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Lord Redesdale: My Lords, I thank the Minister for that reply, the noble Lord, Lord Addington, for his helpful comments, and the noble Baroness, Lady Miller. Perhaps I may deal first with the comments by the noble Baroness. There were a couple of misconceptions here. I believe that the Conservative Party in another place is already supporting dynamic demand—indeed, my reading of the debates on the Climate Change Bill in another place gave every impression of that. The noble Baroness asked how long it would take for the technology to have an
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impact. According to manufacturers, 3.75 million new fridges are bought in this country every year. I find that a frightening statistic. My own calculations, which are not based on a degree in electronic engineering, show that if 2 million devices were fitted with dynamic demand, that would equal the output of the largest of the nuclear fleet of power generators, which is some considerable amount.

The Minister raised a number of valuable points, including the issue of self-regulation. I would quite happily introduce a Private Member's Bill on standby. I personally find it quite unbelievable that 10 per cent of power generation is being used up in standby and utterly useless features added by manufacturers to meet public demand. However, I very much hope that the Government will support the voluntary code undertaken by the white goods manufacturers to move to 1 watt standby over the next couple of years, which will have a significant impact on energy consumption.

The Minister also referred to the spike during football cup ties when people go off and put their kettles on. I was interested to find out that that is not actually what causes most of the spike; most of it is caused not by people putting the kettle on but by a lot of them going to the loo at the same time and flushing it. The mechanical energy of moving billions of gallons of water around the country far exceeds the amount used to boil kettles. That is the sort of interesting fact that you find out when you have to do a great deal of work on these Bills.

The purpose of this Bill, and of any Private Member's Bill, is to push the Government into thinking about the issues. The likelihood of it succeeding through all the hurdles is a real issue. However, one thing which I believe this Bill has been able to do is to bring together all those who are thinking about this issue and to focus their minds. I believe that dynamic demand will become a reality. I very much welcome the Minister's encouraging words on moving towards doing the background work to find out whether there are any pitfalls with the technology. Obviously, it would be madness to move forward too quickly without finding out whether there are any problems with it. However, I concede that it is an issue because, unlike getting rid of standby, which would mean people getting off their seats to turn something off, this is a device that nobody would know was in their fridges.

I very much take on board the point that the Minister made—that this is about finding a market mechanism, and that those who are benefiting from the system should pay for it. In this case the consumer would not save any money and the appliances would not operate in a different way. The noble Baroness, Lady Miller, said that we would have to turn things on on a different cycle, but in this case no fridge would change its cycle at all. But it would be up to the National Grid to meet the costs. That means finding a way in which it could do so, which cannot be done without a change in primary legislation and a change in the energy efficiency commitment, which has been the hurdle at this point. I believe that that will be
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changed under the Climate Change Bill, which I very much look forward to debating . I thank the Minister for his most helpful reply.

On Question, Bill read a second time, and committed to a Committee of the Whole House.

Guardian's Allowance Up-rating (Northern Ireland) Order 2006

1.03 pm

Lord McKenzie of Luton rose to move, That the draft order laid before the House on 13 February be approved [19th Report from the Joint Committee].

The noble Lord said: My Lords, we shall debate the four related regulations and orders together. Tax credits, together with child benefit, deliver financial support to the vast majority of families with children in the UK and are vital in our commitment to tackle child poverty. I am pleased to introduce these regulations and orders, which increase certain elements and thresholds of tax credits, and raise the main rates of the child benefit and guardian's allowance. In my view, the regulations and orders are compatible with the European Convention on Human Rights.

First, I turn to the Tax Credits Up-rating Regulations 2006. Tax credits play a major role in ensuring that work pays and in helping people to move up the employment ladder. Overall, 5.9 million families containing 9.9 million children are benefiting from tax credits. These regulations increase the child element of child tax credit by £75, in line with earnings, to £1,765 a year from 6 April 2006. The tax credit has increased by £320 since its introduction in April 2003 and it benefits 6.7 million children. In addition, the regulations increase the disabled child elements of child tax credit in line with inflation.

The elements of working tax credit will also increase in line with inflation. The working tax credit provides support to low-income working families, including people who do not have children. The tax credit system has been designed to offer support to people as they move between jobs and as their circumstances change. Building on the lessons from the first two years of tax credits, the Pre-Budget Report announced a package of measures to improve the system. These measures will ensure that the system strikes the right balance between providing a stable award and maintaining the ability to respond to changes.

To reflect changes in annual income, a tax credit award can be revised during the tax year and is finalised at the end of the tax year. Currently, the first £2,500 of any rise in annual income is disregarded. However, incomes have been much more volatile than expected, with short-term fluctuations making it difficult for people to give an accurate estimate of annual income. Therefore, these tax credit regulations increase the disregard for income rises to £25,000. For almost all families, this ensures that a rise in income will not lead to a fall in tax credit entitlement in the first year of the rise. The Pre-Budget Report package has
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been widely welcomed, by, for example, citizens advice bureaux, the National Council for One Parent Families and the Child Poverty Action Group.

I turn to the Child Benefit (Rates) Regulations 2006 and the guardian's allowance orders. Child benefit benefits almost all families in the UK and these instruments will increase rates in line with inflation. From 10 April 2006, child benefit will be worth £17.45 per week for the first child and £11.70 for each subsequent child. For the first child, this represents a 25 per cent increase in real terms since 1997. Guardian's allowance will increase to £12.50 per week. The Child Benefit (Rates) Regulations also have the effect of replacing and consolidating the Child Benefit and Social Security (Fixing and Adjustment of Rates) Regulations 1976.

With the increases effected by these instruments, we will be delivering even more support next year. We remain committed to the Government's long-term aim of eliminating child poverty within a generation and halving it by 2010, and tax credits and child benefit will remain a key part of this. Indeed, in his Budget, my right honourable friend the Chancellor of the Exchequer made a commitment to increase the child element of the child tax credit at least in line with average earnings until the end of this Parliament. I commend these regulations and orders to the House. I beg to move.

Moved, That the draft order laid before the House on 13 February be approved [19th Report from the Joint Committee].—(Lord McKenzie of Luton.)

Baroness Noakes: My Lords, I thank the Minister for introducing these orders and regulations. I initially agreed to debate the four instruments together on the understanding that they raised similar issues. When I got into the detail, I realised that this was not entirely true, but I have only myself to blame for that, so I, too, shall speak to all four together.

I do not believe that the first three instruments—the two guardian's allowance orders and the child benefit regulations—are controversial. To the extent that they uprate existing benefits by the movement in RPI, they are routine business. I would, however, like to clarify the nature of the uprated figures. The notes for the guardian's allowance orders helpfully tell us that the rate of RPI increase is 2.7 per cent, but they do not say over what period that was measured. It is only 2.4 per cent at the latest reckoning, so will the Minister say over what period the 2.7 per cent is measured?

The child benefit regulations do not mention the RPI rate at all, but I have calculated the increases actually applied as being 2.5 per cent for the guardian's allowance and 2.6 per cent for the two levels of child benefit. Will the Minister explain the rationale for these figures and will he explain the Treasury's policy towards rounding? I believe that it is the practice of the Department for Work and Pensions to round up. We perhaps should not be surprised to find the Treasury rounding down, but it would be helpful if the Minister can clarify policy in that regard.
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I have one further question on the child benefit regulations. Regulation 3 has certain transitional provisions. The Explanatory Notes explain that they are to deal with transitional protection, but do not explain in what way. What type of child benefit will be paid under these provisions? By definition, they are paid to persons not qualified under Regulation 2. How many entitlements will there be? How much will be paid, and for how long?

I turn now to the tax credits regulations, and I will start with the easy bit. I tried to find out on what basis the Treasury had amended the tax credit scheme to take account of inflation. According to the Explanatory Notes, the Treasury is supposed to lay a report before Parliament each year setting out what would be required for the tax credit scheme to retain its value. The Explanatory Notes to the regulations did not give any further information—in fact, they left a square bracket for that particular information—but one of the Minister's very helpful officials sent me a copy of the Treasury's report. It shows that the Treasury, in maintaining the value of benefits and thresholds, has used rates of between 2.7 per cent and 3 per cent, which appears to be using something slightly higher on the whole than the RPI calculations. Alternatively, it is using the RPI figure of 2.7 per cent and doing a fair bit of generous rounding-up. I hope that the Minister will explain the Treasury's approach to calculating the maintenance of the value of the benefits and thresholds in line with inflation, in particular compared with the other instruments in this group.

While the Treasury has calculated the amounts necessary to protect the value of the amounts or thresholds, the regulations do not give inflation protection on a comprehensive basis. For example, the family elements of the child tax credit are left unchanged, as are some of the thresholds. Will the Minister set out the rationale for the various changes that have been made to the amounts and thresholds in the Tax Credits Up-rating Regulations?

I now come to the more important issue: the tax credit scheme itself. We know that the Government have completely mismanaged the implementation of tax credits, with the result that billions of pounds of tax credits have been overpaid and underpaid. We also know that the insensitive way in which Her Majesty's Revenue and Customs then acted in withdrawing credits and pursuing overpayments resulted in great hardship for many who were caught up in the mess, to the extent that some even became reliant on food parcels in order to survive. The Government have never issued a word of apology for that. The Government's tax credit system has also been undermined by massive fraud; somewhat belatedly, the Government closed down the online portal.

We know that tax credits are the brainchild of the Chancellor, but when they started to go wrong he was nowhere to be seen, and it was the Paymaster General who had to appear at the Dispatch Box to try to spin her way out of the extent of failure of the scheme. Perhaps it surprises no one that the Chancellor has not
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yet owned up to the fact that the scheme needs a radical rethink. Instead, the Government have produced a series of sticking plasters designed to give the scheme some semblance of operability. The tax credits regulations before your Lordships' House today contain one of those sticking plasters—a very large one.

1.15 pm

As the Minister explained, the order increases the income disregard from £2,500 to £25,000, in effect putting the tax credit scheme for most practical purposes on to a prior-year income basis. We have tried hard to find out the cost of this massive change to the construction of the scheme, but the Government have hidden behind a complete fiction—namely, that the cost of this change cannot be separated from the other changes to tax credits announced in the Pre-Budget Report. We know that it is a fiction because officials from HMRC told the Public Accounts Committee in another place that they had the calculations. Since then, though, they have been prohibited from revealing them by the Treasury. Any accountant knows that it is perfectly possible to calculate the effect of one element of a number of changes. It just requires a little logic.

The PBR changes to the tax credit scheme overall were said to cost £100 million in 2006–07, but to produce savings of £200 million in 2007–08. In the past, the Government have said that the £2,500 disregard cost £800 million. If income volatility is indeed a feature of the income groups affected by tax credits, we might conservatively guess that the new disregard of £25,000 might cost three or four times that—around £2.5 billion, say. That means that the Chancellor's other measures in the PBR—namely, the timing and the increasing checks—are expected to produce reductions in tax credits of roughly that amount. That is why this issue is important. We need to know who is affected by the changes. Will it be the poorest, who need the tax credits most, or will it be middle England, who, with the £25,000 disregard, can now be within the means-tested benefit net at income levels of over £90,000? We do not believe that there can be a sensible debate about the elements of the changes to the tax credits that were made in the PBR until the Government are honest about the cost and incidence of the individual elements of the package.

My main question to the Minister today is: will he come clean on the cost of the increased income disregard set out in these regulations, and indeed of the other elements of the changes to the tax credit package set out in the PBR? Will he also say whether the Government yet have any strategy to get themselves out of the tax credit mess?

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