FAMILY INCOME SUPPLEMENTS

HC Deb 05 February 1973 vol 850 cc179-88

11.1 p.m.

The Under-Secretary of State for Health and Social Security (Mr. Paul Dean)

I beg to move, That the Family Income Supplements (Computation) Regulations 1973. a draft of which was laid before this House on 23rd January, be approved. By next April it will be 12 months since the family income supplement prescribed amounts were raised, and it is time therefore to arrange for a further uprating in order that this benefit may retain its effectiveness. All family income supplement payments go to families in need of help. They are families with at least one dependent child, the breadwinner in full-time employment and the weekly resources of the family below a prescribed level.

The scheme continues to provide help for a large number of families. The latest figures relating to the end of 1972, show that 84,000 families were receiving the supplement, and the average weekly amount was a little over £2. In addition about 20,000 families subject to the wage stop were receiving increased amounts of supplementary benefit because of family income supplement. Many more would have been subject to the wage stop but for the effect of family income supplement.

Altogether, therefore, family income supplement is bringing help to over 100,000 families, containing 250,000 children. Among the FIS families are more than 30,000 single-parent families, a group which has special needs, and a similar number of single-child families which do not receive family allowances. All these families gain by having the passport to the other related benefits—free welfare milk and foods, free school meals and so forth.

I am glad to be able to announce a substantial drop in the number of two-parent families with resources below supplementary benefit levels. The latest estimates suggest that, largely as a result of the introduction of the family income supplement in August 1971, the number of two parent families with resources below supplementary benefit levels had fallen by the end of 1971 by roughly one-quarter to about 74,000. This is to be compared with an estimated figure of 105,000 at the end of 1970.

We continue to take every opportunity to ensure that potential claimants are aware of the family income supplement. There are extensive standing arrangements for giving information about the scheme to those who may be interested—for example, to claimants for maternity benefit and family allowances and to persons returning to work after receiving supplementary benefit.

During the past year we have also made the special arrangements to which I referred in the debate on the uprating regulations in 1972. First, an appointed officer in Scotland. Wales and each of the 10 English regions of the Department has spent six months reviewing all publicity arrangements. Contacts were made with local authorities, social workers, employers and trade unions. The Department of Education and Science in February 1972 sought the co-operation of local education authorities to issue FIS leaflets to applicants for free school meals.

I come to the amount of the increases. Regulation 2 increases the prescribed amounts in the following way. A one-child family has an increase from £20 to £21; a two-child family from £22 to £23.50; a three-child family from £24 to £26. For all larger families the prescribed amounts are £2.50 higher than the present amounts. Since FIS is half the difference between the gross family income and the appropriate prescribed income the effect of the regulations is to increase the weekly payments by amounts ranging from 50p for the one-child family to £1.20 or £1.30, according to rounding. for the four-child and larger families.

Because last year and this year families of different sizes had different increases we must look at the two upratings in conjunction to see the effect in terms of percentage increases. On this basis, for the 20-month period since the scheme started the prescribed amounts have moved for one-child families by 17 per cent., for three-child families by 18 per cent. and for six-child families by 16 per cent. During the 17 months up to the end of 1972 prices have moved up by 10 per cent. Thus, prescribed amounts are more than keeping pace with movements in prices.

Last year the maximum weekly payment was raised from £4 to £5, a very substantial increase of 25 per cent. We do not propose to increase it again on this occasion. The 4,000 families who will be on the family income supplement maximum in April will not gain anything immediately but they will stand to benefit from the uprating in the long run. By the time their claims come up for renewal most will have had an increase in earnings in the 12 months since the previous FIS award was made. The increase in earnings would normally tend to reduce the renewal awards but the April uprating of the prescribed amounts will counteract the increases in earnings and help families to retain their maximum awards.

I come now to the arrangements for putting the awards into payment. These will start from the same date, 3rd April, as the change to 12-month awards and the arrangements will be co-ordinated. Each family will be told by letter of the effect which the changes will have on their award. They will not have to make a renewal claim. Families awarded FIS before 13th February will be asked in stages to return their order books. The books will be over-stamped at the new rates and returned to beneficiaries. At the appropriate time continuation hooks will be issued automatically to cover the additional 26 weeks.

All claims received between 13th February and 3rd April will he considered under both sets of prescribed amounts. Awards will be at the old rate until the end of March and the new rate from 3rd April and will include the extension for the additional 26 weeks.

Those families with entitlement to free welfare milk and vitamins with their FIS will also receive further tokens to enable them to get their free milk and vitamins during the 26-week extension. During the extension families will automatically get the other benefits to which they are entitled through FIS, such as free school meals and free prescriptions.

When we discussed the current regulations last January, I said that exaggerated talk about families finding themselves worse off after a pay rise was based on hypothetical cases. I added that the Government accepted the need for research in this area and would be watching the whole question of incentives very carefully.

In subsequent weeks a number of commentators published their predictions about the marginal tax rates that would apply from April when the new FIS rates took effect. The basis of these predictions was that wages would rise and that the FIS levels would rise but that other things would stand still. These predictions were falsified. The Budget altered the tax thresholds, and as the year went on other changes were made. Income levels for free school meals, rent rebates and many other benefits were raised. The result was that low earners who got wage rises broadly comparable with the increase in the cost of living did not lose benefit over the year as a whole. But that was not all.

Earlier this Session Parliament passed the Pensioners and Family Income Supplement Payments Act, under which all the FIS awards will be increased under these regulations in April will be extended for six months. None of them, therefore, will run out before October. It is no good drawing up tables now to show how much benefit a family might lose if it got a wage increase in November. By then many benefit rates will have been adjusted again, and in making those adjustments we shall be concerned to minimise the so-called marginal tax rates, just as we have been concerned to do so in drawing up these proposals in relation to FIS. By November, not only FIS but free school meals and free welfare milk will have gone over to the 12-month award system, and the possibility that anyone will find himself worse off following pay awards of the proportions necessary to offset increases in the cost of living will be still further reduced.

I hope that I have explained fully to the House the purport of these regulations increasing the FIS, and I have pleasure in commending them to the House. They will ensure that FIS continues to bring help directly to a section of the community which is in need, and I hope that the regulations will be welcomed.

11.13 p.m.

Mr. Brian O'Malley (Rotherham)

The Under-Secretary of State has not commended the regulations to the House with any great sense of confidence. I had the overwhelming impression that, being aware that the amount of increase in the prescribed amounts was open to serious criticism, he used all the Department's resources to find complex and convoluted arguments to attempt to overcome the simple and basic objections which apply to the level of the movement in prescribed earnings contained in the regulations.

The Under-Secretary has explained the purpose of this Statutory Instrument as being to provide additional help to the lowest paid workers with families. Whatever the purpose, the result is that the poorer families will be relatively poorer in 1973 than they were in 1972. We are discussing 100,000 families, 250,000 children. Those figures include a considerable proportion of single-parent families.

The hon. Gentleman obviously decided that it was not to his purpose to discuss the level of the increases in the prescribed amounts by laying them alongside the movement in earnings or even of prices during the 12 months from April 1972 to April 1973. The figures between April 1972 and April 1973 do not happen to suit his purposes. The hon. Gentleman obviously went to the Department and said "Find me some figures which put a better complexion on these regulations." However, we are not bound to confine our remarks or our statistical estimates to the 17-month period—which incidentally is a very unusual period but one which, as I have said, best suits the hon. Gentleman's purpose.

The Department of Employment's index for full-time male manual workers between April and November 1972 shows that the percentage movement during the period was 10 per cent. If we seek to make some kind of estimate from April 1972 through to April 1973 on the basis of phase 2 of the prices and incomes formula of £1 plus 4 per cent. as the rate of increase for a full year, we can expect as a minimum up to April 1973 a 3 per cent. increase. What we are talking of is a movement of earnings between April 1972 and April 1973 of 14 per cent. It will not do for the hon. Gentleman to start talking about price movements. In all the political arguments both inside and outside the House over the last decade it was been pointed out that what is important for pensioners is that their pensions should move not with prices but with national average earnings. That is far more advantageous to groups of individuals with income from the State.

The Under-Secretary of State was unconvincing in giving the 17-month figures and trying to draw comparisons between the prescribed sums and earnings. The more relevant figure is that for full-time manual workers, and on the phase 2 formula we are likely to see during this period a movement in the index of earnings of 14 per cent. We are told that the phase 2 increases will help the lower paid man, but the man on the lower scale of earnings with three or four children will still need to draw FIS in the financial year 1973–74. It follows that whatever claim the Government try to make for their prices and incomes policy as being designed to help the lower paid, there will still be substantial numbers of men in full-time work who do not meet even the poverty level laid down by the State.

Let us compare the movement in national average earnings in the index with these prescribed amounts. The prescribed amounts in the regulations are very much smaller than 14 per cent. For a family with one child, the movement in the prescribed amounts will be 5 per cent.; for a two-child family it will be rather larger, 6.8 per cent.; for an eight-child family, 7.4 per cent. But even for large families the biggest percentage increase will be only within a range of 8 per cent. The highest figure of all which applies to a family of four children is 9.6 per cent. Therefore, the prescribed amounts have not kept pace with movements in earnings which have taken place between April 1972 and April 1973.

I suppose the Government could say that they have given lower paid workers in these categories help in other ways—for example, by giving them rent rebates and allowances under the Housing Finance Act 1972——

Mr. Dean indicated dissent.

Mr. O'Malley

I am glad to see that the hon. Gentleman does not go along with that. So he is confirming that what the Government are giving with one hand through their Housing Finance Act they are taking away with the other hand by these regulations.

In drawing attention to the fact that it is the larger families with between three and six children which will obtain the largest percentage gain as a result of the increases in the prescribed amount, I do not complain about the decision to treat larger families more generously than smaller ones on this occasion. This is the first time that the allowances for children have been raised since the family income supplement was introduced in December 1970. Previous increases have been the same for all families regardless of size and therefore have been proportionately more generous to the small family.

Having said that, the increase of the prescribed amount from £2 to £2.50 for each additional child up to the fourth does not restore the balance of assistance between families of different sizes as was envisaged originally. If that were to be achieved, let alone a comparable movement with national average earnings, the figure of £2.50 would need to be substantially higher. The Government's failure to increase the maximum supplement payable further affects about 4,000 families which are receiving the maximum amount. The hon. Gentleman attempted to overcome this argument by pointing out that it would help to keep these families on the maximum award. Of course it will. But that does not alter the fact that the maximum award is not increased in these regulations.

The restricted scope of the increase which leaves the £2 as the prescribed figure for children in families beyond the fourth child while increasing it to £2.50 for the second, third and fourth children makes the system more complex. At the beginning we criticised the scheme because it was means-tested and we warned the Government that they would have major problems in take-up, as they have had and are still having. But the system as envisaged originally was simpler than the one that the Government are operating as a result of the introduction of this new prescribed amount for some of the children in these larger families.

Every change made in the scheme which increases its complexity is bound to affect the percentage take-up. The Secretary of State and the Under-Secretary have been notably coy about the level of take-up. They have been obliged to say that about half of those entitled were taking up the FIS payments. That means that half of the families which need some kind of payment from the State have not been getting it. With the increased complexity of the scheme as a result of the terms of these regulations, one is bound to ask the hon. Gentleman what additional measures his Department is having to attempt to increase take-up. Because of the level of turnover of cases, what is needed is not spasmodic but constant publicity to maintain the rate of take-up which the Department has described as being about one-half. The Government are in a trap of their own making. If they insist on attempting to deal with family poverty by using a narrow means-tested scheme, they will have an increasing problem with take-up.

I understand that the Department has carried out an experiment in which family income supplement claim forms were delivered to all the houses in a particular area or areas. I do not think there has been any announcement about that. Since the Government are making the scheme more complex as a result of the regulations, may I ask the Under-Secretary to tell us about their arrangements for publicity, what the effects have been in percentage terms as the result of their FIS salesmen all over the country between April and October 1972 and what they have learned from that delivery of FIS application forms to all the houses in a particular area or areas? That seems to be one way of getting a high level of take-up. However, I suspect—in fact I am sure—that the cost of publicity of that kind would exceed many times the cost of the means-tested benefits themselves.

I should also like to raise the question of appeals against decisions on the level of family income supplement which is payable. It is clearly relevant, because there are bound to be more appeals as the system becomes more complex. Because of the nature of these increases for only some children in a family the system is clearly becoming more complex.

In Committee on the Family Income Supplements Bill my hon. Friend the Member for Oldham, West (Mr. Meacher) argued that it was inappropriate to make the supplementary benefit appeal bunals responsible for FIS appeals. He said: The central reason is that the supplementary benefits appeal tribunals are largely concerned with the exercise of discretion". My hon. Friend's suggestions were turned down. He went on to say: By contrast, FIS is clearly a matter of legal entitlement and the only questions that will arise are matters of fact and law."—[OFFICIAL REPORT, 18th Nov., 1970; Vol. 806, c. 1355.] It is interesting to note that the system is running into trouble and is bound to run into even more trouble as the result of the increased complexity arising from the regulations.

Paragraph 80 of the Annual Report of the Council on Tribunals for 1971–72 begins as follows: Supplementary Benefit Appeal Tribunals. In the course of our visits to these tribunals we detected some dissatisfaction among chairmen and members with their role in relation to the initial working of the Family Income Supplement Scheme. These tribunals are not equipped to decide legal points. In most cases none of the members of the supplementary benefit appeal tribunals is legally qualified. Yet there is no higher tribunal to which the claimant can appeal if he is dissatisfied with their decision, whereas on the national insurance side there is a further right of appeal to the commissioner. Perhaps the Under-Secretary will attempt to help us on that point.

Our original opposition to the Family Income Supplement Scheme is by no means allayed by the changes in the prescribed amounts proposed in the regulations. The regulations make the means-tested scheme more complex, they continue a system which has all the human and administrative defects of all means-tested schemes and they continue a system which contains formidable disincentives.

The hon. Gentleman mentioned the poverty trap. It is interesting to note in this respect that during the debate on poverty on 6th November 1972, the Secretary of State, when talking, as he said, theoretically, admitted that at most 160,000 families, or 3 per cent. of the working population, might theoretically suffer a surtax of 100 per cent. or over, and I agree that this would be very serious."—[OFFICIAL REPORT, 6th November 1972; Vol 845, c. 661.] The figure of 160,000 is almost certainly too low. The fact that in these regulations the Government are changing the levels of the prescribed amounts does nothing to alleviate the severity of the poverty trap and therefore the system contains formidable disincentives.

The Government have initiated and set up their own scheme. It is not a scheme which we feel we can support or commend to the House. It is the Government's scheme, and we feel that if they are to operate it, taking into account all the criteria, particularly the movement of national average earnings as shown in the index I have used, the figures are not generous. On the contrary, they do not help poorer people to keep pace with those who have higher earnings and who are, therefore, not entitled to FIS.

It seems a pity that at a time of rapid inflation the Government, using their own scheme with all its disadvantages and inherent defects, have not found themselves able to do more for these poor families and have provided a level of movement in the prescribed amounts which will mean that poorer families will be relatively worse off in 1973 than they were in 1972.

Question put and agreed to.

Resolved, That the Family Income Supplements (Computation) Regulations 1973, a draft of which was laid before this House on 23rd January, be approved.