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Dr. Nick Palmer (Broxtowe): Does my hon. Friend agree that, as in the case of pensions, a mixed strategy is beneficial so that some benefits are payable to everyone, thus enabling everyone to feel involved in the benefits system, and others are targeted at those who are most in need?

Mr. Challen: That is an important point. The Government are committed to that strategy for pensions. We have defended the basic state pension, which we will maintain in line with rises in prices. That is contrary to policies that Conservative Members have proposed in recent election campaigns. The Conservative Government froze child benefit for several years. They obviously intended that benefit to wither on the vine.

No one can accuse the Government of trying to prevent the redistribution of wealth to those who most need it. More people are receiving WFTC—500,000 more than received family credit. On average, families with children are £1,000 a year better off than in 1997. The bottom one in five families are £1,700 better off.

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Another welcome reform proposed in the Bill will ensure that the gender bias in the working families tax credit distribution can be tackled, by ensuring that moneys are paid to the main carer in families and not necessarily through the wage packet, as now. Three quarters of those wage packets went to men, so there was a massive switch away from women being paid directly. Now it is proposed that couples will have a choice as to which partner receives the payment. This is a welcome step, but I envisage problems arising through a third party sometimes having to decide who the main carer is—that is, the person who will be designated as the recipient of the tax credit. I hope that clear guidance will be available.

These are, in the main, matters of detail that do not impinge on the principle, now firmly established, that, through tax credits, we are able to target poverty and build pathways out of it. The poverty trap of previous decades is being eradicated and, combined with measures such as the national minimum wage, it is now possible to see real progress in improving people's living standards, based on the idea that work pays. The only danger with this strategy—and it is a big danger—is that wage levels will be kept too low, and that the excessive growth in part-time working will continue apace. Let us be clear that well-paid work is the ultimate pathway out of poverty, and we must be on our guard against accepting as a substitute anything that falls short of that. We do not want to see a growth in the payments of tax credits because employers start paying less; nor should we seek to build a full-employment economy predicated on the idea that low wages will sustain it.

However, that argument is clearly weaker when more people are in work, as they have been since this Government came into office. Under the previous Conservative Government, we had a Dutch auction in which unemployment could be used as a tool to force wages down and to force people out of work. Who could forget the sentiments of "Je ne regrette rien" and "If it ain't hurting, it ain't working"? Nevertheless, I hope that the Government will continue to monitor the impact of the new tax credits closely, so that we can fine-tune the system—as we are doing today—to make it even more responsive and able to deliver our strategy of getting people out of poverty.

7.32 pm

Siobhain McDonagh (Mitcham and Morden): I am pleased to be able to speak in this debate because I believe that the working families tax credit, the child care tax credit and the minimum wage are the pinnacles of achievement by the Labour Government. They introduce a range of benefits that manifest a principle that we all believe in, and that the Chancellor has frequently repeated, which is that if you can work, you should work. That will not seem like a revolutionary concept to hon. Members, but it is to many people in my constituency, because they have lost the notion of the obligation to work. That has happened for a number of reasons—perhaps because the work was not there, or because they had not seen members of their families working, or because simply getting out and doing it was so hard.

While the Government try—as any Government will—to enforce the values and morals to which they adhere, there must also be physical laws that will allow that to

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happen. The working families tax credit has done that. For me, this is a question of morality. I have no problem in believing that receiving one's benefit through one's pay packet while in work is far better than receiving it through an order book or by having to claim it from a benefits agency. Most of my working life before entering the House was spent working as a receptionist in a large south London benefit office, in a housing benefit office and in the reception of a homeless families unit. Enforcing the idea that to go out to work and to receive a pay packet is fundamentally important will provide a legacy that will last long after we have achieved many other things.

The child care tax credit allows people to consider going out to work. It is easy to give anecdotal evidence of this. In my own circle, my best friend at school trained to be an occupational therapist, and she loved her job. She had two pre-school aged children and, unfortunately, two and a half years ago, her husband died. He had stayed at home looking after the children until his death. All of a sudden, Bernadette had lost not only her husband but the person who had cared for her children, and she was about to lose her ability to return to the work that she loved because she could not pay for the child care that would allow her to go to work.

Because Bernadette was entitled to 50p working families tax credit, she made her way in to the child care tax credit and received £74 a week. That allowed her to continue in a job for which the NHS had trained her—and everyone knows how short we are of occupational therapists. We must all be delighted to have played a part in creating a provision that can do something for people in those circumstances, because this is about helping those who are desperately trying to help themselves.

I welcome the decision to pay the child care element of the working tax credit to the main carer, usually the mother, which will mean that the money will find its way directly to the children. I also welcome the decision to continue to ignore the income from child maintenance, which will continue the considerable financial incentive to work for lone parents receiving child support. I hope that this will also continue to give people confidence in the means of obtaining child support, mainly from absent fathers.

I also welcome the decision to align tax credit rules with the improved rules for carer's allowance, by continuing the entitlement to child tax credit for eight weeks after a child's death, or while a child is in hospital—both very difficult times for families. Given the Government's commitment to encouraging more young people to make the most of their potential in education, I welcome the aim to pay the child tax credit until the September after a child reaches the age of 16, or 19 if they are in full-time education.

As a London Member, however, I have some concerns about the working tax credit. My hon. Friend the Member for Regent's Park and Kensington, North (Ms Buck) expressed them much better than I am about to do, and I am very glad that there has been such a gap between her contribution and mine. As a London Member, I regularly see people at my weekly surgery whose housing costs are incredibly high. The way the benefit is structured at the moment, the more housing benefit a person receives, the more they lose as the working families tax credit comes into play, because the working families tax credit is taken into account as part of their income for housing benefit purposes. About 35 per cent. of the people who receive

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the working families tax credit in London are also on housing benefit, which means that tens of thousands of people are not getting all the benefit that they should from working and from the working families tax credit, compared with people in other parts of the country where housing costs are lower.

This disincentive works also in terms of child care costs, which are about one fifth higher in London than in most other parts of the country. That means that a single mum on £200 a week is £6 or £7 a week worse off than her equivalent in other parts of the country, because she is paying that much more for child care, and has to find that 30 per cent. differential. I realise that it is difficult to compare regional variations—we were reminded by my right hon. Friend the Member for Birkenhead (Mr. Field) that London's housing costs are pretty spectacular in comparison with much of the rest of the country—but I hope that we can consider this issue. London has the highest proportion of single parents not in work, and they and their children would benefit from any changes that the Government might consider.

A number of hon. Members have mentioned the fact that only registered child minders are taken into account for the purposes of the child care tax credit. I would have a problem with the Government paying for informal arrangements, and I completely understand their reluctance to do so. However, I have a problem when child care is available in the home from a well trained person, but benefit cannot be claimed for that.

May I cite an example similar to one used frequently by my hon. Friend the Member for Don Valley (Caroline Flint)? A lady in my constituency was a nurse at St. George's hospital. She owned her own home, but her partner left her with two children. To carry on her job, which involved a rota of nights, earlies and lates, she employed a National Nursery Examination Board- qualified nanny in her own home. Although she was financially entitled to benefit, she could not get it because that person was not a registered child minder.

The NNEB-qualified nanny must, by all accounts, be a better qualified person—should I say, a more qualified person—than a number of child minders, but the result of that lady's dilemma was that she sold her highly priced house and moved to Birmingham to work as a nurse. Another key worker has moved out of the capital, where we desperately need them, so I hope that we can consider the form of child care. I appreciate that that is a matter for the Department for Education and Skills, but we desperately need redress.

I have raised points that concern people in my constituency and similar London constituencies, but I must emphasise that the working families tax credit and its basis helped to get me involved in politics. I am here to help people to help themselves. I believe in a hand up rather than a handout, and the working families tax credit is the best example of that.

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