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Baroness Hollis of Heigham: My Lords, it is like the situation with NHS prescription charges, childcare or maintenance; it does not need to be on the face of the Bill and therefore does not need a government amendment. It will be done either by regulations or by guidance. The Paymaster General announced her intent, and that is therefore what will happen. From October

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2000 a child who is disabled and living within a WFTC family will get the additional premium that they have not so far received.

Lord Swinfen: My Lords, I am delighted to hear that, and therefore I shall not move Amendment No. 10. I shall read with care what the noble Baroness said in regard to Amendment No. 8. I reserve my right to come back at Third Reading, but in the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Swinfen moved Amendment No. 9:


After Clause 2, insert the following new clause--

PROVISION FOR MINIMUM INCOME

(" . Any schemes for working families' tax credit or disabled person's tax credit prescribed under functions transferred under section 2(1)(a) shall provide that, regardless of any savings, all families with children and with an adult in full time work shall receive a minimum income of £200 per week.")

The noble Lord said: My Lords, I hope that this amendment will not take quite so long. It is designed to get confirmation of various statements made by the Government.

The new clause follows the debate that the noble Lord, Lord Astor, and I initiated in Committee. I am not sure that the Minister fully grasped the point at which we were aiming. As a result we may have been speaking at cross-purposes. I hope, therefore, that on this occasion we will be able to establish the position more clearly.

In his Budget speech in March the Chancellor of the Exchequer said:


    "Every working family will be guaranteed a minimum income. It will be introduced in October, not at the previously announced rate of £190 per week but at £200 a week, more than £10,000 a year. No income tax will be paid until earnings reach £235 a week."

Similar statements were made in the Red Book, which gives the background to the Chancellor's Budget proposals. When the new 10 pence rate of income tax is introduced in October the minimum income guaranteed for families with someone in full-time work will be £200 a week or £10,400 a year.

Similar statements have been made by a number of Ministers on a number of occasions, and particularly by the Paymaster General in another place and also by the noble Baroness. They were given without equivocation, exception or qualification.

However, let us imagine an individual, either a lone parent or someone with a partner, who stays at home to look after the child or an elderly or dependent relative. Let us assume for the moment that that individual has one child under 11 and works 40 hours per week at the minimum wage of £3.60 per hour. He will earn £144 per week, of which he will pay income tax of £6.32 and national insurance contributions of £7.80 to give a net income of £129.88 per week. He will then be entitled to working families' tax credit of £61.27 which, together with child benefit of £14.40, will give the family £205.55 per week. So far, so good.

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But now let us assume that an individual, either on his own or in conjunction with his partner, has savings of £8,000. That may come from a redundancy payment received when a previous job folded. Then he will not be entitled at all to working families' tax credit. At current rates of interest, he might, if he were lucky, earn interest on savings of £5 per week after tax, to give a total income of £149.28 per week. That is much less than the guarantee of £200 which the Chancellor gave.

Equally, that individual will be paying tax on both his earnings and interest, even though the income is even further below the figure of £235 which the Chancellor promised. I should add that a disabled person with savings faces a broadly similar picture of broken promises. The figures are slightly different, but the story of unfulfilled commitment is the same.

So how is the position to be resolved? One possibility would be for the noble Baroness to persuade the Chancellor of the Exchequer to go to the other place and to correct clearly and unambiguously the guarantees and promises that he had given with as much publicity for the correction as the Budget Statement received. However, although that would set the record straight, it would leave the highly unsatisfactory position that the individual would have a very strong incentive to spend his savings until they were reduced to £3,000, when the individual could draw working families' tax credit in full.

The alternative is to follow the route taken in the amendment which gives effect to what the Chancellor guaranteed. The amount of working families' tax credit would not be restricted because of the family's savings if that would leave the family with an income of less than £200 or if it would mean that income tax were being paid on income of less than £235. There would still be exclusions because someone with a large amount of capital would be able to receive interest equivalent to the amount of the tax credit which was being lost so that the total income would be above £200 in any event.

I look forward to hearing the Minister's views on these proposals. However, bearing in mind my difficulty at school of taking down maths sums in a hurry late in the afternoon, it may be that the noble Baroness would prefer to write to me on that point. That may be easier. I beg to move.

Lord Higgins: My Lords, from time to time, I am suspicious about matters being dealt with in writing when they really should be on the record; for example, in relation to the position of the Chancellor. If, as my noble friend seemed to suggest, rather a lot of small print was left out of the Chancellor's Statement, we should be clear about that on the record.

Nevertheless, my noble friend raises an important point with regard to savings. We need clarification after the success of the previous amendment in producing results, for which the noble Baroness is altogether too modest. If the Paymaster General had wanted to do it, he could have done it when the Bill was going through the other place.

Perhaps the noble Baroness, even at this late hour, will clarify the position with regard to savings. If the

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position on savings, as far as working families' tax credit was concerned, were not in line with the harsh regime that exists for those on income support, or in relation to pensioners and others who are not in the situation of getting working families' tax credit, that would be of concern.

Baroness Hollis of Heigham: My Lords, we assumed, correctly, that the amendment probes the background to the announcement by the Chancellor in his Budget that the minimum income guarantee of £190 a week for working families would rise to £200 a week as a result of the changes introduced by the Budget.

The £200 minimum income guarantee to which the Chancellor referred, is income for a household, whether a couple or a lone parent, with a child under the age of 11, where the adult, who works 35 hours a week, is working at the national minimum wage. As the noble Lord said, that £200 is made up of his net earnings, WFTC and child benefit. Therefore, it provides a minimum income guarantee. That is extended to everyone whether or not they currently qualify for a WFTC.

All income-related benefits--of course, the tax credit builds on the benefits--have a capital test. People with capital of less than £3,000 and who receive income support, JSA and WFTC are unaffected by the test. People with more than £8,000 do not qualify for WFTC. Capital of between £3,000 and £8,000 is taken into account in calculating the amount due. We think that is fair. You cannot hand out tax credits without having regard to the applicant's capital.

Perhaps I may step sideways for a moment. We wondered why so many pensioners were living below income support levels--for example, not drawing down income support--and we found that it was because they had capital. Nearly half of those who were not claiming that income support had capital of over £20,000. We cannot say that we should be handing out taxpayers' money as income support on top of an old age pension because pensioners choose not to use their savings or their capital which has been designed for that purpose. That is the position.

If we were to do as the noble Lord suggested--to disregard savings for this purpose--that could not be restricted to WFTC. It would have to be extended to other income-related benefits, such as income support, JSA and the like.

We estimate that abolishing capital limits would cost, for those income-related benefits, between £0.75 billion and £1 billion. That is the cost of abolishing all capital limits. If there were to be more generous capital limits, and we did not abolish them in total, but for example, we raised the lower limit from £3,00 to £5,000 and raised the upper limit from £8,000 to £10,000, the cost would be about £110 million.

To disregard all capital, as the noble Lord suggests in his amendment, so that those with an income of £200 a week, regardless of whatever capital they may have, may receive benefits and to apply that across to other income related benefits on which the WFTC has

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been modelled, would cost in the order of £0.75 billion to £1 billion. That would be public money from other taxpayers, who may have a slightly higher income, but often much less capital than those who would receive that credit or that income-related benefit.


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