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Baroness Knight of Collingtree: My Lords, before the noble Lord leaves that point, can he press the matter a little further? How can the employer pay out the money if the employee has other employers about whom he does not know? The second employer might consider that it was up to him to make the payment because he did not know that the employee had another employer or employers.
Baroness Hollis of Heigham: My Lords, the employer does not do the calculation; the Inland Revenue does. The sum of money that the employer attaches to the payslip may change because the employee has another job; is paid more or less for childcare; or his partner has acquired a new job, left her job, or moved away. Any circumstance could alter the amount that the Inland Revenue will ask him to attach to the pay packet. It will be virtually impossible for the employer to calculate the reason for changing the payment made.
Lord Higgins: My Lords, we shall be able to pursue these matters. I have sympathy with the view expressed by my noble friend. There are real problems. It is not clear, for example, how much each of the employers will pay. The revenue will say that one employer pays so much, and another employer pays so much. Perhaps
I turn to the burden on business. The Chartered Institute of Taxation has expressed views on the issue. It takes a different view from that expressed by the noble Baroness. However, perhaps the Minister can tell us the estimate she has made of the additional cost to business as regards the start-up situation and recurring costs. No doubt other Members will wish to raise other points on the issue.
On the cash flow, in her opening remarks the Minister said that the Inland Revenue will tell the employer how much to pay out and the employer will pay it out. Where is the money coming from in the meantime; and how is the employer--it may be a small company with serious cash-flow problems--to know how much his cash flow will be affected by the change?
I turn to the two issues which were not discussed in Committee in the House of Commons: the childcare tax credit and the disabled person's tax credit. As the Minister said, the proposal is that the benefit should be raised to cover children not only up to eight, but from eight to 14, or up to 16 as regards the disabled. The clause originally missing from the Bill has now appeared, I think, as Clause 15. It aims to create a category of good quality providers. The House of Commons was told that the draft regulations will be considered in this House. I am not clear whether they have yet arrived. They are among the regulations that we shall need to study very carefully indeed. We shall also need to study the guidelines which will decide whether an arrangement whereby family A looks after the children of family B, and family B the children of family A, will be eligible. When the Inland Revenue gave evidence to the Select Committee it was unable to express a view on the subject. We shall need to consider carefully those guidelines.
The estimates of cost vary. The Government's estimate is £200 million; the Institute of Fiscal Studies estimates £4 billion. That seems a rather large margin of error. We shall need to clarify the likely real cost. Perhaps the Minister will give us an up-to-date estimate when she winds up.
Finally, like the noble Baroness, I speak with great diffidence on the disabled person's tax credit because of the expertise which noble Lords have on the subject. We shall need to consider carefully the way the proposal is likely to operate in practice. We must all hope that the disabled person's tax credit works in the way the Government intend.
I have a specific question for the Minister. No answer was forthcoming in another place as to the position concerning some passported benefits--childcare tax credit, prescription charges and the provision of free school meals. Since by now the Government have surely made up their minds on the issue--it seems extraordinary that they did not do so during the Bill's
I apologise for speaking at such length, but it is an important Bill. It was advertised (if that is the right expression) as the Government's flagship Bill in this area. We must see to what extent some of the problems can be dealt with during the Bill's passage through this House. I see no reason why change should not be made on a number of issues. It will then be a significantly better Bill.
Lord Goodhart: My Lords, I am sorry that we are not providing from these Benches a speaker to wind up. My noble friend Lord Russell was due to do so but he is unwell today and we did not feel that it was fair to ask anyone else to deal at only a few hours' notice with complex issues with which he or she is not familiar.
The purpose of the Bill is to convert family credit into the working families' tax credit and the disability working allowance into the disabled person's tax credit. I intend to say nothing about the disabled person's tax credit because it will be taken up by very few people. I understand that only 16,000 people now receive it; and that number is expected to increase only by some 10 or 15 per cent. as a result of the changes which are now being introduced. However, the criticisms of the working families' tax credit which I shall develop later in my speech will apply in many cases also to the disabled person's tax credit.
My honourable friend, Professor Steven Webb, made a series of powerful criticisms of the Bill in another place. He spoke as an expert in the field. I am not an expert, but I shall try to follow him as far as I can. In doing so I have to warn your Lordships that my speech will be lengthy and somewhat heavy going; or, to be rather more blunt, long and boring.
Family credit has proved to be a useful mechanism for relieving poverty among low paid workers and families. It has a high take up rate. The noble Lord, Lord Higgins, gave the statistics. The take up in terms of the amount claimed is 82 per cent. of the theoretical maximum; which is 91 per cent. in the case of lone parents. That indicates that the majority of cases in which the benefit is not taken up are those in which the amount is small. The Government are now converting family credit into working families' tax credit. However, much of what they are doing could be done under existing rule-making powers.
Let us look at the main changes. First, we welcome the generous increase in child tax credit for children under the age of 11. Secondly, the small increase in the basic tax credit, but still well above inflation, is also welcome. Thirdly, the cost of childcare by registered childminders is converted from a disregard into a tax credit and the upper limit on the maximum costs of childcare is substantially increased. We welcome that, too. Fourthly, there is an increased threshold before the taper starts. We welcome that. Fifthly, the taper rate is
So what does the Bill do? First, in Clause 1 it renames family credit as working families' tax credit. Secondly, in Clauses 2 to 5 it transfers the responsibility for the administration of working families' tax credit from the Department of Social Security to the Inland Revenue. That is also dealt with in a number of clauses dealing with consequential issues such as inspection powers and penalties. Thirdly, in Clauses 6 and 7 it provides for working families' tax credit to be paid through the pay packet instead of to the caring parent. Finally, in Clause 15 it provides for a new category of persons who can provide childcare qualifying for credit.
Perhaps I may begin by going back to the parts of the new system that are not dealt with in the Bill. As I said, we welcome the increases in child tax credit for under 11s and in the basic tax credit and the increase in the threshold. We also welcome the more generous treatment of childcare costs. The present figures are not generous enough to make it practicable for most single parents to work if they have to rely on paid childcare. There is a big improvement there.
The taper creates problems--tapers always do. If there is a steep taper, it creates a benefit trap because the increase in gross earnings gives very little extra money in the pocket. If there is a gentle taper, the cost to the taxpayer is higher; more people are brought into means-tested benefits; and money is given to people who really do not need it. The result of reducing the taper and of the improved childcare costs is that a family with five children and maximum childcare costs could receive working families' tax credit on a gross family income of up to £38,000. That is not a wholly unlikely situation. Quite a number of people have five children and if both parents are working they will certainly need childcare! The result will be a small but significant number of people paying the higher rate tax and receiving the working families' tax credit. That is an absurdity.
The scheme is potentially very expensive. As the noble Lord, Lord Higgins, said, the Institute for Fiscal Studies has estimated the extra cost of childcare credit to government at up to £4 billion. That is a maximum and assumes that all claimants switch from informal or parental care to registered childcare. Of course, that is unlikely to happen. Even so, it is likely that childcare will be very expensive. It is not clear that the scheme provides tight enough control on childcare tax credit. Is there anything in the present rules to prevent two mothers registering as childminders and looking after each other's children?
I believe that the working families' tax credit will have to be modified quite soon to make it less expensive. One possibility might be to retain a higher rate of taper on the childcare element in the working families' tax credit in order to avoid it becoming a subsidy to childcare for the middle-classes. But that is not a matter covered by the Bill.
I now turn to the Bill. The Minister introduced it with her usual persuasiveness. However, I believe that almost everything in it is wrong. The name change is cosmetic. I agree with the noble Lord, Lord Higgins, that it is a benefit and not a genuine tax credit. It will be paid to some who pay no tax or national insurance. It will also exceed the tax and national insurance liability of the recipients. I understand from debates in Committee in the other place that the Government accept that the working families' tax credit will count as public expenditure and will not be treated as a reduction in taxation. I would welcome confirmation of that.
I turn to Clauses 2 to 5 relating to the transfer of responsibility from the DSS to the Treasury or the Inland Revenue. I believe that is wrong. A few weeks ago, we debated in this House the Social Security Contributions (Transfer of Functions, etc.) Bill. That transferred the responsibility for the collection of national insurance contributions from the DSS to the Inland Revenue. I firmly believed that that was correct and we warmly supported it. However, in my view, this transfer is wrong. The administration of the working families' tax credit should remain the responsibility of the DSS. The kind of issues involved in income support and working families' tax credit are often identical. For example, regulations under Section 136 of the Social Security Contributions and Benefits Act 1992 define how income and capital are to be calculated. They also provide for the income and capital of a claimant's family to be treated as the income of the claimant.
It is desirable, as far as possible, that the rules for different benefits should be similar so that not everything needs to be recalculated when claimants switch from one benefit to another. In future, the regulations for income support will be made by the DSS and the regulations for working families' tax credit will be made by the Treasury. Presumably officials from each department will have to meet and agree two sets of regulations in the same form. It seems to me more efficient to handle both sets of regulations in the same department. Decisions on the right to working families' tax credit, or the amount of credit payable, will be taken by officers of the Inland Revenue. Those decisions are entirely different from the decisions now taken by them, but they are exactly the same as the decisions taken by officers of the DSS. They should remain with officers of the DSS.
I understand that the family credit unit is to be transferred en bloc from the Benefits Agency to the Inland Revenue, but that simply means that they are being moved to the wrong place. Appeals will rightly remain with the DSS and go to the social security tribunals and not to the commissioners of income tax. I was sorry to hear the noble Baroness say that the Government intended in the longer run to transfer that jurisdiction to the income tax commissioners. The administration is going to the wrong bodies in order to try to give credence to the illusion that working families' tax credit is not a benefit.
I shall turn shortly to the "jewel in the crown" of the Bill; that is, the payment through employers. However, before doing so I wish to raise a couple of other points. The first was raised by the noble Lord, Lord Higgins:
Secondly, have the Government considered integrating a housing element into the working families' tax credit? The present system has two drawbacks. Mortgage interest payments are met for those on income support but not on family credit and will not be met for those receiving working families' tax credit. That is therefore a disincentive for those on income support to take work. Furthermore, the withdrawal of housing benefit and council tax benefit may leave recipients of the working families' tax credit facing very high taper rates, even after the reduction in the taper of the working families' tax credit on its own. For people paying tax and national insurance contributions and receiving family tax credit, housing benefit and council tax benefit, the marginal rate resulting from the change to working families' tax credit will be reduced only from 96.9 per cent. to 95.3 per cent.
I turn now to what I call the jewel in the crown, the payment through employers. There are disadvantages for both employers and employees, and it confers no advantages that I can see on the Revenue. There will be extra costs of more communication with employers and certainly no cost saving for the Revenue. There will certainly be disadvantages for employers.
The costs were estimated in the draft impact assessment at just over £100 million per annum recurring, with start-up costs of approximately £40 million. The draft impact statement states that the aggregate cost for small employers in the category of those who employ between one and four employees will be £24 million. It then states that averaged over all employers in this category, of whom there are 670,000, it works out at £37 per employer, which does not seem very much. Mathematically, that is no doubt correct, but the impact statement also says that only 10 per cent. of employers in this category, that is those employing one to four employees, are likely to pay working families' tax credit through the payroll in any year.
As the compliance costs for those who do not do that are obviously nil, it means that the compliance costs for the 10 per cent. who pay will be not £37 but £370 each. The noble Baroness shakes her head, but this is something that causes me some puzzlement because that is the clear inference from the impact statement, and no doubt this is a matter that she can take up in reply.
There is no proposal here to refund administration costs to employers, as there is with statutory maternity pay, and that is the position despite a recommendation by the Social Security Select Committee that there should be reimbursement of these administration costs.
Perhaps even worse is the nuisance factor for small businesses. It may not matter for a business large enough to employ a book-keeper or accountant, but for a small employer, let us say the farmer employing two or three people, it means more time sitting at the kitchen
Small employers will be reluctant to employ workers who are claiming working families' tax credit. The Government know that; why else have they felt the need to give employees specific rights under Schedule 3 to the Bill to complain to an employment tribunal that they have suffered a detriment because they are entitled to a tax credit?
If many employers are reluctant to take on employees on working families' tax credit, one likely consequence is that some employers will deliberately target them by exploiting their difficulty in other jobs and paying them the lowest wages they can get away with.
What about the employees? Here, we get into the purse and wallet argument. The Government have moved some way to recognising this argument. The proposed arrangements mean that both parents must consent to the payment going to one parent or the other. That opens up the prospect of consent obtained by intimidation, which of course is not possible now. In addition, if the Inland Revenue receives an application form signed by only one partner it will have to conduct intrusive investigation to find out whether the absence of the other partner's signature is due to an oversight, as will probably be the situation in most cases, or to a dispute between the parties, which means that one partner refuses to sign.
What then is the position if this dispute is not resolved? The draft regulations simply state that the claim is to be made by whichever partner the couple agrees should claim. The Inland Revenue memorandum published in March says that if the dispute is not resolved, the Inland Revenue will consider accepting an application submitted by the caring parent without the signature of the working parent, even though "technically it would be defective". In other words, the solution to this problem lies in the Inland Revenue disregarding its own regulations. That, I believe, is simply unacceptable.
I accept what the noble Baroness has said about privacy, that it will be very difficult for the employer to identify personal details from changes in the level of the working families' tax credit, but the CBI says that up to a third of the claimants now claim family credit without the employer's knowledge. That will now be impossible for lone parents or two-earner couples where the tax
If there are all those drawbacks, which I believe are serious, what is the advantage of the payment of the working families' tax credit through the wage packet? Surely what matters is the difference between the total net income out of work and in work? The incentive effects of the working families' tax credit will be due almost entirely to the increase in that difference, which we have welcomed. It makes no real practical difference that the money comes in two dollops rather than one. This is obviously so in the case of single parents. The research by the Institute for Fiscal Studies has shown that this is the group most likely to move into work as a result of the working families' tax credit. The only person who might be persuaded to take up jobs by payment through the wage packet, which they might not otherwise have done, appear to me to be the traditional male egoist who says "I am not going to take that job unless I get all the money and can dole out to my wife what I choose to give her." I do not believe that there are many such people left, but we should not do anything to encourage them.
It is sometimes argued that there is a stigma effect of getting family credit from the DSS which will be reduced if it comes through the wage packet from the working families' tax credit. I do not believe that, and the high take-up rate for family credit suggests that that stigma does not exist. If there is a stigma effect, people are likely to be much more worried about what their employers know about them than what the Inland Revenue knows about them. That worry will be increased by these proposals.
The Bill is unnecessary and does more harm than good. It is not necessary to the Government's legitimate and broadly welcome proposals to make work more attractive by increasing the differential between in-work and out-of-work benefits. The Bill transfers the administration of the credits to the wrong department. It imposes more work and more costs on employers. It gives money to the wrong parent, and I believe it will do nothing to add to the incentive effect of higher benefits.
In the other place, my honourable friends voted against the Bill. I do not believe that it would be appropriate to do so in your Lordships' House. Moreover, we shall not support what we regard as wrecking amendments. But the Bill is capable of great improvement and we shall seek important improvements to it in the stages to come.
Lord Freeman: My Lords, at the commencement of his speech, the noble Lord, Lord Goodhart, said that his contribution would be complicated and boring. Neither was true. The noble Lord was absolutely right in many of his comments and in particular on the central point he made. I am sure that he will find a good deal of support on this side of the House.
This is an unnecessary Bill. The same purpose could have been achieved by using existing legislation and introducing new regulations. Nevertheless, it is a Bill before your Lordships' House and the normal conventions clearly will be followed. But in Committee I am sure that there will be lively debates and many amendments moved.
The noble Baroness, Lady Hollis, commanded a great deal of agreement on all sides of the House when she spoke at some length, and correctly, about the importance for the welfare state of improving the incentives for moving those who are unemployed into employment. Any measure which achieves that sensibly will command your Lordships' agreement. But I agree with my noble friend Lord Higgins that a great number of points will need to be dealt with in Committee. I look forward to that process. My noble friend has a great deal of experience not only as a former Treasury Minister but as chairman of the Select Committee on the Treasury and Civil Service in another place.
I speak as a chartered accountant but also, with greater relevance perhaps to this debate, as a former health Minister who had to deal with NHS benefits, the complexity of those benefits and ensuring that they reached the right people. Therefore, my question is whether the Bill will work. Will it work to encourage the move from unemployment, self-employment or low employment into full employment? I leave aside the other benefits of the Bill which the noble Baroness outlined on which I do not intend to comment; namely, the increase in the amount of funds devoted to claimants. My question is whether the Bill will work.
My interest is in the impact of this legislation through its complexity--the forms and administration--on the lowly paid and, in particular, those who are self-employed. In that regard, we are probably talking of no more than 10 per cent. of the population of claimants but by definition, that group is probably the one single group which will have difficulty in mastering the complexity of the working families' tax credit. Those people will badly need help not only from us as legislators in ensuring that the legislation is clear but help also from another direction to which I shall turn later.
There are three points which I wish to put to the Minister. I do not doubt her grasp of the briefing, nor do I doubt the excellence of the briefing she has received. It may be more convenient for the Minister to write to me on these issues before Committee. I shall quite understand if that is so because she will have many points with which to deal when winding up the debate. Therefore, I should be grateful to receive a response in due course.
The first point--and it is important--is that when one moves the administration of a benefit from the Benefits Agency and the Department of Social Security to the Inland Revenue, a change of culture will occur. It cannot be glossed over. There is to be a transfer of staff to deal with a 50 per cent. increase in the take-up of this credit in a different name. But despite the transfer of staff, a different culture will pervade. Perhaps the Minister will confirm that the policy of joined-up government--I use
I pay tribute to the Inland Revenue for the excellent task it performs. But a transfer to the Inland Revenue, whose principal task is to collect revenue and not to distribute benefit, raises a whole number of very important issues. Some test of whether there has been an unnecessary turn of the anti-fraud screw could include, for example, whether there is to be additional time taken in order to calculate the benefit and then pay it. The Inland Revenue operates using different principles from those used by the Benefits Agency. That agency works generally on the presumption of need, seeking to meet it and then checking subsequently whether or not it is legitimate to have paid the benefit.
The Inland Revenue works on a different principle; namely, whether it is right in the first place. Again, from my dealings with the Inland Revenue, not professionally now but certainly as a Member of Parliament, I recognise that there have been long delays between submissions for tax reclaims and the ultimate settlement. Therefore, is there to be a change of culture? Are we still underlining the importance of legitimate maximum take-up and will the Government ensure that the Inland Revenue does not take more time than the Benefits Agency to deal with claims?
I give your Lordships one simple example. I am sure that we shall deal in due course with the forms which support this legislation. If one looks at those forms, it can be seen that a declaration is required by the claimant which is wholly different from the declaration made in other and more welcome forms used by the Inland Revenue, particularly for self-assessment, because the claimant must declare that the information he supplies is correct and complete. That is as opposed to the normal declaration which is that the information is correct to the best of one's knowledge and belief.
Secondly, the Minister indicated that the plan is that from October this year the Inland Revenue will administer family credit in the form of the working families' tax credit and from April 2000, employers will be making the payment through the wage packet.
As regards the forms to be used by the Inland Revenue, working obviously with employers, to the best of my knowledge there is common consent--that is, it is the opinion of the Inland Revenue and those organisations which have commented, including the low income tax reform group of the Chartered Institute of Taxation--that a great deal of simplification can occur. But the argument put forward by the Inland Revenue is that there is no time to change the form before April 2000. That is 12 months from now. That is the right point at which to simplify the forms to encourage take-up. It is in keeping with the taxpayer's charter. It is reasonable to ask the Inland Revenue to do that if it is given the right resources. I suspect that the argument that the forms cannot be amended in time is to do with
There is a shock-horror aspect attached to this matter. Your Lordships may not yet have had an opportunity to study the legislation but I ask your Lordships to look at WFTC 501. That is for the self-employed--someone who may be earning a very modest amount of money. The form which must be completed involves an extremely comprehensive declaration of financial information which is far too copious and is unnecessary for those on very low incomes. I am afraid to say that the procedure on the Inland Revenue self-assessment form appears not to have been followed. As your Lordships will know, there is a threshold of £15,000 of turnover below which, when one makes a self-assessment of the tax one owes as someone in self-employment, one only has to state turnover, expenses and profit. Form 501 asks for copious information and I believe it to be unnecessary.
Finally, I make a plea for consideration of the proposal from the low income tax reform group, to which I referred earlier, for voluntary help to be encouraged and supported by the Government for lower paid claimants in completing their forms. In the 1960s, while in employment, I was involved with such a voluntary group in the United States, helping the very low paid from the minority communities to complete some of their tax and benefit forms. If voluntary help comes forth particularly from my own profession and allied professions to seek in a pro bono publico fashion to help the elderly and the low paid self-employed to complete their forms, I do not see why it should not be welcomed with open arms.
I welcome the Inland Revenue's helpline. I believe that it works well but that more should be done. Perhaps I may conclude by quoting a letter from the Chancellor, Gordon Brown. He was responding to the Select Committee on Social Security in another place on the point that help is needed in the calculations and to decide whether a claimant was better off in work. Mr. Brown said:
Lord Rix: My Lords, I begin by craving your Lordships' indulgence, and that of the Minister, in so far as if this Second Reading is somewhat protracted--the noble Lord, Lord Goodhart, indicated it may well be--I may not be in my place at the end of the debate. No disrespect is intended as I have a long-standing engagement--a 70 year-old engagement in fact--the three-score years and 10 which my wife is celebrating having achieved this evening.
In the event of my absence and in the hope that your Lordships will accept my explanation, I stress that what I have to say is of great import to people with a learning disability. Should I be away, warming up to sing "Happy Birthday to you", I hope that the Minister will be able to respond to me in writing or, even better, perhaps at a meeting before Committee stage. That said, I now wish to focus my attention on the disabled person's tax credit, which the Government are introducing to replace the existing in-work benefit, the disability working allowance.
The disabled person's tax credit is in principle no different from the disability working allowance. Both act as means-tested benefits which top up low earnings for disabled people. But there is a definite shift in the Government's approach, one which will benefit many, but may also have significant drawbacks. In the first instance I should like, if I may, to say a few words about people with learning disabilities and the labour market.
As president of MENCAP I am, of course, concerned about the effectiveness of the tax credit in supporting people with learning disabilities who wish to work. Many of your Lordships may be surprised to hear that statement but I have to say that 7,000 people with a learning disability are already in full employment through the MENCAP pathway system. Research by MENCAP reveals that many people with learning disabilities might benefit from financial assistance in employment. Nevertheless even if the tax credit acted as an effective incentive to work, even to the extent of doubling the proportion of people with severe learning disabilities in work, 80 per cent. of that group will still not be able to work.
The Treasury's approach, as one would expect, has involved looking closely at the way in which work and benefit calculations operate. In particular, the Treasury has examined the way in which receipt of some kinds of support can actually contribute to financial difficulty or act as a disincentive to work. All too often we hear of benefit recipients who are no better off in paid work than on benefits, and in some cases benefits are withdrawn so quickly when earnings come in that individuals or families see relatively little increase in living standards. The Minister's department has clearly troubled itself to avoid such consequences, and as a result has calculated new rules for the disabled person's tax credit which should help to avoid some of the pitfalls and leave more disabled people better off.
The proposed tax credit is more generous because the level of earnings below which help is given is being raised, and the reduction of help on account of extra earnings will be less steep. This is most welcome, and will, I am sure, soften some of the harsher effects of the policy of means testing.
The Government's mantra on welfare to work seems to refer only to full-time paid work, and this is borne out in the rules for the new tax credit. But many people with learning disabilities will need a combination of welfare and work. The Government must recognise that severely disabled people who can work will also need adequate benefits to compensate for low earnings. One of MENCAP's central concerns is for people with
The Government's proposals mean that people working fewer than 16 hours per week will not be able to access the new tax credit and will not receive any extra money to top up low paid employment. MENCAP recommends a phased entry into the disabled person's tax credit to enable claimants to gain a foothold into the labour market by working fewer than 16 hours per week for, shall we say, a limited period.
Unfortunately no amount of fiddling with formulae of the means test has managed to overcome problems facing disabled people with housing costs, who face having their housing benefit withdrawn as soon as they move into work. Herein lies an acute example of the "Catch 22 situation" where people cannot afford to come off benefit and go to work for fear of losing all support with the cost of their home. The Government have recognised this problem in part, and have put in place new rules to allow disabled person's tax credit recipients (who have moved from income support) to retain housing benefit for the first month of employment. But this delays rather than solves the real problem, because thereafter disabled person's tax credit recipients with housing costs could lose up to 96p for every £1 earned. Making sure that demands for rent or mortgages coincide with the first wage packet is the Treasury solution but allowing claimants to keep housing benefit while on the tax credit would offer a more genuine way of helping to "make work pay".
The Treasury suggests that the purpose of the new tax credits is to put a small amount of extra money into the pockets of low-wage earners. However, I believe that the disabled person's tax credit has an additional purpose in providing some level of compensation for the employment-limiting effects of an individual's disability. A large proportion of people with learning disabilities work at the lower end of the earnings scale and never come close to boardroom salaries. Sometimes that can be as a result of discrimination, or lack of support, but in many cases can be attributed to the limitations of the individual's disability. Furthermore, many non-disabled people are forced to give up extremely senior positions later in life at the onset of physical disability and find that they are only able to work again in much lower paid positions. Under current proposals the gains to the individual from the disabled person's tax credit are countered by the fact that the whole family income is taken into account in the means test. I believe that that detracts from the important principle of compensating and supporting individual disabled workers who are, after all, the ones going out and working for low wages. It seems to me that low wages are low wages, regardless of the individual's family circumstances. If low pay is indexed to the limitations on the individual which arise as a result of disability, the individual should be entitled to support in his or her own right.
To wrap up, I should like to say a few words in relation to the care of children with disabilities. As I am sure noble Lords are aware, this point was raised in another place and applies to the recipients of both the working families' tax credit and the disabled person's tax credit. Both credits contain an allowance to cover childcare costs. The Government have taken an important and welcome step in extending this allowance to disabled children up to the age of 16, but it will be available only where the childcare provided meets certain registration conditions.
The Government have broadened the registration conditions to extend the range of childcare available, but have not yet found a way of extending eligibility for children for care which needs to be undertaken in the home. Many children with learning disabilities require intensive support and care which can only be met in the child's home. MENCAP believes that the childcare tax credit should cater for children who need to be cared for in their own home, particularly those who are unable to access nursery buildings or who do not live near centres with specialist staff to look after children with physical or learning disabilities. The location in which childcare is provided should not govern entitlement to support for working parents.
Having journeyed this far into the realms of tax and benefits, Ministers deserve, if not credit, at least charity from those in your Lordships' House. In the main, the new policies will improve the situation for low-paid workers, but there is a danger of missed opportunity for those who do not conform to the standard norms of working and family life; in other words, people with a learning disability. The Tax Credits Bill must help them too, both morally and practically, into the working world.
Baroness Carnegy of Lour: My Lords, your Lordships will remember that social security is not one of the powers devolved to the Scots Parliament. So this Bill and its effects will apply, and go on applying to Scotland as to the rest of the United Kingdom. In making a few general comments, therefore, I should like to point to one or two aspects of the Bill which I believe will cause concern in Scotland. The noble Lord, Lord Rix, with all his expertise, concentrated on the disabled person's tax credit; I shall confine myself to the working families' tax credit.
It was not clear from the Minister's long, interesting and detailed speech that the significance of this Bill goes far beyond the detailed social security changes which it proposes. In due course the social and financial effects of the changes will be widespread and far-reaching. I wonder if it is appreciated just how far-reaching. Many people, in Scotland at any rate, will be extremely surprised when they see the effects as they emerge across the country as a whole.
My noble friend Lord Higgins pointed out that the idea of bringing the tax and benefit systems together is in no way new. Indeed, it has long been discussed in this House. Many noble Lords will remember in
But despite what has been said--we have had some expert speeches from people who know a great deal more about this than I do--I believe that the system the Government are now proposing, in principle, will probably appeal to those people receiving the money through the pay packet. They will like that. But there are some worrying aspects to the Bill. Some of the general aspects were discussed at some length in another place, but none is properly appreciated by the public.
The Government know that in Scotland people have a particularly strong sense of community. Public opinion of the Government in Scotland is very important to them. Scots have a strong desire for fairness to the less well off, and I wonder how the least well-off taxpayers will feel. For example, how will widows living alone, paying tax on a small private pension or on limited hard-earned savings, feel when they discover, as they soon will, that they are funding families with incomes of £38,000 who happen to have chosen to have five children? How will they feel when, as alas is bound to happen sometimes, connivance between employers and employees brings fraud or employers use the system to reduce wages because the employee can make up the difference through benefit? How will those least well-off taxpayers feel? What will that do for what the Government like to call "social cohesion"?
Across the United Kingdom, what will be the effect on the social attitudes of a large proportion of our younger people--1.5 million families according to the Bill's Explanatory Notes--becoming accustomed to state funding on this scale and making their family choices in response to the whim of the government of the day? It will be observed in Scotland that that is the whim of the Westminster government of the day. We should ask ourselves what will be the social and political effect of that? It is a matter for your Lordships' careful consideration.
I want to ask the Minister in particular what will happen to this scheme in a time of recession. She explained that the whole system is designed to encourage work--that is good--and to make work financially worthwhile--that too is good. But what happens when there are fewer jobs to go to so that people cannot qualify as working families and, in addition, there are no jobs for the new army of child carers and nannies which will be created under the Bill? The Government must have thought about that. Can the Minister indicate, when she replies, how the scheme will work in times of recession? It is crucial in many ways, not least for the sake of social cohesion in the United Kingdom. For example, the economic cycle in Scotland does not usually coincide precisely with that in the south
Linked to that, of course, is the effect about which others have spoken on employers and the extra cost that they will have to meet in applying the system for the Inland Revenue, at the risk of a penalty of £3,000 a time, it has to be noted, if they get it wrong. That is a lot of money for a small employer. They will also have to cope with the problems of the workplace when some employees do not want them or their wages clerk to know their personal family affairs. Scots are certainly not laid back about that kind of thing. I believe that quite serious problems may arise.
The Minister seemed surprised when my noble friend from the Front Bench pointed out the possibility that the man in the family will in fact get the money rather than the woman. I recollect that there was great delight in Scotland when the previous Government changed the position. It had become a big problem. Knowing the Scots, I can imagine the kind of family where the father might well just force the issue, accept the money and then spend it on whatever it is that is not the children. I believe that that may well happen. I should have thought that there would be some way around the problem. I do not know what it is, but I hope that we will also consider that issue in Committee.
Despite their claim to the contrary, the Government are planning to spend a lot more money on social security. They have told us that they will be spending £1.5 billion more on this scheme than they spent on the previous one. It is vital that it works to the benefit of those who need it. In principle it is a good idea to pay through the Revenue, although I appreciate the points that have been made about the culture of the Revenue as opposed to the culture of the Benefits Agency. I can also see problems arising in that respect.
However, the scheme must work for the benefit of those who need it. I believe that people in Scotland will be watching the early stages of the working of this Bill most carefully. The Government must think of the broad effects and the broad political issues as well as the detailed provisions of the Bill. Nevertheless, I shall support this Second Reading.
Baroness Lockwood: My Lords, I should like to look at some of the general principles behind the Bill and embodied in it. At the time of the 1997 general election, one in three children in this country lived at or below the poverty line. As my noble friend the Minister indicated, this is something that cannot continue. So the strategy of the Government since that election has been to attempt to eliminate this social stigma. Policies have been directed towards assisting families with children and helping people into employment. The tools of this have been increased children's allowances, the minimum wage, several New Deal training programmes
There is also to be an increase in the benefit level and a reduction in the tax taper disincentive. The tax burden on families will be reduced so that those earning less than £220 a week will pay no net tax. There will be similar help for the disabled and more generous help with childcare costs, together with an increase in the age at which childcare costs will continue to apply. As I say, these are very considerable benefits. They will go some way, although perhaps not the whole way--I do not think that there is a system which could do so--towards removing the work and the poverty trap disadvantages that make it so difficult for deprived and excluded families to get back into the world of work and betterment.
Like every social security Bill, this Bill is complicated, and perhaps it is made more complicated by being a Treasury as well as a social security Bill. Much of the detail is in the regulations--regulations which are already covered by previous legislation. Therefore we are not introducing a new principle by dealing with detail through regulation. I have been rather surprised at some of the criticism about the fact that we are having a new Bill instead of just regulations under old legislation, because the very fact that we have a new Bill means there is more opportunity to discuss and explore all the potential and the pitfalls of the legislation. It is useful to have a comprehensive Bill covering that. However, there are problems, as have already been indicated by some noble Lords who have spoken.
The first matter that I want to look at is the method of payment. I recognise that there is a real dilemma here for the Government because the principle behind the Bill is to attract people back into the labour market. By removing the disadvantages of going into work, the tax credit system is intended to boost the wage of the worker. In that sense I understand the principle that the Government are working on, but it contradicts the other principle that where there is a child or a family benefit it has become the custom for that to be paid to the woman. In general I support that principle and I want to see it embodied in the Bill as far as possible. We must look at the size of the problem with which we are now concerned.
In response to a Question in the other place the Treasury Minister there indicated that 50 per cent. of those who receive family credit, and who will receive the working families' tax credit are lone parents. They are largely women, although a male lone parent, like a woman lone parent, who is responsible for caring for the children will receive the benefit. In 50 per cent. of the cases we are already meeting the principle that it is the woman who should receive the benefit. The question was raised as to why lone parents should not have a choice whether or not to have a tax credit or a benefit. It seems to me that the important point is that the lone parent gets the benefit anyway and is thus able to assist her family.
The second point that was made in the other place in response to the Question was that in 23 per cent. of cases involving couples, the woman is the main or sole earner. Therefore, again, the tax credit will go to her.
The Chancellor has already indicated that there is to be a choice in this matter. I certainly welcome this. However, the question that one has to raise is: how real is the choice? Will it be made quite clear to women? For example, will women who already receive family credit receive a communication telling them that they will be able to sign the form claiming the tax credit? This choice must constitute a positive measure and must not be something that goes by default. If it does go by default, and if neither parent signs the form, will the woman be paid by default, as the Select Committee in another place recommended?
I understand that if there is a disagreement between husband and wife, the wife will receive the benefit. That is what I am led to understand. Perhaps the Minister can confirm that in her reply. We are dealing with a small group of people.
That leads me to ask about the form. I was going to ask the Minister if the form was available for discussion. I must confess that I have not seen it, but I was somewhat alarmed by what the noble Lord, Lord Freeman, said as I believe the form needs to be simple and straightforward. We cannot expect people to cope with a complicated form. I ask the Minister whether it can be made available for discussion and amendment?
Finally, I ask the Minister what general publicity will be given to the introduction of the family tax credit scheme, given that it is a completely new type of scheme and one that is designed to encourage people back into employment? If it is to be effective, there will have to be simple and straightforward publicity about it. I do not believe that the booklet that my noble friend mentioned is adequate. Perhaps she can tell us what will be done to make it clear to people that this benefit in the form of a tax credit is available.
A number of issues have already been raised across the Floor. Clearly there will be some detailed discussions in Committee to which I look forward. In the meantime I welcome the Bill and I welcome the principles behind it.
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