Tax Credits Bill

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Mr. Flight: I thank the Minister for her comments but I fear that she is correct that we have not been persuaded of the Government's position. Even though the amendment may be in the wrong place, I will

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briefly deal with a semantic point. It is fair to say that ''responsible for'' is slightly woolly, and although the Government have made their position clear on appointing a sole carer, our wording—''in their direct care''—is much sharper. That is not an issue of huge importance, but the more sharply legislation is drafted, the better.

It seems to us, however, that the Government have got main issue wrong. Of the group that they are targeting, on the figures from the Institute for Fiscal Studies, only 2.5 per cent. fall within the definition of poverty. The employment tax credit is available only to adults without children who work full-time for 30 hours a week. They are not the problem group in our society. Those under 25 are very different. Of those, some 21.5 per cent. fall into the poverty category. For better or worse, the measure is not fulfilling its main aim of alleviating poverty. If the Government's aim is to help those in need, they are tackling the wrong target.

As the Institute for Fiscal Studies points out, the only other case, which the Minister tried to put, is that the measure will be an incentive for couples without children over 25 to move from part-time working below the target of 30 hours a week to fuller-time working, and that the Government have introduced the measure because they want to encourage that. However, I see that as a little area in which Speenhamland disadvantages could operate, and if this could be an incentive to employers to let the state become a part of their wage costs, they will let it do that.

There is therefore an argument that the measure will depress remuneration for just the category of people on whom it will impact. Our position is that the Government have got the measure wrong, so I am not inclined to withdraw the amendment. The IFS paper has put the onus on the Government to make a case that is not there.

Question put, That the amendment be made:—

The Committee divided: Ayes 4, Noes 10.

Division No. 4]

Clappison, Mr. James Flight, Mr. Howard
Hoban, Mr. Mark Luff, Mr. Peter

Buck, Ms Karen Casale, Roger Cruddas, Jon Mole, Chris Pond, Mr. Chris
Primarolo, Dawn Southworth, Helen Sutcliffe, Mr. Gerry Webb, Steve Wright, Mr. Anthony D.

Question accordingly negatived.

Mr. Webb: I beg to move amendment No. 62, in page 7, line 22, at end insert—

    'except that the minimum age of entitlement shall not be less than that for the child tax credit.'.

I intend not to cover old ground again but to flesh out, on the issue of age, what we are trying to achieve here. It has been suggested, and it is apparent in clause 10, that the Government plan regulations about the age of relevant people, and that that age will be 25 in

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the case of childless people. We are suggesting that that age should be no less than the minimum age of entitlement for the children's tax credit. We may have gone a bit far in that respect, given that, as the Paymaster General said, that age is 16. Someone who spent an awful lot of time doing paper rounds might be caught.

I want to flesh out the subject of age. It could be that 21 or 18 is the right age for the threshold. We made the assertion that poverty rates among young people, especially those who are not working full time, are higher than among older childless people, and the IFS figures bear that out on a cross-sectional basis. It is a question of persistent poverty. Will poor 21-year-olds always be poor, or is it so transitional that we do not need to worry about it? One could argue that any year spent in poverty is a year too many—the fact that those people are in poverty now is a problem, and the possibility that they might not be in poverty in three or four years' time is of little reassurance to them now. That alone would be a reason not to exclude them on poverty grounds.

How can a 21-year-old be in persistent poverty? If the Government's definition of persistent poverty relates to people who have been in poverty for the past three consecutive years, 21-year-olds may not count as poor because they were students resident with their parents for half the year, so cannot have been caught in the definition. I wonder whether we are comparing like with like. On poverty grounds, there are two good reasons for saying that we should not exclude 21 to 25-year-olds. First, any time spent in poverty should be dealt with, and secondly, they may be heading for persistent poverty but we do not yet know that.

The 25-year-old cut-off was invented by the Conservatives in 1988, when the system changed from one in which people got money through supplementary benefit for being a householder or a non-householder to one where people got some money for being 25 and less for being under 25. In effect, the Government of the day said, ''We don't want the state to support young people living away from their parents—they shouldn't be helped to do that.'' The benefits system switched from supporting householders, which would have helped young people who lived away from their parents, to supporting the over-25s, on the grounds that by that age they would be living independently anyway.

That system is hard for those who do not fit, especially for younger people who become householders under the age of 25, who fall foul of the working tax credit rules as well. Not only do householders under 25 who may have had to leave the family home through no fault of their own get less support through housing benefit merely by dint of their age, but if they can get a job they get less support through the working tax credit.

The threshold of 25 is utterly arbitrary and is being used because there is already such a threshold in the system. However, that threshold was itself introduced entirely arbitrarily. Obviously any threshold is arbitrary and one can ask why someone is different the day before or the day after. However, this

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threshold requires justification. A threshold of 21 could perhaps be justified on the grounds that people will typically have gone through graduate education and will be starting in the work force, but the threshold of 25 seems to have no external justification other than that it is already in the system.

We wanted to ensure that the minimum threshold for the working tax credit could not be lower than the entitlement to the children's tax credit. As that is 16, we may have been going a bit far. Something between 16 and 25 might be appropriate.

3.45 pm

Dawn Primarolo: I make no apologies for the Government's being cautious in interpreting the data available to us on problems and barriers in the labour market and incentives to work, and in balancing the initiatives at the different points at which we are engaged throughout the age range. The hon. Gentleman does not want a wage subsidy, yet he proposes introducing one at 16. He understands the importance of the interaction with the minimum wage and the point made by the hon. Member for Arundel and South Downs about not putting in place something that inadvertently leads to a cap on the wages that employers would pay in that range. We are carefully and cautiously considering the issues surrounding the labour market. I am not persuaded by the suggestion to make the age 16, or any age other than 25. Caution is necessary.

For those under 25, other issues are involved, on which the hon. Gentleman touched. We are trying to identify persistent poverty—not when people might be in poverty but when a problem is definitely being experienced in the labour market. For the under-25s, not only is an age point involved, relating to how long people have been in the labour market—there may be lots of reasons why they have entered it only recently—but the proposal would cut across the Government programme to raise skill levels, improve training and encourage people to stay in education—and especially proposals such as the new deal for the 18-to-24s. That group is well covered by the new deal, and if a problem persists, the working tax credit would be introduced, as no child responsibility or disability is involved.

I hesitate to speak in these terms, but I cannot think how else to phrase my point. The hon. Gentleman is right to say that suffering poverty for any period is a dreadful experience for anyone, and best avoided. However, there may be reasons for it. People move quickly through the labour market, which is an unpleasant experience but one that is none the less short. We are trying to deal with circumstances in which the problem is much more deep-seated, according to our information.

We are not attracted to the proposal for a lower age. The concentration for those aged 25 and over who have no children and are in full-time work is greater than that for the under-24s. We shall start where we believe the maximum problem is, and we shall be careful, which is what the hon. Gentleman usually implores us to do. Ironically, we are following his usual caution, which is to recognise that an issue is

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involved, that trends are emerging and that we have arrangements up to that point and should go steady, because we must watch the interaction with the minimum wage and what is happening to wage rates generally and to that age range. No one disputes that there is an issue for households without children in that age range in particular income ranges.

Mr. Clappison: I think that the Minister said that there was a greater concentration among over-25s working full-time. She did not say what it was that was concentrated. I would be grateful if she could clarify what the Government are saying on that subject.

Dawn Primarolo: Among households without children but in full-time work, over-25s are five times more likely to be in poverty than 22 to 24-year-olds. Those are Government figures. That shows that there appears to be a particular problem for over-25s in terms of concentration.

We are making a simple policy choice. Either a political party accepts that it should intervene to eradicate poverty, and takes the necessary steps as gently as it can, or it does not. The Government take the view that they should intervene. Households with children were our first priority, but we have always known that there were issues for childless households, although they are affected to a lesser extent as they do not have the responsibilities and costs of raising children. None the less, such issues exist, and we are now tackling them.

I do not know whether the hon. Gentleman wants to press the amendment, which would take the minimum age down to 16. I could tell him how much that would cost—that might clarify his position. I am trying to explain to him that we have not simply put our finger in the air and decided that 25 seems a convenient age. We have tried to analyse the information available. It is the first time that such a measure has been introduced, and we should go cautiously. I hope that he will consider withdrawing the amendment.

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