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Mr. Davey: The hon. Lady is making a similar mistake to the one made by the hon. Member for Buckingham (Mr. Bercow), which, to her credit, is very unlike her. The Liberal Democrats have always made it clear that marginal rates of tax should go up to fund essential expenditure. That is completely different from the argument that I am making, which is that if the Government have a certain amount of money to spend on making the tax system fairer, as sure as night follows day it would be a better use of that money to increase the income tax allowance, the 0 per cent. tax band. That would have the added advantage of not adding these unnecessary complexities to the system.

That is a simple point that has been made many times by hon. Members in all parts of the House. I want to use the opportunity of this clause stand part debate to make the point again. We have a tax system that is far too complicated, and we should argue at every opportunity for simplifying it. One of the Government's major economic mistakes has been to make the tax system far too complex, and I hope that, as they think again about tax policy, which they may or may not have the chance to implement in a future Parliament, they will understand that reducing complexity is an important issue. It is important in the personal sector, in the move to greater self-assessment, and in the reduction in complexity for the corporate sector. This is a microeconomic issue that has macroeconomic outturns, and the Government should take it very seriously.

Dawn Primarolo: The clause fulfils the Government's commitment to introduce a 10p starting rate of income tax--the lowest rate of income tax since 1962-63. We are also introducing a range of other measures, on income tax, national insurance contributions and tax credits, to encourage people into work and ensure that they keep more of what they earn. The allowance with which the clause deals is part of that package.

Both the hon. Gentlemen who have spoken in the debate seem fundamentally to misunderstand the purpose of the Government's policy, particularly when it is coupled with the new deal. One of the Government's many tasks is to assist those who are unemployed into paid employment. That requires us to ensure that there are low marginal rates of tax, so that those people can move from unemployment into employment and then up the ladder, earning more and more.

The hon. Member for Kingston and Surbiton (Mr. Davey) makes a simple point, and he makes it regularly. He wants things simple, simple, simple. However, a balance has to be struck in policy objectives

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between fairness and simplicity. We have had the discussion a number of times in the House, in Committee and in Select Committees about how the Government should balance their objectives and keep the tax system as simple and as clear as possible.

If the hon. Member for Kingston and Surbiton looks closely at his proposals he will realise that, if implemented, they would cut directly across the objective of moving people from unemployment to employment--an objective that I believe his party shares with the Government, but which he is in danger of undermining. That is what the hon. Gentleman has seemed unable to grasp during our discussions about the 10p rate and the 10p band rate.

Mr. Edward Davey: I thank the Paymaster General for giving way so generously, but can she explain how a policy objective of moving people from unemployment to work is better served by a 10p rate band than by a 0p rate band?

Dawn Primarolo: I do not think that the hon. Gentleman was present when I explained to his hon. Friend the Member for Truro and St. Austell (Mr. Taylor), who had spoken to a Liberal Democrat amendment, about the importance of giving unemployed people incentives to move from benefits to work and ensuring that they keep more of what they earn. The desirability of reducing, wherever possible, the marginal rate of tax in order to maintain that process is the rationale of the 10p rate and the 10p rate band. I know that the hon. Gentleman thinks that the Government have other motives, and that our proposal is not part of the welfare-to-work programme and is not related to our objective of securing full employment. If he examines the full range of our policies, however, he will see that they are all targeted in the same direction.

This has been a short but interesting debate on a very narrow clause. I commend the clause to the Committee.

Question put and agreed to.

Clause 51 ordered to stand part of the Bill.

Clause 52

Children's tax credit: amount for 2001-02 and for subsequent years


Question proposed, That the clause stand part of the Bill.

8.30 pm

Mr. Flight: The Government may have forgotten that three or four years ago--unfortunately, the Chancellor's office arranged a little leak--the Select Committee on Social Security advised strongly against arrangements of the type that the children's tax credit represents, suggesting that such arrangements were ill-conceived and not the best way of helping children. Of course, an increase in the maximum receipt to £520 a year will be welcomed by those who qualify, but the principle of CTC remains flawed. It tends to benefit the lowest earners with children least; it is complicated and regressive in its interaction with working families tax credit; and it is unfair in that its impact on families with a single earner is different from its impact on families with double earners.

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The proposed increase will, in many instances, reduce entitlement to working families tax credit, as well as creating yet more complexities and administrative problems for the employers who have been forced to administer CTC. The Chancellor himself has admitted that the arrangement is unsatisfactory by announcing that Labour would abolish it in future, and make it part of an integrated child care element--or rather that the child care element of working families tax credit would be replaced by an integrated child benefit.

As has been widely recognised, it is morally wrong for a child benefit to discriminate against single-earner couples. If the combined income of a working couple is £65,000--it may be £60,000; I have forgotten the precise figure--that couple are likely to qualify. If only one earner is involved, the couple will not qualify, although the same children are there to benefit. After tax, the single earner may have less than two earners receiving the same gross pay.

There is an administrative nightmare when divorced and separated parents and couples involving new partners come together to look after children. The Association of Chartered Certified Accountants, expressing the feelings of many, has complained that the application form is so complex that, for a number of people the task of completing it is too difficult, and they will lose out as a result. I believe that some 500,000 have failed to apply in time this year, and they are likely to be those most in need of support. Even the BBC news, that great organ of the Labour party, has admitted that citizens need a guidebook to work out what family tax credits they will be entitled to.

The Conservatives are pledged to review the position, to introduce a fairer and simpler child tax credit and to increase the cash benefits by a further £200 per annum in respect of children under five. We will set out in due course how we will do it. The principle of providing greater support to children must be right--I should declare an interest: I have four children. The cost of child rearing is a major burden. I go back to the cross-party Social Security Committee, which advised against trying to apply a means-tested approach. The mechanism is not working. The Government themselves admit that, in their proposals to make changes in due course.

Mr. Edward Davey: Let me start by saying something that the hon. Member for Arundel and South Downs (Mr. Flight) did not say: it is welcome that more money is going to families with children.

Mr. Flight: I did say that.

Mr. Davey: I beg the hon. Gentleman's pardon. He corrects me from a sedentary position. I withdraw the remark. It is important to target extra money on families with children. This Government have done so, which has been a welcome change: the previous Government did not do so. It is worth acknowledging that, and putting it on the record.

Having said that--

Mr. Graham Allen (Vice-Chamberlain of Her Majesty's Household): Ah--there's a "but".

Mr. Davey: There is; the hon. Gentleman from the Whips Office is right. The children's tax credit is a very

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complicated way of targeting money on families with children. Simplicity is of the essence in many of these issues. Let me explain how complex a system of child care support we have. We have child benefit, a children's tax credit, the child care tax credit and the working families tax credit. It is incredibly complicated. There is a plethora of forms and of civil servants and a range of guides, and the different tax credits operate in different ways.

Mr. Flight: In contradictory ways.

Mr. Davey: The hon. Gentleman is right. It is not surprising that not everyone who is entitled to the children's tax credit is taking it up. It is so confusing. That is what happens when we have complexity.

As the hon. Gentleman rightly said, the Government have realised their mistake. They have realised that they have made the system complex, so they are going to get rid of the children's tax credit. We are debating an increase in the credit that has come into force only this month, when the Government have already announced that they will get rid of CTC by 2003. They have admitted that this was the wrong way to go about things. Although it is welcome that more money is going to children and families, this is not exactly the most effective way of governing. It suggests that there is a lack of strategic thought in the Treasury. The extra money is welcome, but the piling of change on change and the extra complexity leave one questioning the way in which the Government have gone about things.

Although it has been said before, and I am sure that the Minister is almost fed up of hearing it, it must be said again that some of the support mechanisms for families, particularly the working families tax credit, have imposed severe burdens on business. Small business in particular has been hit by the burden of administering the credit, which was previously administered in the form of family credit by the Department of Social Security. Businesses have effectively been asked to get involved with social security mechanisms. As a principle, that is not sensible.

As we consider the clause in the knowledge that the Government have those plans--and particularly as the clause increases the value of the children's tax credit--it is worth asking how they propose to get around some of the problems that they have created for themselves in not having a coherent strategy from the start. When they move to the integrated children's tax credit, if they do, it will, we are told, be assessed on household income--the incomes of both parents. The hon. Member for Arundel and South Downs made the valid point that a single-earner couple is discriminated against in the administration of the children's tax credit as compared with a dual-earner couple who have earnings below the higher-rate tax level. That lacuna in the current legislation will cause a problem when the Government introduce the integrated tax credit. A couple who both earn an amount just below that which qualifies for higher-rate tax, and who therefore receive the full children's tax credit, will have their incomes added together when they are assessed for the integrated tax credit and, unless the scale is increased significantly, they will lose a substantial amount of children's tax credit--and possibly all of it.

The Paymaster General is giving me one of her quizzical looks, which suggests that she may have thought of that point. If she has, I hope that she will enlighten

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the Committee further, because we have had no public announcement of how the Government intend to overcome that very real problem. Some families in that situation can benefit to the tune of £520 a year from the children's tax credit, and they will stand to lose a significant amount when it is integrated. If the Government try to take £520 a year away from such families, they will soon hear all about it.

I welcome the extra money for families with children, but--as the hon. Member for Arundel and South Downs said--more than 500,000 people who are entitled to the credit have not yet claimed it and will not benefit from the increase in its first year. The Paymaster General may have more up-to-date figures and I hope that take-up has increased. My party wants the take-up to be 100 per cent. and we hope that the Government are successful in achieving that, because no one wishes to see families with children denied money to which Parliament has decided they are entitled. However, the question is how we can ensure that those families with real financial problems are getting the credit, and that is an important policy objective for everyone. I hope that the Paymaster General will be able to tell us how the Government will be able to ensure that their extra generosity goes to the people who need it most.


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