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5.27 pm

Mr. Steve Webb (Northavon): The right hon. Member for Birkenhead (Mr. Field) raises important concerns about the Bill, but they can be addressed by amending the detail in a manner that I shall explain. In a break with tradition, I can tell the Government that I am minded to encourage my 51 colleagues of this morning and the 52 of this afternoon to support the Bill. More are welcome to join us, and I understand that the Government Whip can advise me on leading my 52nd colleague into the correct Lobby.

I am minded to support the Bill and to encourage my colleagues to do so for three reasons. First, the Government have delivered additional support to families with children. Indeed, I confess that I am struck by the substantial nature of some changes made over the last Parliament, particularly with respect to families with young children, and I welcome the fact that support has been concentrated on those families. It was increasingly becoming apparent that paying them less was a mistake, although that was a long-standing tradition in the benefits system. The evidence is to the contrary—there should at least have been a levelling up—and the Government are to be applauded for what they have done on that front.

To the extent that the Bill levels up support for the children of those in and out of work—I would like to think that it will do so, but I suppose that Ministers will not give me that assurance—I welcome it. Furthermore, previously excluded groups such as students with children and student nurses are included, which is also welcome.

The second reason for welcoming the Bill is the potential for streamlining. The current system is a dog's breakfast; it will be marginally less so after the Bill

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becomes law. Any streamlining, any continuity between being in and out of work, getting rid of the hours rule on support for children and getting rid of the capital limits are welcome as they make the system somewhat simpler, although it will probably still be more complicated than the one we first thought of four or five years ago. The Bill is a move in the right direction, however, so we welcome it.

The third main reason for that welcome involves our reason for opposing the Tax Credits Act 1999: payment through the pay packet, whose emphasis is diminished. I recall the Paymaster General assuring me that lone parents needed payment through the pay packet, which was a requirement of the existing system, to show them the value of paid work.

I am pleased that the Government have thought again about support for children, and that that support will now go direct to the main carer. I welcome that move. Some current recipients of the working families tax credit who are within the taper will get no in-work payment through the pay packet: support for the children will be paid direct to the carer. That group of people will still understand the benefits of working. I welcome the Government's second thoughts on that issue.

We broadly support the Bill, but I want to raise a number of concerns that we will pursue in more detail in Committee. I hope that the Financial Secretary, when he responds to the debate, will address some of my points, as I am approaching the Bill as a critical friend of the Government's proposals.

The hon. Member for Arundel and South Downs (Mr. Flight) referred to the burden on business. There is an issue to be addressed, but it is not the one he raised. As the Paymaster General said, the burden on business will be reduced with annual assessment and with the streamlining of the process. The regulatory impact assessment puts the figure at £10 million. However, the starting point is the £100 million burden on business: it costs businesses £100 million every year to deliver the working families tax credit. The Bill may reduce that figure to £90 million, but that is still a substantial burden on business, and the House needs to justify that.

I contend that, because of the reforms in the Bill, support for children will be paid outside the pay packet, so what is left does not need to go through the pay packet either. We could take this opportunity to get rid of that £90 million cost on business. I shall set out how that could be done.

Phil Hope: I find it distressing that, although the hon. Gentleman acknowledges the £10 million-worth of benefit to business, he says that it is not enough. Could he not accept that the Bill reduces the burden on businesses and celebrate that fact along with Labour Members?

Mr. Webb: I am not sure that it is my role to celebrate these provisions. The hon. Gentleman should listen to what I am saying. A £10 million reduction in the burden on business is welcome, but there is now an opportunity to get rid of a further £90 million burden, which perhaps he would celebrate.

What is left when support for families in respect of children is removed? There is the adult bit of the old working families tax credit, and there is the new bit for

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people without children—that is, people working 30 hours a week aged more than 25. Why are we paying these people tax credits rather than giving them support in another way, which I will set out?

The Government have put two arguments. They argue that we should support those people to relieve poverty and to improve incentives. The poor childless people who will be brought into the system do not work more than 30 hours a week and are not likely to be over 25. The poverty rates among childless people are higher for those not working 30 hours—indeed, not working at all—and are higher for those under 25 than for those over 25. If poverty is our concern, we should pay this employment credit to all childless people in low-paid work, not just to those over 25 working 30 hours.

On incentives, I invite the Financial Secretary to come up with one piece of empirical evidence that suggests that the reason why childless people are not working or are not working longer hours is to do with incentives and free choices about jobs that they could take but are declining to take. I accept that there are plenty of jobs that families with children and a mortgage cannot afford to take, because they get plenty of help out of work and not as much in work, or barely more. However, childless people do not get much support when they do not work, so they already have a leg up into work.

Benefit rates for childless people are not very good, and they would not want to live on them for long. Incentives already exist, and there is not much evidence to suggest that those who work 30 hours a week and are aged over 25 need additional labour market incentives. There could be a poverty argument, but the statistics suggest that the scheme is targeting the wrong people.

If there is a case for supporting all low-paid workers—with or without children, single or married—do we need to do so by costing businesses £90 million a year? My argument is that we do not, because we have the personal income tax allowance. If we want to deliver an average of £15 a week—which is the sort of figure we are talking about for the working tax credit—we could do so by raising the income tax allowance.

If that alone were done, every Member of Parliament would benefit as well. For these purposes we would not want to do that, but other adjustments could be made to tax thresholds enabling all the benefit to go to those just inside the income-tax structure, rather than some of it going to those with higher incomes. We could lower the starting level for higher-rate tax and raise the personal tax allowance, which would give Members no net benefit but would target help on all in low-paid work. That could be done through the PAYE code, and would impose no burden on business. Indeed, it would save businesses £90 million a year

Kali Mountford: Is the hon. Gentleman suggesting differential tax thresholds? Is he saying that different tax bands should involve different starting rates?

Mr. Webb: No. I am sorry if what I said was not clear. I am suggesting that the personal tax allowance, which currently applies to all taxpayers, should be raised, and that—so that the hon. Lady cannot benefit—the higher-rate income-tax threshold should fall. That would merely change two of the premises of the existing system. It would prevent Members from benefiting, while

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enabling those in the basic-rate—lower-rate—band to do so. It is a fairly straightforward proposition. As I said, it would save businesses £90 million a year in administration, and would deliver to broadly the same groups an anti-poverty benefit of equivalent cash value. It would also deliver a labour-supply benefit: when people took low-paid jobs, the tax burden would be lower.

The detail of what I propose is of course not identical to what the Government propose: there will be slight differences between the position of those who benefit from a tax-allowance rise and that of those who benefit from employment credit. I feel, however, that the onus is on the Government to justify continuing to impose a £90 million burden on business, rather than simply raising tax allowances, in terms of the extra benefit they receive as a result of paying working tax credit. If we are all interested in simplifying and streamlining the existing system, we may conclude that a tax-allowance rise would be better than employment credit.

Intervening on the hon. Member for Arundel and South Downs, the Paymaster General suggested that he might want to question the whole existence of employment credit. That is an important point, but although I support the Bill—principally because of what it will do for families with children, and because of its streamlining effect—I have considerable reservations about working tax credit. I am not sure what it will achieve that a tax allowance could not achieve.

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