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Lord Freeman: I found that answer extremely helpful, and the record will show clearly the constructive spirit in which the Minister has approached this issue. The motive for the amendment is the former not the latter reason the Minister cited. It is a matter of being willing under the definition of any other factors to be flexible to changing medical conditions. On the basis of that most helpful response, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Hollis of Heigham moved Amendment No. 68:
- Page 7, line 31, at end insert—
On Question, amendment agreed to.
Clause 10, as amended, agreed to.
[Amendments Nos. 69 to 74 not moved.]
Clause 12 [Child care element]:
Baroness Hollis of Heigham moved Amendment No. 76:
The noble Baroness said: This is a drafting amendment but nonetheless it is not part of the package associated with Clause 17. It is a different issue. It clarifies the structure of the childcare element of working tax credit. Clause 12 provides for working tax credit to include an element in respect of childcare charges to be known as the "child care element". That element will be based on the existing childcare tax credit in WFTC.
As with the existing childcare tax credit, the childcare element will represent a proportion of eligible childcare charges. My right honourable friend the Chancellor of the Exchequer announced in the Budget that the maximum rate of the element will be 70 per cent of eligible charges up to maximum charges of £135 for one child and £200 for two or more children. The first half of this amendment—that is, the amendment to the body of subsection (2)—makes clear that such proportions may be set out in regulations.
The second part of the amendment, the new subsection (2A), makes clear that regulations may provide for how "child care charges" are to be calculated for the purposes of the childcare element. The regulations will provide that childcare charges will be calculated by looking at average weekly charges over a four-week period. This is similar to the formula currently applied in WFTC but is somewhat simpler. It is simpler so that parents can easily recalculate their weekly charges and have their award amended when the charges change because, as noble Lords may be aware, the new tax credit system will respond to changes in entitlement.
Perhaps I have said enough about the amendment. If so, I hope that noble Lords will be happy to accept it. I beg to move.
Lord Higgins: The noble Baroness has explained the amendment very carefully. I presume that the way in which regulations come into operation varies in the Bill. Sometimes it says it in the clause and sometimes it is referred to way back in a later part of the Bill. I presume that these prescriptions are prescribed, if I can put it that way, in the later way—namely, some later section of the Bill says that the Government should have power to make such prescriptions. Having said that, the amendment clarifies the position somewhat and I do not believe we would wish to object to it.
On Question, amendment agreed to.
Clause 12, as amended, agreed to.
[Amendments Nos. 77 and 78 not moved.]
Earl Russell moved Amendment No. 79:
The noble Earl said: The Minister will, I am sure, have spotted that the intention of this amendment is probing. One of the problems that has to be settled before the Bill can be an efficient instrument of business is how it is going to impact on housing benefit and council tax benefits and how are those tapers will be affected. If this is not got right, then as soon as anybody gets any extra money out of the tax credit an immediate new poverty trap will be created out of a possible loss of housing benefit and increase in council tax benefit. The housing benefit tapers are, of course, moderately steep, certainly by the standards that the Bill is introducing.
There is also a further problem about the requirement for information. The requirement of information for housing benefit is, of course, already a complex business, because it has to be supplied both to the local authority and to the Department for Work and Pensions. The question will arise, as it has already done over passported benefits, of whether we have sufficient authority in the Bill to deal with the information required by the local authority for housing benefit, or whether people are going to be required to supply two different lots of information, perhaps involving two different periods of measurement—in fact, precisely that sort of precise information that those who are in need of social security benefits tend to be particularly ill-equipped to provide, especially if it is true that the level of illiteracy in this country is somewhere around 10 per cent.
I am not certain exactly how the housing benefit tapers should be adjusted, but they will need to be adjusted if the Bill is to work. My main purpose in tabling this amendment is to find out the Minister's thinking on the subject. I beg to move.
Lord Higgins: This amendment is concerned with the rate at which the tax credits should be made available either by way of deduction or by way of benefit payment.
I make one very trivial point in passing. I am slightly puzzled by what the printer has been up to. We suddenly get these little tiny printed headings, "Rate" and "Decisions" and so forth, which if one refers to the contents page at the front are in fact rather major headings. I am not clear why "Rate" appears in such small print in the centre of the page—it is not, as I understand, it part of the Bill—and then again in much bigger print further down. It seems to be the wrong way round. However, I leave that for further consideration.
The noble Earl, Lord Russell, has rightly raised the important question of housing benefit and the extent to which the tapers in the housing benefit and council tax regulations relate to those in the tax credit system
I am rather more concerned about the other points which the noble Lord raised—that is, where is this information coming from? The Minister will know from many previous exchanges that we have always been rather concerned about the extent to which information related to housing benefit is obtained and the fact that the questionnaires put out by one local authority may be vastly different from those put out by another.
I do not know whether this would be an opportunity, yet again, to press for some standardisation of these forms as presumably they will also need at least to include a question asking whether the individual is in receipt of a tax credit. This will be a fairly major task because of the disparity of practice between individual local authorities and the fact that this is shifting away from the Department for Work and Pensions to the Treasury. Local authorities will on the whole have been dealing previously, in relation to other social security benefits, with the Department for Work and Pensions and not with the Treasury. This will require quite a large readjustment of relationships as far as local authorities are concerned. Perhaps the Minister could comment on that point and on the question of how the papers inter-relate.
Lord Northbrook: Are housing benefits and council tax benefits counted as relevant income?
Baroness Hollis of Heigham: No. It is the other way around. WTC will count as relevant income for housing benefit.
If regulations were made to prescribe that claimants to housing and council tax benefits should receive tax credits in full—which is what the amendment seeks—this would mean that people in work would have increased entitlement to housing and council tax benefit. It would certainly be to their advantage, perhaps, but there are quite serious read-acrosses.
I would not dispute the importance of housing benefit. Given that it is a high value benefit, matters will be complicated once one seeks to integrate housing benefit tapers with all other forms of support, whether tax credits, pension credits or other benefits. As we have discussed on previous occasions, introducing housing benefit tapers and council tax tapers to the other forms of tapers will certainly raise the marginal deduction rates. That is undeniably true. A family with children could receive a combination of child benefit, working tax credit, child tax credit and housing and council tax benefits on top of their earnings, and they would all be tapering out.
Given this amendment, therefore, what are our considerations? A key factor is consideration of the effect on withdrawal rates. A person now on the tax credit taper and on the housing benefit and council tax benefit tapers would, under the Bill, have a marginal deduction rate of a little over 90 per cent. If, however,
The second implication of the amendment is that we open up even greater disparity of treatment. Those on maximum benefit—income support or JSA together with CTC— currently receive maximum housing benefit and ISMI—help with interest payments on their mortgage. Once someone moves into work they are expected to pick up all of the costs for buying the house themselves, irrespective of their level of income, apart from a very brief rollover period. Accepting the amendment would mean that anyone receiving working tax credit, or indeed children's tax credit—which might go quite some way up the income level— would receive all of that disregard for the purposes of housing benefit, while someone on a much lower income would find that their expectation that they would be paying for their own mortgages would fall far behind the provision of giving rental support. That disparity would be unfair.
The third problem, which is by no means minor, is the cost of the proposal. We estimate that the cost would be £1.2 billion in 2003-04, rising to £1.4 billion by 2006. Even if it were limited to disregarding only the working tax credit, the cost would be several hundred million pounds, and we do not feel that that money would be well targeted.
Disregarding working tax credit in housing and council tax benefit calculation goes against the principle of taking into account income in the income-related benefits. That was the point raised by the noble Lord, Lord Northbrook. Disregards are in fact the exception, and other than a small disregard—the £10 or £20 that we might give to a lone parent or disabled person—net earnings are taken fully into account in housing and council tax benefit calculations. Therefore it does not make sense to treat working tax credit more favourably than earnings; to take earnings into account, but not the top-up of those earnings based on family benefit. In other words, we are following the practice already established in both family credit and working families' tax credit.
For all those reasons, I hope that Members of the Committee will be reassured that we have fully considered those issues.
I was pressed on a point of information exchange, and I agree that one of the considerable difficulties facing the department is the fact that local authorities, though they act as a kind of post box for a national payment of a national benefit, nonetheless have very different methods of delivering their letters, almost literally so in many cases.
As the noble Lord will know through exchanges in the House, the House produced model forms which local authorities are increasingly using for housing benefit calculations. Individuals will need to provide their financial circumstances both to local authorities and the Inland Revenue, but—and this is worth saying—on the figures that I have had calculated, only around 5 or 6 per cent of all the families on the new tax
It means, therefore, that local authorities will be dealing with only about 5 per cent; that is, some 0.3 million or so of those in receipt of working tax credit and children's tax credit are likely to come within the remit of coming down the taper so that they are experiencing both a withdrawal of housing benefit from the maximum they would get if they were on income support or JSA alone. Only about 5-6 per cent will experience that taper in which they will have been tapered out of the tax credit at the same time as they were also being tapered out of housing benefit and council tax benefit.
Given that, while I accept that people will have to give information both to local authorities and to the Inland Revenue, only 5 per cent of those in receipt of tax credits will experience both the effect of pretty high marginal deduction rates and the problem of giving that information twice. It also means that local authorities will not be dealing with a problem of monstrous proportions. Those currently tapering out of housing benefit are largely the same client group already under the WFTC, so we are not producing an additional load for them, except at the edges.
With that explanation and given the substance of the amendment—that it should be disregarded altogether—I hope that the huge cost and unfairness in treatment between those seeking to buy their homes, and the fact that it would break all the existing methods of treating income for the purposes of assessing housing benefit, will enable the noble Earl to withdraw his amendment.
"(4) Regulations may make provision for the purposes of working tax credit as to the circumstances in which a person is or is not responsible for a child or qualifying young person."
Page 8, leave out lines 30 and 31 and insert "so much of any relevant child care charges as does not exceed a prescribed amount.
(2A) "Child care charges" are charges of a prescribed description incurred in respect of child care by the person, or either or both of the persons, by whom a claim for working tax credit is made."
4.15 p.m.
Page 9, line 21, at end insert—
"( ) Regulations shall provide that all recipients of housing benefit and council tax benefit will receive in full any increase in their entitlement to tax credits."
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