Tax Credits Bill

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Mr. Webb: This helpful group of amendments takes us to the nub of whether we need working tax credits as distinct from simply adding adult elements to the children's tax credit. I shall try to refine the arguments that I advanced on Second Reading, instead of blowing £15 billion as I did on that occasion. The objectives that the Government want to achieve through working tax credits could be achieved by other means that would be less burdensome on business, better for the Exchequer and more effective in tackling poverty.

The Government's proposals for working tax credits in respect of childless people will help only those who work for more than 30 hours a week and are aged over 25, with additional amounts for those aged over 50. The over-50s are a distinct group for whom there is a new deal programme because it is important to get them back into work. That alone does not, however, justify a tax credit for the whole population.

I cannot help noting in passing that the hon. Member for Arundel and South Downs stood for Parliament 25 years ago.

Mr. Flight: It was 28 years ago.

Mr. Webb: I was at primary school at the time, which puts it in context.

What is the point of extending tax credits to a group of people who, with the exception of housing benefit, have not been in the means-tested benefits system since they began work? There could be an anti-poverty argument, but poverty rates are lower among childless people than among couples. The Government gave a figure—I cannot remember whether it is in the regulatory impact assessment or the summary of responses to the consultation—of 1 million childless families who are in work and in poverty. How many of those 1 million will fall within the scope of the working tax credit? Will it cover people who work more than 30 hours or the over-25s?

I am not being facetious, because if poverty is the issue and 1 million childless people are in work and in

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poverty, one would hope that the mechanism designed to address that was catching most of them. My hunch is that the poor people in work are young people starting out on a career and people who are unable to do a full-time job, which means that they perhaps do a part-time job that they combine with caring. As the hon. Member for Arundel and South Downs pointed out, the Institute for Fiscal Studies states that cross-sectional poverty rates are higher among people who are unable to do a full-time job. There may be an issue about the dynamics of poverty and how long they stay poor, and I know that the Treasury has a view on that.

The question is whether this is an effective anti-poverty measure, and we have not had sufficient information from the Government about that. How many of the 1 million will it catch? If we are going to pay tax credits to everyone who is childless, but we are going to take all the family support away from the pay packet and deliver it to the mother, or whoever, through a bank account or direct payment, one is left with a rump of £15 a week, although sometimes it would be quite a lot more than that, and other times it would be next to nothing. Nevertheless, that is the average figure that I have in my head for the residual working credit. I hesitate to say, ''Is that all?'' because that is a lot of money to some people, but compared with the sums that families with children have been paid, it is radically smaller. However, we will need the whole bureaucratic infrastructure of payment through the pay packet to deliver payments of £15 a week.

The regulatory impact assessments suggest that we will pay fewer payments because some families with children will get no working tax credit. On the other hand, we are bringing in new people such as childless couples and single people, and those numbers roughly offset each other. The number of people receiving payment through the pay packet will be roughly the same although they will be different people. We shall have the same number of payments through the pay packet as we have at present, which is more than 1 million for each pay period, to deliver £15 a week. If we are worried about childless people and money for adults, we could tweak the tax system, although not in the crude way that I mentioned on Second Reading, by looking at the lower rate band and thresholds to get money to these people in a way that imposes no burden on business or the Inland Revenue in making those 1 million payments.

The amendment would stop working credits going to childless people. In many ways it does not go far enough, because if the working credits go only to families with children, one would not want a separate payment. All families with children are being paid a child credit, and one probably wants to lump it on the child credit and be done with it. The issues raised by the amendment are correct, and I should be grateful for clarification from the Minister as to how many of the 1 million childless families would get lifted out of poverty.

Dawn Primarolo: Let me start by clearing up a point on which the hon. Member for Arundel and South Downs was not quite right. On the question of who would have access to the working tax credit, the age of 25 is the entry point for childless households, but

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where there are children within the household, the same qualification as that for the children's tax credit applies. The age limit and the 30-hour rule for the working tax credit are specifically aimed at households in which there are no children.

Mr. Flight: What is the age of access for younger people with children?

Dawn Primarolo: It is 16. It is unlikely that we shall find many households with parents who are 16 with dependent children, but it is conceivable. [Laughter.] It has been a long day.

I want to address the point made by the hon. Member for Northavon—I am trying not to laugh at my faux pas—about why we settled on 25 given that the purpose of the two tax credits is to support children and to provide a work incentive. We recognise that in some cases they come together in one household, but in others they do not. If we return to our experience of the working families tax credit, given the criticism that it was too complicated and that people could not understand it because it combined those two activities, separating it into two credits makes sense. I get the feeling that the hon. Gentleman is not convinced on the working tax credit, but the Government are, which counts for something given our parliamentary majority, and I shall explain why.

The amendment's fundamental purpose is to exclude from entitlement those people in low-paid work who do not care for children. It would also provide an alternative test of whether a family cares for a child. Turning to the restriction of the entitlement to support to those without children, that entitlement is a fundamental part of the changes that we intend to make to improve support for those in low-paid work. There are several other initiatives such as the new deal 50-plus and the new deal for lone parents to move people into work. One objective of the working tax credit is to tackle the unemployment trap by increasing the gains from work for people on low wages who may otherwise face poor work incentives.

The hon. Member for Northavon suggested that the benefit might only be £15 a week, and I do not know what his constituents say to him, but my constituents consider their income in terms of 50p or £1 when they decide whether they are better off and how much better off they would need to be before they will move into paid work. We have been examining that range and whether it would be sufficient incentive to get people into work.

The unemployment trap is predominantly an issue for those with children and for older workers, who may have been made redundant and who are trying to return to the labour market, without children. It is also a problem for couples who face serious barriers moving into work because the gains can be very small indeed. A couple without children, of whom one earns £175 a week, are only £20 better off in work than on benefit. As the hon. Gentleman will know, people look at their entry wage. They know how much they need, and then look at the wage at which they can enter the labour market because of their qualifications and what is available.

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We are looking to ensure that we can reduce that barrier as much as possible, so that such people get on the ladder of opportunity and start moving through the labour market. The hon. Gentleman rightly pointed to the figure of more than 1 million. There are more than 1 million people without children living in households in which someone is in work, but that have a household income below 60 per cent. of the median. The current in-work support, the working families tax credit and disabled person's tax credit, does not help those people.

The age is difficult to settle on—why 25? We are being cautious, but we are trying to help households that are moving into persistent poverty, if I can use that concept. Of course, there are other people in low-paid jobs not earning as much as they need, but they might be moving through that because of their age, or because they are new to the market. There are others, however, who have been in the labour market and, in that age range, are trapped in persistent poverty. The interaction with the minimum wage is also very important here. We have intervened for those people, in a similar way as with the new deal 50 plus.

The working tax credit will give us a broad-based system to enable us to identify problems in the labour market of persistent poverty and barriers to work and re-entry, so that we can intervene at those points. We have come to the conclusion that it is right to do that in households without children or disabled workers. Disabled workers are already in the scheme, outside the age range starting at 25.

Mr. James Clappison (Hertsmere): With statistics flying between the Paymaster General and the hon. Member for Northavon, I wonder if she can clarify the figure of 1 million? Does that include people working less than 35 hours a week and aged under 25?

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