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Session 2001- 02
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Standing Committee Debates
Tax Credits Bill

Tax Credits Bill

Column Number: 99

Standing Committee A

Thursday 17 January 2002


[Mr. Nigel Beard in the Chair]

Tax Credits Bill

Clause 9

Maximum rate

Amendment moved [this day]: No. 50, in page 6, line 32, at end insert


    (c) an element in respect of any second adult in the benefit unit'.

2.30 pm

The Chairman: I remind the Committee that with this we are considering amendment No. 31, in page 6, line 40, after 'according', insert

    'to the number of adults in the family and'.

Mr. Steve Webb (Northavon): Thank you, Mr. Beard. I cannot help noticing that we have already driven out two Chairmen, and I hope that that does not reflect anything about the quality of the debate.

Amendment No. 50 would remove a discrimination against two-parent families compared with one-parent families on the same income level. My argument is that the two-parent family on the same income level as the one-parent family has the added burden of an extra mouth to feed, to put it at its simplest. Most of the social security system, such as income support and housing benefit, recognises that fact through an amount for the second adult—it is not the same as that for the first adult, but perhaps a 60 per cent. addition—but tax credits will not do that, and working families tax credit does not currently do it. My question is, why not?

I guess that there could be two reasons. One might be about poverty, of which there is a far higher incidence among lone parents. However, we are talking about people on the same income. If there are two families, one with one parent and one with two, both on £150 a week, we cannot argue that we should give more to the one-parent than to the two-parent family because the one-parent family is somehow poorer. Their incomes are the same.

The second reason could be an argument of child care, and that the two-parent family has the advantage of ''free'' child care, but that does not really stack up either. First, there is substantial help available in the system with child care costs, and secondly, many lone parents rely on informal child care, for example from grandparents. It is far from universally true that lone parents do not have access to either free or subsidised child care. There are limits to that, but I am not sure that that is a good enough justification for the distinction. Without specifying any particular level—although the Minister will try, I shall not be drawn on specific figures—we want to establish the principle that there might be some allowance for a second adult.

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I give one example, of a couple on £150 a week with a two-year-old child. The figure has been given to me that a one-parent family on that income, relative to the official poverty line of 60 per cent. median equivalent income, would be £35 above the poverty line. The two-parent family on the same income would be £20 below it, using equivalent income, which is what the Government tend to use when measuring poverty. The simple question is, as there is an extra mouth to feed, should not the tax credit system recognise it, as the social security system does?

Mr. Howard Flight (Arundel and South Downs): I welcome you to the Chair, Mr. Beard. I only miss the opportunity of debating with you.

Amendment No. 31 is in essence the same as amendment No. 50, but termed slightly differently. I have to confess that my hon. Friend—the hon. Gentleman, I should perhaps say—has stolen the example that I was going to raise. It is clear that there is a potential for unfair treatment of couples under the existing children's tax credit and working families tax credit. I hope that the Government do not intend to continue that under the new arrangements, especially, as has been pointed out, because that is not the case with social security benefits.

Couples in work are now less likely to get themselves and their children out of poverty than are single parents. Couples with children still form the largest group of families in poverty—about two thirds of the total.

Martin Wolfe made an in-depth analysis of the working families tax credit three or four years ago and found another aspect of the same point: that it was financially disadvantageous for a lone parent to acquire a partner or spouse with two children unless their income was below about £350 a week. That cannot be the intention of the support and help. The main issue is that the arrangements do not recognise the income needs of the other adult for straightforward maintenance, clothing, food and so on. The argument that that is matched by the saving in child care is not valid. The issue concerns not just informal care but the help with child care that is now available.

Amendment No. 31 would open the door to deal with that, but my main point is to ask the Minister not for the amount to be specified but whether the Government intend to address the point concerning the new child tax credit and the child element of the working tax credit.

The Paymaster General (Dawn Primarolo): Good afternoon, Mr. Beard, and welcome to our proceedings. You have probably noticed that, unusually in a Standing Committee, thus far we have scrutinised the Bill in a civilised way, even to the extent that the hon. Member for Arundel and South Downs (Mr. Flight) referred to the hon. Member for Northavon (Mr. Webb), who is a member of a different political party, as his hon. Friend. I am in greatly in favour of the Tax Credits Bill and claim that it achieves a great deal, but I had no idea that I can now add the proper functioning of a Standing Committee in a friendly and civilised way. However,

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perhaps that is more a reflection of the members of the Committee. The Government Whip is as delightful as ever; I am pleased to see him in his place and perhaps he could stay there.

There is a fundamental misunderstanding about what exactly the child tax credit will provide as opposed to the working families tax credit, income support and the jobseeker's allowance. That misunderstanding revolves around recognition of the second adult. Hon. Members' comments referred to the cost of the adult to the household budget. The child tax credit is and should be independent of the status of the adults in the family. We are trying to ensure that the calculation is based on the children in that household. The child tax credit focuses on the children regardless of the status of the parents or the number of parents in or out of work. The right place to look at the level of support available to the adults in the household is the working tax credit or the benefit system as a whole and it may be more appropriate to discuss the matter when we come to clause 11.

Currently, there is no support system for children that provides an additional element for a second adult in the family, and no such provision has been offered since about 1988. In looking at ways to design and develop rules for the child tax credit, we used child benefit as our starting point—I should point out that we excluded the principle of universality—because it is very popular and well understood and there is high take-up. The elements of child benefit apply to children, and adults are disregarded.

Income support and jobseeker's allowance currently consist of an adult element and child elements. We are removing the child elements and including them in the child tax credit, but the adult elements will remain. The adult elements contain an additional element where there is, and will remain, a second adult in the family. Working families tax credit and disabled person's tax credit provide support for working families with children. They have fulfilled more than one purpose, in that they contain a mix of child elements and adult elements, and we are taking steps to pull out the child elements. The clause deals with the child tax credit only.

On the adult additional payment, I should point out that the child tax credit is directed solely at the needs of children and does not relate to the circumstances of adults until the tapers—the basic qualification—start. It contains elements for each child, and for any associated responsibilities—I shall avoid using the word ''burden'', as I do not consider children a burden—that families must shoulder in caring for children.

The working tax credit, with which subsequent clauses deal, will support families in work, and is counterbalanced by the support provided to families not in paid work. The support recognises that element and will be directed at adults at the relevant point in the process. I should point out to the hon. Member for Northavon that the child tax credit does not need to take adults into account. It is clean, direct and for children, and it is very important that there be no

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confusion about the way in which we expect families to spend that money. Adult support should be considered in the context of the working tax credit, income support and JSA.

I hope that that answers the question that the hon. Gentleman and the hon. Member for Teignbridge (Richard Younger-Ross) have asked through the amendment. Given that I have worked on the Bill for a long time, such matters seem straightforward to me, but for many they are not and I understand why they asked that question. I hope that they accept my clarification, and that the provision constitutes a better way of designing policy. As I have said, support for adults and families is dealt with through the working tax credit, income support and JSA. Although the hon. Member for Northavon might want to return to the matter another time, I hope that he is willing to withdraw the amendment in the light of my comments. If he is not, I must ask my hon. Friends to vote against it.

2.45 pm

Mr. Flight: I had thought that amendments Nos. 31 and 32 might be taken together, given that the latter deals with this issue in relation to the working tax credit under clause 11. The Paymaster General did not say whether the Government intend to address the issue in full through the child credit or the working tax credit. For example, it would seem quite wrong for a lone parent with an income of £150 a week to be considered significantly above the poverty line, while a two-parent family with two children on the same income is considered significantly below it.

It is fine to put the issue into the neat boxes that the Paymaster General has described, but that does not explain how it will be dealt with. In some senses, it could be addressed through not only the child tax credit but the working tax credit. I realise that she will not want to give the numbers, but can she say whether the issue has been recognised and quantified along the lines that we have described? Assuming that it will not be dealt with under the child tax credit, will it be dealt with under the working tax credit?


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