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Dawn Primarolo: Clause 52 will increase the amount paid for the children's tax credit so that it is worth up to £520 a year, or £10 a week. My right hon. Friend the Chancellor said in his pre-Budget report last year that he was minded to do that, and he confirmed it in the Budget. The increase of £1.50 a week is the equivalent of a 3p cut in the basic rate of tax, and will be very important for those single-earner families on average earnings who will particularly benefit.
The hon. Members for Arundel and South Downs (Mr. Flight) and for Kingston and Surbiton (Mr. Davey) both welcomed the proposals, but they raised several points of detail, including the treatment of single-earner families compared to dual-earner families; the position in cases of separation or divorce; the complexity of administration; the numbers who have applied; and the transition to the integration of the full panoply of support that is offered to families. I shall deal with each point, briefly.
First, the hon. Member for Kingston and Surbiton ended his speech by referring to the complexity of the current child care support structure. That structure includes child benefit, income support--which the hon. Gentleman omitted to mention--working families tax credit and the children's tax credit. The Government intend to move in 2003 to an integrated child credit, based on a household income paid to the carer. That move will enable the Government to tackle some of the matters that have been raised this evening.
I can tell the hon. Member for Kingston and Surbiton that that move will be a substantial change affecting a huge number of families. The Government took the view that the move should be taken step by step. At each stage, we will ensure that we can get resources quickly to those families who need it most. That is why the working families tax credit will separate in 2003: there will be an employment tax credit for adults, while the child support
The hon. Member for Arundel and South Downs should know--I hope that he does--that the treatment in the tax system of the difference between a single-earner family and a dual-earner family is the direct result of the introduction of independent taxation by the previous Government. I hasten to add that independent taxation is a good thing for millions of women. It means that each taxpayer has allowances and access to tax rates. As a result, a family with two earners clearly has access to both earners' allowances, and the tax rates.
The hon. Member for Arundel and South Downs said that that produces direct discrimination. In fact, it is merely a function of a tax system that respects and recognises individuals equally. We are working to resolve the matter, although the solution is not simple. Moving to the integrated child credit means that there will be a move to a household assessment which the present tax system does not allow us to make. The different treatment of dual-earner and single-earner families will thereby be dealt with, as the amount of tax payable will be assessed according to each household's income.
Mr. Flight: I accept that the reason for the distortion is a function of our tax system, but I refer the Minister to the deliberations of the Select Committee on Social Security. Two or three years ago, the Committee focused on just that problem, and made some suggestions for dealing with it. The Government therefore did not have to go down the route that resulted in the functional problem that the Minister describes.
Dawn Primarolo: If the hon. Gentleman looks at the latest report from the Social Security Committee on child support and the development of the integrated child credit, and if he reads its comments on the children's tax credit, he will find that the Committee now recognises that matters have moved on. It accepts that an attempt to bring together for the first time support for children into one place, to be paid directly to the main carer, is the correct way to advance. The Committee now acknowledges that the children's tax credit is an important element in providing immediate support to those families.
The hon. Member for Arundel and South Downs referred to the complexity of the system with regard to separation and divorce. The arrangements for the children's tax credit were agreed in the Finance Act 2000. I do not recollect the hon. Gentleman or any of his colleagues referring to the very unhappy circumstances in which a couple separate and there has to be a fair and decent apportionment of entitlement to a tax relief if there is joint care of the children. The children's tax credit approach to that is sensitive and fair. It has not been criticised before. Compared with the huge complexities of the married couples allowance and the additional personal
The hon. Gentleman said that the form was complicated. I am sure that he cannot have seen what is a straightforward form for claiming tax relief. He might be confusing it with some other form, but I do not want to speculate which one it might be. The application form for claiming the children's tax credit was researched and tested on a sample of about 1,000 people to see whether they understood it clearly or whether it would put them off making a claim. The most recent figures show that 3.5 million PAYE taxpayers--some 85 per cent.--have returned their forms. The other 1 million people are self-employed and pay their tax in arrears anyway. Under the self-assessment scheme, their relief will be available to them when they account for their income in the current tax year.
I agree that we need to find those people who are entitled to claim the children's tax credit but have not yet done so. The Chancellor wrote to every hon. Member asking them to encourage parents at every opportunity to apply for the relief. It will be paid from the beginning of this tax year, whenever they apply for it. I hope that all right hon. and hon. Members will continue to encourage parents to claim the children's tax credit, because up to £10 a week is no small amount for those families.
Mr. Edward Davey: I know that the Paymaster General has not been speaking for long, but she has not answered my point about a two-earner couple--[Interruption.] The Minister says that she will answer it, but I will just make the point for the record. In my example, both people earn just below the base rate limit. When the integrated child credit is introduced, will they be protected against losing the £520 provided for in the clause?
When the Government introduce the integrated child credit in 2003, the Chancellor will have to look closely at the distributional impact of the introduction of the children's tax credit with regard to whether it benefits families as well as its predecessors did. I am sure that the hon. Member for Kingston and Surbiton would not expect me to commit the Chancellor to future decisions, although he might wish that I would. However, the hon. Gentleman's point must be crystal clear to all those who understand the position--that is, why would we create a system to help families that did not do so?
Finally, specific points were made about entitlement to children's tax credit and its interaction with the working families tax credit and the 10p rate. The combination of those three things will ensure that the families in greatest need receive maximum benefit from the provision that the Government have made available. On that basis, I commend the clause to the Committee.
Question proposed, That the clause stand part of the Bill.
Mr. Flight: I shall speak about clause 53 and touch on schedule 11, which relates to it. The objective of the clause is to provide, from 2002-03, a full year's child tax credit in respect of a child born in the current tax year. I am not clear whether the credit will be given pro rata, but my understanding is that it will not. Would a couple who have a child in September 2002 and who qualify for full child tax credit receive the full £520 or six months' worth? The wording is slightly obscure about whether they would receive a full year's worth or a pro rata amount.
Schedule 11 adds complex changes to the rules when a qualifying baby is resident with more than one adult during the year of assessment. Will the Minister explain, in understandable language, what that means? The fact that the schedule refers to a "qualifying baby"--a qualifying child born in the relevant year--implies that there must be babies who do not qualify.
Disqualification under section 257AA of the Taxes Act echoes the definition of a qualifying child, and where a husband and wife or the relevant two people split up, they may lose some relief, which cannot then be claimed back. The schedule is so complex and obscure that I have read it several times without understanding precisely how it is intended to operate. My main request, therefore, is for a practical explanation of what people will receive and what the angle is on qualification and disqualification.