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Lord Swinfen moved Amendment No. 7:


After Clause 2, insert the following new clause--

CALCULATION OF TAX CREDIT FOR PARENTS IN RECEIPT OR NOT OF MAINTENANCE PAYMENTS

(" . No schemes for working families' tax credit or disabled person's tax credit shall be prescribed under functions transferred under section 2(1)(a) until the Chancellor of the Exchequer has laid before both Houses of Parliament a statement showing the calculation of the tax credit for lone parents who receive maintenance payments and the calculation of the tax credit for parents who do not receive maintenance payments.")

The noble Lord said: My Lords, this amendment introduces a new clause to place an obligation on the Government to lay before both Houses of Parliament a detailed statement explaining how maintenance payments will be calculated under the working families' tax credit and the disabled person's tax credit before any regulations are made under the powers transferred to the Treasury under Clause 2. The new clause would require that statement to contain figures indicating how much credit a family would receive if they do not receive

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maintenance payments--for example, a lone parent who fails to receive maintenance because the payer is in default--compared with that which would be paid to families who do receive maintenance payments.

As the Committee stage debates indicated, the treatment of maintenance payments is both important and complex. The first indication that the Government were considering a change from the family credit treatment was given by the Paymaster General in an intervention in Committee in another place. In Committee in this place, the noble Baroness, Lady Hollis, gave an insight into the Government's thinking. But before either House is asked to pass affirmative resolutions approving these two tax credit schemes there is the need for a full statement supported by examples which show the amount of credit that would be payable to families in different circumstances. That would seem to be a reasonable request, given that the issue was not discussed in the Treasury's consultative document or by the House of Commons Social Security Committee.

I am concerned that, without such a statement, serious anomalies may be created which would become difficult to correct and families with the same income would not be treated equitably.

In Committee, the Minister said that one of the Government's reasons for changing the treatment of maintenance payments was that it would make, "a significant contribution to tackling child poverty". We all want to relieve child poverty. The maintenance payment proposals will increase a lone parent's disposable income and therefore make these families, many of whom are certainly not well off, better off. But the question that needs to be asked is whether the beneficiaries will be moved from below the poverty line to above it by these proposals.

The poverty line is commonly taken to be half average household income. This is the measure of poverty used by the Treasury in Tackling Poverty and Extending Opportunity. According to the latest statistics published by the Department of Social Security, this means living on a weekly equivalised income of less than £125 a week. As the Minister will know, but others of your Lordships may not, and I certainly did not before I received the briefing, "equivalised income" means an income which has been adjusted, either up or down, by comparison with a childless couple to take account of family structure, size and ages. I understand that very few, if any, lone parents who will benefit from the 100 per cent disregard proposal would have an income below half the national average under the original WFTC rules.

If I have correctly understood the Government's new proposals for maintenance payments--and no official examples, so far as I am aware, have been published--a lone parent with a net income of £90 or less will not benefit from the maintenance payment disregard, as they will already get the full working families' tax credit. I am told that a lone parent with one or two young

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children, with net income before working families' tax credit of £90 a week, would already have an equivalised income of more than £120 a week.

Baroness Hollis of Heigham: My Lords, it may help the noble Lord if I try to clear up the previous point that he made. He may be misunderstanding the difference between the proposals that my honourable friend the Paymaster General described in the House of Commons and the existing family credit arrangements for childcare. He is absolutely right in terms of those arrangements, that if one is at maximum family credit level one gets no benefit, not from child maintenance, but from childcare credit, because one is already receiving the maximum family credit and therefore it cannot be extended by having an increased disregard for childcare.

We are not talking about childcare; we are talking about maintenance payments from the non-resident parent. What will happen under these proposals, as outlined by my honourable friend, is that when it comes to calculating the lone parent eligibility for WFTC, if she is in work for more than 16 hours a week, whatever moneys she may get coming in from maintenance from the non-resident parent for her child will simply not be put into the calculation.

Therefore, one lone parent getting no maintenance and another lone parent getting the average assessed maintenance of £28 a week will receive the same working families' tax credit assessment income, children for children, whatever. But the difference in the maintenance will not be brought into account. It is simply not calculated; it is totally disregarded.

Lord Swinfen: My Lords, I am not sure that the noble Baroness's intervention is necessarily all that helpful. I shall have to read what she said. I must admit that I have quite a lot of difficulty in understanding the matter, being a bear of very little brain.

The other question I would like to raise is whether the proposals as I understand them--and, in the absence of official guidance, I may well not understand them correctly, as I have said--will be fair to all families.

If I do understand the proposals correctly, the credit payable to families with the same amount coming in each week will differ significantly, depending on whether or not they receive part of their income in maintenance payments. I have written to the noble Baroness. I have not had a reply. It may be that she has sent one but that it has not reached me. A reply might have helped me. It may well be that I should leave the matter now and come back to it at Third Reading, if I need to, when I have read the noble Baroness's reply. In the meantime, I beg to move.

Baroness Hollis of Heigham: My Lords, I am not quite sure what the noble Lord is inviting me to do. I am happy to try to give a detailed reply to the amendment as drafted, but if it is based on a misunderstanding--that would be understandable because much of the explanation has been given verbally rather than in writing--of how the maintenance disregard will work, and if he would therefore find it

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helpful if I wrote to him very fully on this point, and if that would allow him to withdraw his amendment at this stage, I shall not trouble the House by giving a full reply tonight to his amendment. I shall do whatever the noble Lord would like. I can either give him a full reply now or, if there is some misunderstanding between us, I can write to him and allow him to return with a further amendment at Third Reading, if that is his preference.

Lord Swinfen: My Lords, I should be delighted if the Minister would write to me and perhaps copy the letter to other noble Lords who have taken part in this debate. I say that particularly as I have not had a reply to my original letter to the noble Baroness. It may well be in the pipeline somewhere. Indeed, I am sure that it is because the noble Baroness is a very courteous person. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Swinfen moved Amendment No. 8:


After Clause 2, insert the following new clause--

ADDITIONAL PAYMENTS OF WORKING FAMILIES' TAX CREDIT IN CERTAIN CASES

(" . Under any schemes for working families' tax credit prescribed under functions transferred under section 2(1)(a)--
(a) comparable to the treatment of families under the disabled person's tax credit, families headed by a couple shall receive a basic tax credit, to take into account the second adult, between 55 per cent and 60 per cent greater than that received by families headed by a lone parent; and
(b) families with a disabled child shall receive an additional credit comparable with that paid under the disabled person's tax credit.")

The noble Lord said: My Lords, this amendment also refers back to our debates in Committee and seeks to clarify further the basis on which the working families' tax credit has been drawn up. However, unlike my previous new clause it refers to the WFTC only because it seeks to draw on the principles which the Government have accepted for the disabled person's tax credit.

This new clause is in two parts. Paragraph (a) is concerned with couples who, according to the information so far provided by the Inland Revenue, will be treated illogically and unfairly. The point was first raised by Professor Steven Webb on Third Reading of the Bill in another place. It was subsequently raised by the noble Lord, Lord McNair, and myself on Second Reading and then again by my noble friend Lord Astor and myself in Committee, but so far we have had no response.

Under the treatment which the Government propose for both WFTC and DPTC, the income and savings of a husband and wife, or of a couple who are living together, will be aggregated and added together. In many cases, that will restrict the tax credit which would otherwise be due. In no circumstances, as I see it, will it be to their advantage.

At this point, the two credits take a different approach. Under the DPTC, a couple gets a higher basic tax credit than a single person. That takes account of the fact that the second adult, who will usually be the able-bodied person--we are not talking here of the

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disabled person--has to eat, be clothed and incur other expenses of life. Under the WFTC, by contrast, a couple gets the same basic tax credit as a single person.

Having restricted the credit due by aggregating the couple's income and savings, the second adult is then ignored. So far as the Revenue is concerned, that person can starve, go around without clothes and cannot satisfy any of the needs of life. In practice, of course, it will not happen quite like that. The family as a whole will go short and the children will be more likely to remain in poverty.

Indeed, leaving to one side the treatment of maintenance payments, at any given level of net income the children in a family headed by a couple are more likely to be in poverty than the children in a family headed by a lone parent. In the consultative document Supporting Families, the Government showed themselves to be fully aware of the advantages to children if they are brought up in families headed by a married couple, yet the arrangements which the Government are currently proposing for the WFTC will give parents a financial incentive to separate or, if they are apart, a disincentive to come together again.

There are two ways in which this illogicality and unfairness might be sorted out. One would be to follow through the implications of what the noble Baroness has told us many times, which is that WFTC is not part of the benefits system but part of the tax system. Under the tax system the incomes of husband and wife are not aggregated, but taxed quite independently. So the aggregation of income and savings of husband and wife for WFTC could be dropped. That would remove the inconsistency between the WFTC and the tax system. It would also then be consistent to give an additional basic tax credit to the couple in order to take account of the second adult.

This new clause takes the alternative and more comprehensive way of sorting out this muddle. It accepts that, despite the claims of the noble Baroness, the working families' tax credit is essentially a benefit and not a tax. It accepts that the basic unit is for all intents and purposes usually the family and not the individual and the aggregation of the couple's income and savings is appropriate. It then provides for a higher basic credit for a couple than for a single person to take account of the additional cost of food, clothing and so on.

This is not a radical proposal. It follows the practice in income support, the job seeker's allowance, housing benefit, council tax benefit and so on. In these benefits, as in the DPTC, the couple's benefit or credit is between 55 per cent. and 60 per cent. higher than that of a single person. That is the figure adopted in the new clause. I accept that a couple does not get a higher credit than a single person does in family credit, but that benefit is the odd one out.

This amendment is in two parts. The grouping also brings in Amendment No. 10, which was drafted for me by a different organisation. I believe that is better than the second part, paragraph (b) of Amendment No. 8. I shall not press that amendment and, because of the lateness of the hour, I shall not press Amendment

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No. 10. As regards that amendment, the disability working allowance allows for a disabled child allowance, currently worth £21.90, when a disabled person also has a disabled child. That will be extended to the disabled person's tax credit when it is introduced in October. The calculation for a maximum family credit and its replacement does not include the disabled child allowance.

The purpose of Amendment No. 10 is to provide parity for those eligible for the new working families' tax credit who have a disabled child, by extending the disabled child allowance to the new tax credit. The disabled child allowance was introduced as the disability working allowance in 1995 as part of a package to improve the benefit. The government at the time saw it as a substantial boost to the income of families in receipt of the benefit who have a dependant disabled child. The aim of the package was to improve the take up of DWA. The inclusion of the disabled child premium actually recognised the extra needs of working families with disabled children. There is little reason, therefore, for excluding the disabled child allowance from WFTC. The allowance reflects the additional costs and support needs of the family with a disabled child regardless of whether or not the working parent is disabled. I beg to move.

10.45 p.m.

Lord Higgins: My Lords, my noble friend has moved two specific amendments. They raise some fairly complex issues. I believe that he is right in saying that perhaps the most relevant is Amendment No. 10, which seems to be in a more coherent form in some ways than paragraph (b) of Amendment No. 8. The crucial point is whether or not there should be parity as regards a family with a disabled child. If I understand the situation correctly, there appears to be some anomaly between disabled parents with a disabled child and parents who are not disabled but who have a disabled child. The purpose of Amendment No. 10 is to ensure parity between the two groups, as my noble friend has just said. In that context it seems that there is an argument for parity to be established.


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