APPENDIX 1: DRAFT TAX CREDITS (INCOME
THRESHOLDS AND DETERMINATION OF RATES) (AMENDMENT) REGULATIONS
Letter from Rt Hon. George Osborne MP, Chancellor
of the Exchequer, to Rt Hon. Lord Trefgarne, Chairman
of the Secondary Legislation Scrutiny Committee
Your Committee has asked for more information on
the Tax Credits (Income Threshold and Determination of Rates)
(Amendment) Regulations 2015, which have been approved by the
House of Commons.
As I know you will be aware, for Statutory Instruments
of this kind the Government does not usually publish an impact
assessment, hence the delay in responding to your Committee. However,
I am happy in this instance to provide you with new information
on the impact of our reforms to inform your role in scrutinising
secondary legislation as it passes through your House.
I attach an impact assessment
which includes a decile breakdown of how losses from the changes
are spread across the tax credit income distribution. I trust
it will inform your deliberations, and I am content for your Committee
to publish it, as you see fit.
The changes to tax credits included in this Statutory
Instrument are an integral part of the new deal this Government
offers to working people. It means Britain moving from a high-welfare,
high-tax, low-wage economy to a lower-welfare, lower-tax and higher-wage
one. This Government was elected with a clear mandate to bring
about this change.
Tax credit expenditure more than trebled in real
terms between 1999 and 2010; and increased by £9.6 billion
a year in real terms between 2004/05 and 2014/15. In 2010 nine
in ten families with children were eligible for tax credits, reduced
to six in ten following the coalition's reforms in the last Parliament.
The reforms we now make will reduce this to five in ten, and wind
tax credit spending back only to what it was in 2008.
Alongside the changes to tax credits, we are introducing
the National Living Wage, which will be worth over £9 an
hour by 2020, and increasing the personal tax allowance, as part
of a single, thought-through coherent plan.
Taking tax and benefit changes into account, it means
a renting family with two children where both parents work 35
hours a week on the minimum wage will see their income increase
in cash terms by more than £5,500.
The Office for Budget Responsibility also predicts
a wider ripple effect of the National Living Wage, as it pushes
wages up across the income scale, benefiting six million people.
Already we see over 200 companies agreeing to pay at or above
the National Living Wage early, helping to fuel wage growth of
4.4 per cent in the private sector, according to the latest figures.
I trust this information will be of use to your Committee.
12 October 2015
Letter from Rt Hon. Lord Trefgarne to Rt Hon.
George Osborne MP
Thank you for your letter of 12 October, with which
you enclosed an impact assessment in relation to these draft Regulations.
The Committee considered the instrument at its meeting
yesterday, alongside your letter and enclosure. We agreed to bring
the Regulations to the special attention of the House, on the
ground that they are politically important and give rise to issues
of public policy likely to be of interest. Our report will appear
on 16 October, and we shall publish your letter and the enclosure.
We noted your explanation that the Government do
not usually publish an impact assessment for statutory instruments
of this kind. You will appreciate, I am sure, that in our scrutiny
of secondary legislation we look to Government Departments to
provide adequate information alongside statutory instruments which
will allow the House to understand the effect of changes proposed
on those individuals and organisations affected. A well-crafted
impact assessment is very helpful in this respect; if a Department
is not formally required to prepare one, we nonetheless look to
the Explanatory Memorandum for solid information in this regard.
The impact assessment which you sent us in this case
shed more light on the effects of the proposed changes than was
provided by the Explanatory Memorandum laid in September. However,
the Committee was concerned that the assessment could have done
more to set out the short-term impact on household incomes; and
also that the presentation of some of the material, notably on
distribution, was difficult to understand, even for those used
to economic analyses.
We are making your letter and the enclosure available
to the House, which will no doubt refer to it when the debate
on the Regulations is held. As the Committee carries forward the
scrutiny of secondary legislation, we shall continue to reflect
on the adequacy of impact assessments or, in their absence, of
relevant material in Explanatory Memoranda in enabling the House
to consider the statutory instruments laid before it.
14 October 2015
19 See: http://www.parliament.uk/documents/lords-committees/Secondary-Legislation-Scrutiny-Committee/DraftTaxCreditsRegs2015-ImpactAssessment.pdf