Tax Credits Bill

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Dawn Primarolo: The amendments touch on several complex points, which have been addressed in the debate. First, a point was made about entitlement to dependency increases. Secondly, the issue of floating off income support was raised. Thirdly, the question of passporting—whereby income support triggers an automatic transfer to other benefits—was raised.

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On the first point, the amendments would prevent the abolition of child and family premiums within income support and income-based jobseeker's allowance, as well as child dependency increases. That is contrary to the principle that the Government are rightly pursuing, and which the hon. Member for Northavon identified, of developing the child tax credit, which provides a continued stream of support to families with children, regardless of whether the parents are in or out of work. We intend the child tax credit to replace the child and family premiums within income support and jobseeker's allowance, as well as increases for some children in some other benefits. We are trying to streamline the system to make it more transparent. Individuals and couples who are out of work will continue to receive the adult element. We are therefore leaving in place the adult elements, which are determined by being in or out of work, but putting all of the child premiums into the child tax credit.

For example, if someone is unemployed and in receipt of jobseeker's allowance, his or her jobseeker's allowance would comprise the adult elements only of jobseeker's allowance for that household, but they would be transferred to the maximum child tax credit. As hon. Members will recognise, we have raised income support levels of child premiums significantly—by 70 per cent.—over a period of time.

Mr. Mark Hoban (Fareham): Will the Paymaster General give way?

Dawn Primarolo: When I have finished this point, I shall give way to the hon. Gentleman.

In a household that is in receipt of income support or jobseeker's allowance, income for adults would be from income support or jobseeker's allowance. For the children, the child tax credit would be provided, regardless of whether the parents are in or out of work, thereby removing the stigma and recognising the Government's objective to tackle child poverty. We have therefore moved the relevant allowances. It would be bizarre to remove the stigma in relation to being in and out of work, but to return to the system whereby all child premiums are within income support or JSA.

Mr. Hoban: The Minister referred to two streams of income in relation to people who are unemployed—the adult element of jobseeker's allowance and child tax credits. Will people who are unemployed receive two separate payments or just one, and with what frequency will the payments be made?

Mr. Flight rose—

Dawn Primarolo: I shall give way to the hon. Gentleman before I answer that point because that is the procedure.

Mr. Flight: Further to that point, will claimants need to go to two separate portals: the Inland Revenue for the child part, and the Department for Work and Pensions for the adult part?

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Dawn Primarolo: The intention is that individuals will apply directly through the Jobcentre Plus offices. They would make one application at that point, which

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would trigger income support or JSA payments to adults and, if they have children, it would also trigger child tax credit payments. Those individuals would receive two separate payments because child tax credit is paid directly to the main carer, as is child benefit. In the case of income support or JSA, it is conceivable that that payment would not go to the main carer. When we debate later clauses, we will see the crucial importance of paying to the main carer as part of the Government's anti-poverty strategy. We reject the amendment because it would leave in place the current system for those out of work, which undermines the principle of the children's tax credit.

I would like to comment on dependency increases, and then move on to the question of those who may float off income support. I am sure that the hon. Members do not intend the actual outcome of their amendments, which would leave the current system in place for those unemployed. The introduction of the new credit will rationalise the Government's financed income streams for children. Families' needs have changed over the years, particularly since the child dependency increase was introduced. I remind Conservative Members that the Social Security Administration Act 1992 provided for the withering on the vine of child dependency increases, which reduce in line with increases in child benefit. I know that the previous Government did not like child benefit, and did not increase it much, but our Government do not agree. We perceive child benefit as being important and increased it by 26 per cent. in the previous Parliament.

Because families' needs have changed, we must make the new system easier to understand. If we make the system more transparent by integrating provisions for families in and out of work, it would seem odd to perpetuate the distinction between families receiving contributory benefits and those who are not. That would simply cut the same problem a different way. The value of child dependency increases has diminished and existing social security legislation allows for them to reduce, although payments are still made. Rather than allowing dependency increases to run out of the system as child benefits increase, we have considered families' real needs and supported them in a more strategic way. Most families who receive child dependency increases will benefit financially from the new tax credits, particularly those on low incomes. I know that Conservative Members will say that we cannot settle that precisely until the thresholds and tapers are determined. That is true for the whole population. However, that group will be financially better off. Approximately half the families with child dependency increases cannot receive income support or jobseeker's allowance, as they have other income but are not in work. Their extra income will be generated when the child tax credit is introduced.

We recognise that such families are used to the current system. Changes to benefits can be disruptive to family budgeting. We therefore want to make the transition from the CDIs to the child tax credit as

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smooth as possible. That is why we propose to preserve the entitlement for existing recipients. It is always an issue when one benefit replaces another. When the transition is complete, those who already have the entitlement will be in a better position.

Mr. Hugo Swire (East Devon): Does the Minister have any idea how long the transition will take?

Dawn Primarolo: I know the answer to that question. It will come to me in a moment of inspiration, and I will return to it. Before the hon. Gentleman intervened, I was discussing the position of those who may float off income support, but he should prompt me if I do not give an answer.

The issues are complex. The Government seek to assist people who receive benefits. The child tax credit will ensure that there is no loss. There will be considerable benefit for some, and we are consulting on how we manage that transition. It is important that all those who will be affected know what the changes are, are kept informed as the changes are gradually made, and are fully aware of their position vis-a-vis their benefit entitlement. I have learned as a Minister that when people are used to budgeting in a particular way, they still have to make the transition even though what they are moving to may be better. We are attempting to address that issue by introducing the child tax credit.

Mr. James Clappison (Hertsmere): The Minister has not yet answered the question, which several hon. Members have asked her, about those who become entitled to a child dependency increase, for example by becoming entitled to incapacity or other benefits. Will some people who would have received the child dependency increase if the present system had continued, not be entitled to the child tax credit?

Dawn Primarolo: I will first answer the question from the hon. Member for East Devon (Mr. Swire). The answer is obvious and I wish that I had realised that. Because it tapers away, the transition lasts for as long as it takes the increase in child benefit to reduce and cancel the child dependency income. One cannot say that the transition will last for five, six or seven years, as it depends on the interaction with the provisions that were introduced in 1992 by the Conservative Government. As child benefit increases, the child dependency allowance goes down.

With regard to the intervention made by the hon. Member for Hertsmere (Mr. Clappison), some people who receive child dependency increases are not entitled to income support, but will receive more from the child tax credit. Such people are not entitled to income support because they may have other forms of income.

When we discuss other clauses it will become clear that, because of the way that child tax credit is structured, it lasts longer. That would be true even if the tapers were the same as those of working families tax credit, because those tapers are lower. Obviously, all those who currently receive such benefit would continue to do so. Provision for industrial injuries and war pensions are dealt with under separate legislation that we do not consider it appropriate to remove at this time. Those are different types of payment. They are more about compensation than social security and

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would therefore be treated separately. I agree with the child dependence increases, and hope that I have made what is a complex area as clear as possible.

There is also the issue of people who will float off income support. When child tax credit creates an income for the family—either in its own right or with other income—it could possibly take a person beyond income support levels. The hon. Member for Hertsmere will understand that I do not want to go down that route at the moment, because the issue will depend on thresholds and tapers.

That leads to passporting. Because the working families tax credit was far more generous, we were unable to use the credit payment as the flag for passporting. We worked out a value that protected all those who were in receipt of passporting at that time. We are discussing how to make passporting work in the simplest way within the new tax credit system—it is complicated because there are many issues, whether it is milk or more straightforward matters such as prescriptions—given that the new tax credit will support families further up the income scale when automatic passporting would not be appropriate. We want to protect the position of those on income support. Passporting issues have more to do with those who are higher up the income scale and we have to decide on an appropriate figure at which to put the flag. That is a matter that, as I said, we are discussing with several Departments.

 
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