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Lord Biffen: My Lords, I apologise to noble Lords and particularly to the Minister for not being present at the beginning of this debate. Having had an enervating morning in a hospital bed, I have come along to offer a small comment. It will not be of the same contentious nature as those offered by my noble friend Lady Noakes and the noble Lord, Lord Oakeshott, which demonstrated the great anxieties about how this policy has been executed. I will confine my remarks to the tax credits uprating regulations.

In the situation revealed in this morning's debate, there must be some anxiety over the divorce between the objectives of policy and how they are being achieved. I cannot believe that this is entirely the result of Treasury ineptitude. I therefore wonder whether use has been made of consultants in the preparation and execution of this policy. Perhaps the Minister could confirm whether that is so and, if appropriate, indicate those consultants' names. I am asking for no more than that. Of course, I do not expect it to be answered in the Minister's wind-up to this short debate, but it would be helpful to have it on the record.

1.30 pm

Lord McKenzie of Luton: My Lords, I thank those who contributed to the debate on these orders and regulations. It has been an interesting review. I will seek to deal with each of the points raised.

The noble Lord, Lord Biffen, asked whether consultants have been involved in the construction and operation of the tax credit arrangements. There was originally IT system support from EDS; the issues surrounding that contract have been aired in the public domain, and a settlement reached. Capgemini is the current IT contractor. I am not sure, and do not have data on, whether consultants were used more extensively in the system. I will come back to the central point of why the system, as structured, will inevitably have overpayments and underpayments; it is inherent.

I acknowledge the longstanding work of my noble friend Lady Hollis in this area, and her knowledge of the subject. She will be aware that guardian's allowance was never intended to provide support for children generally. The provision of financial support for children is and remains the responsibility of parents. Where parents abandon children to the care of others, it is for local authorities to consider what additional help might be forthcoming. However, I acknowledge her important point and undertake to draw it to the attention of my right honourable friend the Paymaster General, who I am sure will get back to her on this key matter.

The noble Baroness, Lady Noakes, asked about the basis of the uprating. I hope I can satisfy her on her queries. The rise in the child element of the child tax credit is linked to earnings: 4.2 per cent. I think that is the average of the three months to July of last year.
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The RPI basis is the rate applicable on 1 September of last year: 2.7 per cent. The noble Baroness asked more generally whether it is policy to round up or down. I do not have anything specific on that, but I believe that it is rounded to the nearest 5p, whether that is up or down. If the position is different, I will ensure that she is informed of the principle.

The noble Lord, Lord Oakeshott, raised issues about child benefit generally, whether it was falling behind, and what has happened in relation to the second child. Child benefit is an important component of support for families with children. As I said in presenting these orders, it has increased 25 per cent in real terms for the first child since 1997. For the second and subsequent children, it has been uprated by reference to the RPI. That is in stark contrast to what happened before this Government came into office. There was a three-year freeze in child benefit between 1988 and 1990, so this Government have a good record on that.

The noble Baroness, Lady Noakes, asked about transitional provisions in the regulations. The transitional regulations continue to provide entitlement for certain lone parents who have been continuously entitled to child benefit lone parent rate since it was abolished in 1998. The transitional regulations will enable these people to receive child benefit lone parent rate if they cease to be entitled to specified benefits which currently prevent payment of child benefit lone parent rate, or they come off income support or jobseeker's allowance to start work. The child benefit lone parent rate is payable only for the first child, and has been frozen at £17.55 for the past few years. It will be extinguished when the normal enhanced rate increases above £17.55. Perhaps the noble Baroness will look at the record on that and, if she requires anything further, come back; I am sure we can satisfy her on that point.

The cost of the pre-Budget report package of measures was raised, as it has been elsewhere. I stress that there is a package of measures here with components that are a cost to the Exchequer, including the £25,000 disregard. There are also components which are a yield to the Treasury: the shortening of the renewal window; the mandatory reporting; the collection of original income estimates; the reduction in time allowed to report changes reducing entitlement; and the withholding of accrued underpayments. These have been costed as a package, because they interrelate. If you stripped away individual bits of it, the outcome would depend on the order in which you took them. I reiterate the point made by Treasury officials before the public accounts hearing: it has been costed as a package and that is the information which has been provided. I do not think I can reasonably add to that.

There was some speculation about the increase in the cost of the disregard being two to two and a half times the £800 million for the £2,500 disregard. We do not accept that assumption, as many families experience relatively small income rises over a year, and the £2,500 disregard benefits many families. Obviously, comparatively fewer families will be affected by the disregard up to £25,000.
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A question was raised about why there was no uprating of some components, and why the Government are freezing the CTC family element. Obviously, there is a finite resource that can be applied to this uprating. The Government have to find the right balance, given limited resources, between supporting families with children across the whole income range, and appropriately targeting support on families with lower incomes who need it more. This is why we have concentrated on the particular increase in the component of the child tax credit, and not generally uprated those other components.

On the alleged mess of the child tax credit system and the tax credit system generally, we should acknowledge that it has been of huge benefit in helping to lift children out of poverty: some 700,000 children since 1997. The working tax credit is about encouraging people into work, facilitating their transfer into it and making it pay. That has been hugely successful across the board: some 2 million more people in employment under this Government. When the system was designed, it was acknowledged that, because it is responsive—it is not based on fixed income of a prior period, responding to changes during the year—you will inevitably end up with underpayments and overpayments at the end of the year, when a squaring-up has to be done. That is an intrinsic part of the design of the system. Yes, there were some particular challenges at the start of the system, such as a learning curve as to the number of families who would increase their income or go into employment, which were not anticipated. There were certainly also difficulties with the IT system. Each of those is being worked through and addressed. That is why the package that my noble friend introduced in May last year, looking at administrative changes and the changes in the pre-Budget report, has been so important in making sure that the system works more effectively and is reaching the people that it should.

The benefit is reaching in the first year just under 80 per cent take-up, and 90 per cent or 91 per cent of the poorest families were availing themselves of those important measures. That is making a real difference; it is transforming their lives in a very positive way. The Government stand fully behind the tax credit system. The noble Baroness said that she is looking to see it reformed; we would be interested to see in what way she considers it might be reformed. We have not heard any detail of that.

We need to make sure that we deal with issues of fraud. Particular issues arose in November last year associated with identification theft from Network Rail and from DWP. That was spotted very early on in the system, and HMRC acted to stop that. It stopped making payments, and a range of investigations are under way to deal with that. Again, this is a significant system—the annual cost of the tax credit system is £12 billion to £13 billion. It was inevitable that there would be some targeting of fraud on the system, which is why protections were put in place. We need to be ever vigilant on these matters.

I refuse to accept the assertion that things are in chaos. This is helping lots of families in a very real way, particularly families with children. I am not sure
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whether I have answered each of the questions that have been raised. If I have not, I am happy to have another go.

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