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Mr. Edward Davey: I shall focus on the policy point, and why the Government are going down the route taken in the clause. They want to provide extra money for families with children aged under one--babies--and that aim is laudable. The question is whether the clause is the best way to do it.

In the past, new parents could claim a maternity grant on registration of the birth of their first child, and that provided a lump sum up-front that they could use for the expenditure well known to arise when one has a baby--on prams, cots and all the other things that one needs. Incidentally, perhaps I should declare an interest--although I am not sure whether it is required by the Register--as an unmarried male who hopes to be married and have a child.

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As regards political policy, the question is whether a maternity grant or a tax credit is the most effective measure. With a tax credit, the money is not up-front. Presumably, one has to wait for the monthly pay cheque, so the benefit will be received over a period. Perhaps some families buy everything on hire purchase, but many want to pay up-front, so the benefit of the Government's laudable aim of putting money in the pockets of families with new-born babies could be more effectively delivered if they chose a different route. The old maternity grant achieved what I am advocating--money up-front for the purchases needed at the beginning of a child's life.

There is a strong argument that a tax credit may not be the best way of delivering the Government's policy objective. Of course, there are arguments on both sides.

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The Government might say that a universal maternity grant would be claimable by higher-rate taxpayers, while the tax credit is, in effect, means-tested. However, there are not many people in that category; the means-testing necessary to achieve the Government's aims would not involve a huge amount of money.

Moreover, it is possible that the Government's chosen method might reduce take-up. That is important. What about families who do not pay income tax for a short period? What about families who have not applied for the credit and are not aware of it? They will miss out. We have heard about the problems of take-up of the children's tax credit, which is a recurring credit. How much greater will the problems be for a credit that lasts for only one year? I am not convinced that the Government are taking the right route to ensure that families who need extra help at that time receive it. I hope that the Minister can persuade me, but I am not sure whether she can.

There may have been take-up problems with the former maternity grant, but my recollection of the days before the Tories abolished it is that there was a high take-up rate. It was one of the benefits for which take-up was almost universal. It was advertised in maternity clinics, GP practices and so on, and it was fairly easy for people to apply. Young mothers might be reluctant to get involved with tax credits; it all sounds terribly financial and difficult. They might be more reluctant to go for that form of help than for a straightforward maternity grant.

I hope that the Government will be able to explain their policy objective. I am not convinced that it is the right way to go.

Mr. Steve Webb (Northavon): I should like to explore further the points that my hon. Friend the Member for Kingston and Surbiton (Mr. Davey) was making about take-up. The Paymaster General said that children's tax credit forms had been returned by about 4 million families on PAYE--so 15 per cent. have not yet claimed it. As my hon. Friend says, we do not know whether that 15 per cent. will claim the new baby tax credit. Obviously, it is not too late for them to do so, but they have not yet been found. Given that the Government invented the children's tax credit two years ago, and have thus had two years to find people but have failed to find that 15 per cent., there is a question about whether the new tax credit will eventually reach them.

Dawn Primarolo: The hon. Gentleman is very knowledgeable on such subjects, so he will recall that the take-up of family credit, for example, which ran for a considerably longer period, did not reach the heights that the children's tax credit has already achieved in the year in which it has become operational. Yes, we must find the 15 per cent. or so--the 500,000 people who have yet to send in their forms--so I am not complacent, but by any measure, the Government should be congratulated on the very high take-up that we have already achieved for the children's tax credit, notwithstanding all the other issues that the hon. Gentleman raises.

Mr. Webb: Well, that is interesting, is it not? The Paymaster General said, "by any measure", and there is an alternative yardstick to the family credit or the working families tax credit take-up rates--the child benefit take-up rate, which, as she will know, is approximately 100 per cent. She may know someone who is not claiming it, but the rate is about 100 per cent.

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The Government have decided that they want to support families who have a new baby, and they know where every single one lives, because when the child is registered for child benefit, the Department of Social Security sends back a response and issues a benefit book or notifies the family that the money can be paid into their bank account. They are precisely the people at whom the child tax credit is aimed, so instead of having a baby tax credit--the subject of the clause--why do not the Government simply put a £500 cheque in the post when those people claim child benefit on day one? As my hon. Friend the Member for Kingston and Surbiton (Mr. Davey) says, that would give them a lump sum up-front, with which they could buy cots, prams and so on. I speak as a father of young children, which is why I thought I would take part in the debate.

Another point, which has not been mentioned so far, is that when the money becomes part of the monthly income for the first year of the child's life, there is a danger that the family will adjust to that pattern of income. Parents will have £40 a month extra for a year, but when their children reach the age of one, they will come to our surgeries telling us that the Government have just taken £40 a month from them.

There was never any pretence that the payment would continue--it is just for the first year--but the families will have become used to a pattern of regular income that includes the £40 boost. They will not have been able to smooth out the payments to buy the lump-sum items, because they will have had to buy those items at the beginning. The danger is that families may get used to that standard of living, and then have the money taken away from them. However, there may be a hidden agenda in that idea--to get the mum back to work.

The clause is not really about supporting families in poverty when babies are born, because that policy is now known as the sure start maternity grant, or whatever. I believe that that is largely the same initiative, but it has to be renamed. There is a maternity grant system, so the baby tax credit is not really about poverty among families with new babies; it is about the Government's agenda of getting more people into the labour market. They seem to suggest that a year is enough. The financial support for families with young children drops after a year, so how will they make up for the loss of that £40 a month? Perhaps they will start pin-money jobs or work a day a week at Tesco, or whatever.

I should be interested to hear the Paymaster General expand a little more on the Government's thinking, because they have not taken the action that they were expected to take on paid leave and so on. I wonder whether that is why the tax credit will last only a year--but what does that say about the Government's views on whether people should return to work a year or so after their children are born?

The Government clearly have a mechanism to get the money to every one of those families if they wanted to, but the problem is that they would have to use the benefits system. The second fundamental criticism is that the Government's dogma says that this is a tax credit. It is not in the tax code, and it is assessed on the family, not on the individual, but it is called a tax credit, so it will probably not feature in the DSS accounts and expenditure.

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A system that would have given money to everyone who was entitled, with 100 per cent. take-up, has been ditched--or rather, not adopted--in favour of a system that misses 15 per cent., and does not help families so effectively because of the Treasury dogma that it is better to provide things called tax credits rather than social security benefits. Sometimes the benefits system is the best way to help families. Sometimes take-up is better in the benefits system than with a tax credit, so I am disappointed that the Government have not gone down that avenue.

Dawn Primarolo: Contributions to this debate have fallen into two categories. The hon. Member for Arundel and South Downs (Mr. Flight) talked about the clause and how it relates to schedule 11, and the hon. Members for Kingston and Surbiton (Mr. Davey) and for Northavon (Mr. Webb) referred to the support policies that go alongside the children's tax credit, which is designed to support young families.

I shall deal first with the points made about schedule 11 and the clause, and describe what they will do. They will introduce the additional children's tax credit that will be payable from 2002 for the first year after a child's birth. It will not be paid pro rata but for the whole year. The clause also provides for an additional £5,200 of children's tax credit in 2002-03, and that will be paid at the rate of 10 per cent.

The clause establishes the principle of the baby credit within the children's tax credit. Subsection (1) will insert a new subsection (2A) into section 257AA of the Taxes Act 1988, and will provide for an additional £5,200 of children's tax credit in the year after a child's birth. Similar provisions were made last year to introduce the children's tax credit, and although the figure of £520 already appears in the Taxes Act, this clause inserts the principle of the credit of £5,200.

The clause also describes the basis on which the baby credit can be claimed and defines the qualifying child. A child must be born within the tax year to qualify for the relief. The clause also relates to schedule 11 and provides for the introduction of the baby credit in 2002-03.

Schedule 11 will place those principles in the Taxes Act 1988 to sit alongside the existing provisions for the children's tax credit, which will be worth up to £520. Paragraph 2 introduces the higher rate and provides that it can be shared in the same way as the lower rate. Paragraph 4 provides for a re-election in year, which means that when a baby is born within the tax year, a family will be able to apply for the credit immediately and will not have to wait.

The schedule also makes it clear that however the credit is paid--it may be shared between two members of the family who live together or between two people who have separated but have equal responsibility for the child--the combination of their entitlement can never exceed 100 per cent. of the credit. However, if the family structure changes, their entitlement to the credit remains.

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