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8.49 pm

Vera Baird (Redcar): I must confess that I was rather pleased with the result of my modest intervention on my hon. Friend the Member for Corby (Phil Hope). I asked whether he could list all the poverty alleviation measures that could be attributed to the Conservative party, and he was able to come up with none. The massed battalions of Tory poverty campaigners who are overcrowding the Opposition Benches were able to come up with one— the tax credit which, if I remember rightly, they subsequently froze.

I may be more charitable, or perhaps more unrealistic, than some of my hon. Friends, but I suspect that the marked absence of Conservative Members goes beyond simple indifference to well earned and much deserved guilt, backed up by well earned and much deserved shame, for the state of communities such as Redcar, which was raddled with inner-urban poverty for the past decade or more until this Government came to power and

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introduced measures such as tax credits. Step by step, refinement by refinement, detail by detail, particular by particular, the Government are starting to pinpoint those in greatest need and to work out the best way to alleviate their poverty. I nominate the term "Conservative measure for poverty alleviation" for the dictionary of oxymorons. Enough of them, however, and more about the excellent Bill.

I am going to concentrate on the child tax credit, which builds on the children's tax credit, of which we have some experience. The Government learn as they go, as I have said in relation to a wide range of measures, and the child tax credit is a refinement and improvement on that former tax credit. It has welcome features, the ramifications of which I should like to work through tonight.

A much mentioned facet, but none the less one of particular importance to feminist campaigners such as me and some of my closest friends, is that the child tax credit is paid to the main carer direct. It is not paid through the wage packet, so it is likely to be paid into the purse, not the wallet. Women's equality campaigning groups, such as the Fawcett Society, of which I was pleased to be vice-chair before I came into the House, have campaigned for that simple step for many, many years. It means that the money is always put with the child. Research that goes back as many years as the campaigns to introduce that measure shows that payments that are designed to lift children out of poverty are most effective if they are paid to the primary carer of the child. I congratulate the Government on taking that step.

Another excellent facet of the child tax credit is that it will be paid to families that are out of work and those in work, so there will be a reassuring, consistent source of income on which families can rely as they move out of unemployment and into work, which they are beginning to do in constituencies such as mine. A disruption to benefits seems to be part and parcel of attaining employment, and historically the uncertainty about what specific support will continue in their place has clearly been a disincentive to seeking employment. Jobseekers are not clear about what will replace their benefits and which benefits will entirely be lost. The adaptable concept of the child tax credit, meshed into the taxation system, should encourage people to make that move into work with confidence.

It is hard to overstate how vulnerable people are, especially lone parents who are out of work and people who have been thrown on the scrap heap and made redundant, which the heads of some families on the council estates in my constituency experienced again and again as the older industries restructured and newer ones came and went.

Tony Cunningham: May I stress once more the importance of breaking into the generational cycle of unemployment? There are young people in my constituency who have no experience of work and whose parents, uncles and neighbours have no experience of work. If we do not break into that cycle, we will never establish the role models and routines that work provides and that children need as they grow up.

Vera Baird: My hon. Friend is right. An important benefit of the continuity of the credit while people are in work and while they are unemployed is that it will safeguard against very poor people slipping, even for a week, into greater distress. Consistency and stability are extremely important characteristics of the tax credit.

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There is a further, admirable element of consistency and stability in that the child tax credit will be assessed for up to a whole tax year at a time, which means that changes in a claimant's circumstances that change the rate of credit will not end its payment. There will not be an interruption in their receipt of benefits for one, two or three weeks—gaps in the supply that can occur now while benefits of the kind that we are used to are reassessed.

Gone are the days, I suggest, in this sphere of poverty alleviation when a mother with two small kids queued with her book at the post office for a difficult and noisy half-hour, only to have the book removed by the counter staff because some minor alteration in her circumstances meant that her income support, with its child-related element, must be reassessed. That instils the fear—even if it is not the reality—that the process may take a couple of weeks to put right. Meanwhile, she must worry about the absence of the money, although in the end she will not lose it. Poor families cannot afford to be out of benefit for a day, so close to the boundaries of distress are they. This tax credit offers a better structure, and it offers to smooth out what my hon. Friend the Member for Colne Valley (Kali Mountford) called the lumpy delivery of benefits.

I turn now to another feature of this excellent benefit. It is likely to encourage the second parent into work. When the rates, the threshold and the amount by which the benefit tapers away as other family income rises are set, Ministers intend that the second adult in the family, who is of course usually the woman, will also be encouraged into work. It is therefore essential, and I am confident that the Government will perceive it to be so, that the new rate is high and the taper gentle enough to ensure adequate support and a smooth transition to facilitate women returning to work as second earners in a family.

In today's labour market, where many jobs are not long term, it is important to encourage second earners to stay in employment so that households will not be solely reliant on benefits if the other job is lost. In addition, given that most lone mothers become single some time after the maternity period, it is important that women can retain the means of earning independently to reduce the likelihood of the household being workless in future.

Dr. Palmer: Does my hon. Friend agree that it is important to have a flexible system with a smooth transition so that people, particularly women, coming back to the labour market can start with something substantially less than a full-time job, then move up to a full-time job without experiencing a catastrophic loss in benefits?

Vera Baird: That is an important aspect of the smoother delivery that the new structure implicit in the tax credit will guarantee. It will benefit a good many young women who, in the course of the general election campaign, told me that they found it difficult to get back to work when they realised that they would lose more than they would gain, although they devoutly wished to be properly employed and gainfully engaged in society again.

If that is to happen, the taper must start at a relatively high level with a low rate of withdrawal. Similar systems in Canada and Australia cut out payments at the higher

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end of the income scale, with the top 15 per cent. and the top 10 per cent. of earners respectively shifting from a poverty assessment to an affluence assessment. Structuring the system to include a large proportion of families will help to build a coalition between middle and lower-income families and overcome any residual stigma attached to receipt of payment. That is another paean to the detailed facets of the tax credit.

A further excellent facet of the credit is the disregard of capital except when it generates an income. It is right that the new credit will be calculated in a way that takes into account income from capital only when it is earned by capital in the hand of the claimant. The current rules count into an income assessment a notional return on all capital at what seems to be a fantastic and unrealistic rate. Once one breaks through the barrier of capital required for assessment, it is assessed at a return of £1 a week for every £250 of capital over the limit, which seems to be the equivalent of a return of £52 on £250 a year or an interest rate of about 20 per cent. If that is a realistic estimate of how capital is treated, I would very much like the assistance of the Minister in giving me the address of the bank that delivers such a return, but I believe that it is an inexplicable and invidious myth.

The disregard of capital rules and the scrapping of a frankly silly system will be of particular benefit to the parents of families in areas such as mine on Teesside, where older industry has restructured and is restructuring further, where there is much manufacturing—a very vulnerable sector at present—and where there have been repeat patterns of redundancy. A lump sum redundancy payment is hugely valuable and often all that a person in that situation can be sure of. However, people in that position have been encouraged by the current rules to spend their redundancy money as quickly as possible to safeguard their new dependency on benefits for however long it takes to find another job.

I conclude my catalogue of the Bill's excellent features with the maintenance disregard, a hugely positive characteristic carried over from the working families tax credit. Because maintenance payments are disregarded entirely, they can be received 100 per cent. by the claimant. That will make a massive difference to many people, especially lone parent families and women on their own. Furthermore, it will be an incentive for lone parents to claim maintenance, and an incentive for lone parents who are receiving maintenance to look for employment.

I have only two questions or caveats. Although the child tax credit has all the excellent characteristics that I have mentioned, perhaps the same cannot be said of the Government's plans to accompany it with the abolition of child dependency increases in non-means-tested benefits. The Government have promised to protect the entitlement of existing recipients, which is extremely welcome, but new claimants will soon lose out. A child-dependent addition is worth about £11.35 a week, paid to qualifying families who receive incapacity benefit, retirement pension, widowed mother's allowance, invalid care allowance and severe disablement allowance. The effect of those additions is to raise the incomes of many families enough to keep them out of means-tested benefits, with their well known poverty and unemployment traps.

Incapacity benefit, retirement pension and widowed mother's allowance are national insurance benefits, and the measure therefore represents a cut in the value of

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national insurance benefits. An anti-poverty strategy that promotes employment should require the enhancement of national insurance benefits, not a further cut.

Another caveat, to which I invite my right hon. Friend the Financial Secretary to direct his mind, possibly in his closing remarks, is the position of the second and other children. As I understand the position under the Bill, as with child benefit, the credit will be paid at a lower level after the first child for subsequent children. I assume that the rationale for a lower level of credit for the second child is that the facility is present to pass down items of child care and so on from the elder to the younger.

However, much highly praised research, some of which was presented to the Select Committee on Social Security and some of which I have read, makes it clear that on average that represents a saving of only about 17 per cent., which means that setting the level of credit for the second child at more than 17 per cent. lower than that for the older child will discriminate among members of a family, and will impact hardest on large families.

Is there to be any element in the provisions to reflect the greater needs of very large families, such as the one that came to my constituency surgery all together in a group on Saturday? The family consisted of a mother managing alone with six children aged from the middle teens down. There is no doubt that such families will feel the impact of a lower rate for subsequent children. I invite my right hon. Friend to consider that position.

My right hon. Friend the Member for Birkenhead (Mr. Field) expressed his concerns about the Bill and about the principle of the top-up on low wages, the encouragement that that offers to thug employers to keep wages down, and the way in which it robs the poor, as he put it, of the freedom to work themselves up in the earnings scale so as to lift themselves from poverty by their own endeavour. I recall—not personally, as it happened at the time of the agricultural revolution—from being at school, which was almost as long ago but not quite, learning about a system similar to the one that causes him concern. Many other hon. Members may recall the Speenhamland system. I see that failed measures of poverty alleviation are well recognised on the Opposition Benches.

The Speenhamland system was devised in the agricultural revolution and had exactly the effect about which my right hon. Friend spoke. Indeed, it went further. The rural poor, who were on low wages, received from the local poor law relief board a subsidy that made up their pay, which meant that rural employers could not merely stop wages rising, but actively reduce pay, throwing people into deeper and deeper poverty of wage, while knowing that there would always be a top-up from the local parish board to save them from the workhouse.

I am delighted to tell my right hon. Friend the Member for Birkenhead that we have the push of the national minimum wage—despite the best endeavours of Opposition Members—to counteract any such effect on employers from a tax credit top-up to low pay. I hope that the minimum wage will go up and up, and increase to a realistic and acceptable level, so that employers do not have the freedom to keep wage bills down, because we had the courage to take statutory control to ensure that they cannot have such freedom.

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