome them.The noble Lord also asked why we were excluding the under 25 year-olds. He is right; that is exactly what we are doing. That is because, first, there is a well established precedent in social security law that we make a distinction between those under and those over 25 years of age.
What we know is that while the under 25 year-olds may be poor but for the most part their poverty is not created by difficulties of access to the labour market. In those aged over 25, however, twice as many proportionately are in the bottom quintile of income compared to the under 25 year-olds. They are poorer because, in part and for various reasons, they find access to the labour market more difficult. They may suffer a mild disability or they may be under-skilled. The under 25 year-olds, however, are both less poor and have easier access to the labour market. In practical terms they are more likely to be living at home and receiving parental support. That is the reason why, when making this major expansion for the first time to make work pay for single and couple families without children, it is being introduced for those aged over 25.
Secondly, the noble Lord asked me how many families would now be subject to means-testing, as he referred to it, by the Inland Revenue. Leaving aside that I regard paying tax as means-testing by the Inland Revenue, though I am not sure that the noble Lord would embrace that, if we are dealing with some 25 or 30 million or so households—units of assessment—in this country, then 5.75 million come within the framework of this Bill. Many others are pensioners who come within the framework of pension credits, but that is not a relationship handled by Inland Revenue, but by the Department for Work and Pensions.
I wonder whether those remarks have met all the points made by the noble Lord, Lord Higgins. I do not want to move on to debate about marginal deduction rates. I shall happy to do so if the noble Lord wishes, but given the hour, it may not be wise. He rightly identified that the main increase in the greater numbers was both the increased generosity of the tax credits and their extension to those who are single and without children. That accounts for the much greater number coming within it.
That may relate to a subsequent amendment tabled by the noble Lord confining those recipients of tax credits to no more than 25 per cent of the population, which in a way it would have been sensible to have grouped with this because that would have the equally perverse effect of limiting the redistributative push of these tax credits. I have to say that the noble Lord and I have very different views on this.
I am proud of the fact that not only are we tackling child poverty, but we are making work pay for families for whom life is always precarious and whose lives are always churning out of work and into work. They worry whether they can cope. It is magnificent that we are able to achieve both objectives in a way that simplifies and streamlines the amount of support we will give to families in need. I hope that any amendments pursued by the Opposition benches will not seek to reduce the element of bringing support to children in poverty and helping and encouraging their parents both to move into work and to stay in work. Only in that way will those children have a chance of a decent future.
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