Draft Tax Credits Up-rating Order 2001

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Mr. Hendrick: I am sure that the Paymaster General will tell us whether the figures are true. However, given the hon. Gentleman's point about higher income earners receiving the benefit, are we not seeing crocodile tears? Should his party come to power, it would clearly want to take the benefit away from the poorest people in the lowest income bracket. Will the hon. Gentleman confirm that the Conservatives intend to take the benefit away not just from those on high incomes, but from those on low incomes?

Mr. Clappison: I do not think that the hon. Gentleman has studied the proposals made by my hon. Friend the Member for Havant (Mr. Willetts). They are the exact opposite of the hon. Gentleman's comments. However, does he believe that it is appropriate that people in lower income brackets—perhaps only just taxpayers—will pay higher taxes, by way of indirect taxation and all the other means of taxation that we have seen under the Government, to recycle money to pay to higher rate taxpayers who earn up to £45,500 per year? How does the hon. Gentleman square that with his party's aspiration, which has been made clear by the Chancellor of the Exchequer, to reduce the extent of dependency, the amount of means testing and the size of the welfare state, one of the Prime Minister's proudest aspirations?

Orders such as this do not reduce the scope of the welfare state, but extend the receipt of so-called tax credits, which are really disguised means of Government expenditure. Recycling money to give to people earning £45,500 per year does not reduce the welfare state. To be fair, the example that I used depends on a lone parent caring for three children and paying for their child care costs. Even if one deducts the full amount of child care costs—up to £200 per week in my example—from the £45,500, that person would still be a higher rate taxpayer. That is how far the order will take us. I want to hear the Paymaster General's confirmation of that example, which has come to me from the House of Commons Library and which I will gladly repeat if necessary.

I also want to hear an explanation of the order's effects. Given that today's order, together with the order to come, will increase the number of people eligible for working families tax credit, and thereby the possibility of fraud, can the Minister give us an estimate of the number of cases in which working families tax credit has been wrongly or fraudulently claimed? In how many cases has it been stopped for those reasons, how many cases of fraud have been detected, and how many prosecutions have taken place? It would also be interesting to hear how many people are eligible to claim disabled person's tax credit, and how many actually claim it. I look forward to the Minister's answers to those questions with interest, and I should be glad to assist her if any details require repetition. I hope that I have been sufficiently clear. We need answers to these important questions.

Dawn Primarolo: First, I shall answer the last question asked by the hon. Member for Hertsmere (Mr. Clappison) about disabled person's tax credit. The figures on the take-up of working families tax credit have been published and are available in the Library. The latest figures were for August; 8,300 more disabled workers receive disabled person's tax credit compared with the number receiving the predecessor payments, an increase of 45 per cent. The numbers continue to grow. As the hon. Gentleman knows, working families tax credit and disabled person's tax credit focus specifically on helping families with children, recognising the additional costs that those families have.

The hon. Gentleman asked about the April and June announcements. The uprating is usually in April; June is the first available date for subsequent uprating of the payment. It will be for the Chancellor to decide each year what upratings are necessary to maintain the differential between an in-work tax credit and an out-of-work benefit.

The hon. Gentleman mentioned the burdens on the employer, a matter to which I shall return in a moment. The changes in working families tax credit and disabled person's tax credit place no additional burden on the employer because the Inland Revenue calculates the value of the tax credit to be paid and subsequently notifies the employer, who is supported by the Inland Revenue in that calculation. If the tax credit value is higher than the PAYE and national insurance collected from the employees, the Inland Revenue makes a grant in advance to the employer so that he is not out of pocket.

If the hon. Gentleman casts his mind back to the regulatory impact assessment on the introduction of working families tax credit, he will remember that, in the worst case scenario, an employer would have to do only six minutes extra work a week in return for the benefit that he receives—retaining staff, for example. The payment of the child care tax credit helps those with small children with their child care payments so that employers, who have invested in their skills, do not lose trained people. I shall not pursue that matter further as I do not want to try your patience, Mr. O'Brien, by wandering too far from the order. The continuing accusation that employers cannot cope and that the system is collapsing is simply not true. Results from Inland Revenue surveys continue to show that the tax credit system is working well and that the Inland Revenue moves speedily to support employers in need of advance payments.

The hon. Gentleman asked about the total cost of uprating. The uprating of rates and threshold for working families and disabled person's tax credits, the increase in disabled child tax credit by £7.40 over indexation, and the introduction of the new enhanced disability tax credit are estimated at £120 million for the year 2001-02. It is set out in the Red Book and I am pleased to put that on record again.

The hon. Gentleman then commented on take-up. More than 1.1 million families were receiving working families tax credit in August 2000—more than 300,000 more than the number of families receiving family credit at its peak. The take-up continues to show steady and good growth. On three separate occasions, the Government have run high profile take-up campaigns and we continue to publicise information on the availability of working families tax credit. It is expected that about 1.4 million in a steady state of take-up will be entitled to receive working families tax credit once the system is bedded down and awareness has been created.

It is important to remind people that only a short time has passed since the introduction of working families tax credit in October 1999. It has completed its first full year and is now in its next six-month period. The take-up after the introduction of support into the tax or benefits system can be seen to be very high in proportion to entitlement. Anyone speaking to families in receipt of working families or disabled person's tax credit knows full well how valuable they are to them. Working families tax credit helps them stay in work and pay for child care. It is a contribution to child care, not a complete payment, and it has been particularly helpful to lone parents and families with young children. It helps them go back into paid work, which is precisely what they want to do.

The hon. Gentleman suggested scenarios and asked whether someone earning £34,000 with three children would receive £67 a week. It is impossible for me to deal in Committee with specific individual cases, but I can tell him that a single earner family with two children on half average earnings—£12,700 a year—will be about £3,000 a year better off in real terms because of the extra support. A single earner family with two children, on average earnings of £25,000 a year, will be about £520 a year better off in real terms.

If we examine the distribution of working families tax credit, we see that the support—on average, it is worth about £30 more a week in real terms than family credit—is going to people on the lowest incomes. I do not know how many children the hon. Gentleman has, but he might know that two children are more expensive than one, and three more expensive than two. The average family has one or two children, and that is the claim that might show in working families tax credit.

Mrs. Helen Brinton (Peterborough): In my constituency, which we have been told is a battleground and priority seat, there is a local council by-election this Thursday, and comrades and colleagues on the doorstep are finding that working families tax credit is a key policy that is convincing more and more people to turn to Labour.

Dawn Primarolo: I shall not go down that route, but I am delighted to hear that there are so many conversions.

It is important to consider the great value of working families tax credit to families who are struggling. Many of them felt that they were forced to choose between employment and unemployment, because it simply did not pay for them to work. For many of those young families, the cost of child care was prohibitive. That is provided for in working families tax credit. Approximately 124,000 families receive that support, which is about three times the level of the disregard that was available in family credit.

When I have a precise date for publication of the latest figures, I shall be happy to tell the hon. Gentleman—it is not a secret. Disabled person's tax credit figures for October were published this month, and working families tax credit figures for November are due next month. The timing is not within the gift of Ministers; those statistics have always been published according to a cycle, regardless of intervention by Ministers. In fact, we are not able to intervene and adjust the time periods. The hon. Gentleman might not like the publishing dates, but I believe that family credit was on the same cycle; there is nothing new about that.

The hon. Gentleman also asked about the report that was produced by the National Association of Citizens Advice Bureaux and, specifically, whether employers are behaving illegally by sacking employees who receive working families tax credit. The first thing to say about NACAB's report is that it recognised and welcomed the success of the working families tax credit as an important contribution to boosting the income of low-income families, which include approximately 2.2 million children, and to the Government's commitment to raise children out of poverty. NACAB said that it took approximately 90,000 telephone calls about tax credits. Not all were negative: in fact, only a tiny proportion of callers alleged that there was a problem. The association then asserted that people had been sacked but, despite repeated requests from us, we still do not have those individuals' details.

Secondly, working families tax credit legislation contains measures to protect employees from discriminatory action. For example, employees have the right to go to an employment tribunal if their employer sacked them because they were in receipt of working families tax credit. Again, despite repeated requests, information about those cases has not been forthcoming. If the citizens advice bureau knew that that was happening, why did it not go to an employment tribunal as the legislation provides?

Clearly the Government take this very seriously. That is why we have anti-discriminatory measures in the tax credit legislation. If any employer is caught, in other words we are given the proof that this is going on as opposed to anecdotal information that it might go on, we would advise the person of his rights and either the citizens advice bureau or any other representative body acting on his behalf could go to an employment tribunal. It is important to keep this in perspective. As we would expect and know from our experience, the overwhelming majority of employers behave well and are operating the tax credit legislation correctly. Protection is available against those who do not. Given that those cases have been found, I am still perplexed why no case has been taken. Clearly individuals' rights could have been protected.

The hon. Gentleman continued to make the case that tax credits are somehow unfair and go too far up the income scale. I am not sure whether he is saying that there is a deserving and an undeserving poor. The Conservatives have announced that they propose to amend working families tax credit, and in effect to abolish it by putting in a second taper, which would mean that anybody who received tax credits of £30 a week or less would have them taken away regardless of their income level. The average income per year of someone receiving working families tax credit, which could be a very small payment, is about £17,000. Such people could qualify for some help with their child care tax credit.

If the hon. Gentleman studies the next publication of those in receipt of the working families tax credit and, if he has time, talks to his local CAB or any of his constituents who are in receipt of working families tax credit, he will find that they are not people on astronomic incomes. It is precisely targeted to help those who need it most.

 
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Prepared 20 March 2001