FAMILY INCOME SUPPLEMENT

HC Deb 15 May 1975 vol 892 cc845-57

12.55 a.m.

The Under-Secretary of State for Health and Social Security (Mr. Alec Jones)

I beg to move, That the Family Income Supplements (Computation) Regulations 1975, a draft of which was laid before this House on 1st May, be approved. The prescribed income levels for family income supplement were last raised on 23rd July 1974 and these draft regulations provide for them to go up again on 22nd July, a year after the last up-rating.

We on this side of the House have consistently made clear our dislike of the Family Income Supplement Scheme, based as it is on a means test. Our long-term aim remains to reduce the rôle of means testing by extending the system of universal social security benefits. As a first step we increased family allowances in April this year and our proposals for a new system of family support, to start in April 1977, are embodied in the Child Benefit Bill which had its Second Reading on Tuesday. The child benefit scheme will improve and simplify the present system of family support and will further reduce dependence on means-tested benefits such as supplementary benefit and family income supplement. For the time, being, however, the family income supplement still has a part to play.

As regards details of the increases, Regulation 2 increases the prescribed amount for a one-child family from £25 to £31.50. For each additional child the prescribed amount will be £3.50 higher, instead of £3 as at present. Regulation 3 increases the maximum weekly payment—at present £5.50 for families with one or two children and for other families £7—and introduces a more equitable system under which the maximum increases progressively with each child. The maximum weekly payment for a one-child family is increased to £7 and that amount goes up by 50p for each additional child.

This is a structural change which I am sure will be welcomed and is expressly designed to help the large family. For example, under the present system a family with six children receives the same maximum as a family with three children. From July the maximum amount payable for the six-child family will be £1.50 higher than that for a three-child family.

Since the family income supplement payment is half the difference between the gross family income and the appropriate prescribed amount, the effect of the regulations will be, subject to the application of the new maxima, to give an additional £3.20 or £3.30, according to rounding, to existing beneficiaries who are one-child families.

Family allowances which were increased on 8th April 1975 are treated as income for family income supplement purposes. Consequently families claiming the supplement after 8th April 1975 have the increases in the rates of family allowances taken into account when calculating the rate of FIS payable, and the FIS rate is reduced by half the amount of the family allowance increases. These families will receive the full FIS increase when the prescribed amounts go up in July. Other families who claimed FIS before 8th April and whose awards are still current have not had their rate of family income supplement adjusted to take account of the family allowance increases, because under the existing legislation no account can be taken of the increases until the FIS award is renewed, which is normally 52 weeks after date of claim.

We intend that, to prevent duplication of provision and to secure equity with those who claimed later, the family allowance increases will be taken into account at the FIS uprating date on 22nd July this year. Power to make the adjustment in the rate of FIS payable will be provided in regulations laid under the negative resolution procedure to be made under Section 6(3) of the Family Income Supplements Act 1970 which will shortly be laid before the House.

For the small number of families who are receiving maximum payments, the immediate increase will be limited to £1.50 for the one-child family, £2 for the two-child family, £1 for the three-child family and then increasing in 50p steps for each additional child. But these families will be helped, by the higher prescribed amounts, to remain on the maximum rate when they come to renew their awards, even though their income has gone up since their previous awards were made. The unevenness in the amount of the increases for smaller families is due to the logical changes we are making in the system of maximum payments and cannot be avoided on this occasion.

It is estimated that in the year immediately following this uprating some 70,000 families will benefit from the family income supplement at a total cost, including the uprating, of about £11 million. I emphasise that this is within my existing departmental programme for expenditure. As on previous occasions, the new rates will be put into payment with the minimum of trouble to bene- ficiaries. Families already holding books at the present rate will be asked by individual letters to return them in stages for overstamping. Claims received between 27th May and 22nd July will be considered under both sets of prescribed amounts; awards will be at the old rate until 21st July and at the new rate thereafter.

1.2 a.m.

Mr. Kenneth Clarke (Rushcliffe)

It was 15½ hours ago that I approached the Under-Secretary of State across the Committee floor. As our Committee had morning and afternoon sittings I seem to have been debating against the hon. Gentleman for a considerable portion of the time that has since elapsed.

It is a pleasure to begin by saying that we welcome the measure before us which raises the prescribed amounts for family income supplement. Having welcomed it, it is interesting to reflect that the supplement was very much denigrated by the Labour Party when in opposition when the then Conservative Government brought it into operation. Despite that denigration, this is the second time that the Government have found it a useful enough instrument to uprate so as to increase the range of benefit available. It is the main instrument which the Government have to hand against family poverty until the new child credit scheme can come into operation. If they have their way, that will not be before April 1977.

When we introduced the family income supplement we made it clear that it was intended to be a transitional benefit and that it would be phased out at such time as an equivalent to the child credit scheme could be introduced. Although we are now using it as a transitional arrangement it is interesting to note that at the moment it is heavily used by one-parent families. Such families will benefit considerably from the announcement which has been made tonight.

The composition of the beneficiaries has changed drastically since the supplement was introduced. In 1971 one-parent families represented only about one in three of the claimants. By 1974 one-parent families represented more than half of those receiving the benefit. That means that the supplement has done more for one-parent families to give them some modest relief against family poverty than almost anything else that either Government have brought into operation.

It is true that the family income supplement suffers from the difficulty of a comparatively low level of take-up. However, it is important that we do not exaggerate the low level of take-up, as do many who wish to down-rate the value of a means-tested benefit. The low percentage of take-up exaggerates the true position because many of those who do not bother to claim FIS are those who would derive very little benefit from it if they claimed. Those who are on the fringe of eligibility and who might qualify only for pence if they claimed do not bother, with the result that the percentage of those eligible is reduced.

One worrying feature is the number of wage-earning families with many children who could benefit from FIS but who do not take it up. That is related to the extent of the publicity given to the availability of FIS. If the Government intend to keep FIS, as they must for the next two or three years, they should use it properly and not try to reduce the esteem of a means-tested benefit by continuing to upgrade it but refusing to make the modest expenditure necessary to bring it to the attention of the people who are meant to benefit from it.

The number of people claiming and receiving FIS is actually dropping. I believe that there is a correlation between the drop in the number of beneficiaries and the drop in the expenditure on advertising that the Government undertake. On 5th February I asked the Under-Secretary of State to give me information on the number of families receiving FIS at the end of each year since the introduction of the scheme. In 1971 there were 71,000, in 1972 82,000 and in 1973 95,000, and it was provisionally estimated at the end of November 1974—the latest date for which information was available—that only 72,000 were receiving FIS, the figure having dropped dramatically by 23,000.

There is a remarkable correlation between those figures and the amount of money the Government have spent on advertising the benefit. On 21st January the Minister of State informed me in answer to a Written Question that expenditure on advertising was £310,000 in 1971, £325,000 in 1972, £161,000 in 1973 and £124,000 in 1974. That means that the Government are ceasing to advertise the availability of FIS.

Will the Under-Secretary of State tell me the view taken by the Government of the amount of money that needs to be spent on an advertising campaign for it to be worth while? My impression is that it is estimated that between £250,000 and £300,000 is needed to increase the level of take-up of benefit, £150,000 is needed to sustain the level of a means-tested benefit, and less than £150,000 produces a campaign which is not worth bothering with because it is inadequate. The Government have dropped below £150,000. When they are raising the level of benefit, the least they can do is to follow up and make sure that those we are supposedly trying to help know about it.

The problem of the poverty trap or poverty surtax results from the woeful lack of correlation between what the Department of Health and Social Security is doing with FIS and what the Treasury is doing in another sphere of government in raising tax allowances and tax thresholds. There is a relationship between the effect of the regulations and the disgraceful failure of the Government to raise tax allowances to enable poorer families to keep below the tax threshold. The effect of the Government's action is that 1 million poor people who were not paying tax 12 months ago have been brought into tax. The combination of these tax rates with the rates of FIS and the eligibility levels in the regulations produces a punitive effect on lower income earners.

It is a feature of FIS that it has the equivalent of a marginal tax rate of 50 per cent. built into it. Every time a beneficiary earns an extra £1, he loses 50p off his FIS entitlement. If he is above the tax threshold, he also pays 35p in income tax. That means that every time someone at this very low level of earnings earns an extra £1, 85 per cent. goes at once on reduced FIS and income tax.

In addition to that 85 per cent. tax, in effect, one has to take into account such things as the loss of free school meals and of rent and rate allowances. Thus a number of low-wage-earning families are worse off in effect if they get a nominal increase when their union gets a modest increase in the level of their earnings.

I shall not read out the figures which the Library has kindly supplied me, but I ask the Under-Secretary to look at the correlation between the prescribed amounts for FIS and the weekly percentage tax allowance that the Budget has allowed for low-wage-earning families. Every time the tax threshold gets above the FIS eligibility level, the problem arises that one Department says that these people need help with their earnings through FIS while another Department says that they are well enough off to pay tax.

What has happened because of the Chancellor's stinginess and the Government's attempt at generosity is that the gap has become devastatingly wide. For a married couple with young children, the gap between the level of earnings at which they become liable to tax and the level at which they reach the prescribed level for FIS is about £8, for a married couple with older children it is £6 or £7, and for a married couple with children over 16 it ranges from £7 down to £4. That gap is far too wide. Many families are in the position where, as a result of Government inconsistencies, increases in their incomes make them worse off.

A man earning £22.98 with one child under 11 pays no tax and receives £4.26 FIS, giving a total income of £27.24. If his pay increases by a £1, he loses 50p FIS plus 35p tax. So his net income increases by only 15p—and that is assuming that he will not suffer a loss of rent and rate rebates and free school meals. He will be worse off if he does.

I illustrate finally from a Parliamentary Answer given by the Minister of State on 14th November. He had been asked by my hon. Friend the Member for Norfolk, North (Mr. Howell) to estimate the number of people currently in the poverty trap. The figures given by the Minister were for August. He said that no fewer than 50,000 families were then in a position where an increase of £1 in their earnings would produce a negative result—would make them worse off; 150,000 families could get only up to a 24p increase out of an extra £1 in earnings, and 240,000 families would get only a 25p to 40p increase.

These are not surtax payers but the very poor, who are being punitively treated more by incompetence and by the fact that two Departments do not act in concert than by deliberate action. The hon. Gentleman must realise that his colleagues in the Treasury are endeavouring to undo the good work of his Department through measures such as this. It is time that his Department pointed out to the Treasury how much damage is being done and repeated to the Chancellor the point we made the other day. We illustrated the terrible record that is being acquired by the Government on the subject of family poverty. It has been clearly demonstrated by groups such as the Child Poverty Action Group that the poorest families are becoming steadily poorer. The social contract and the other Government measures have failed to increase the social wage adequately to meet the circumstances of such families.

If the Government followed up this measure with a proper increase in the tax threshold for poorer families, that might have a more worthwhile effect on reducing the number of families in poverty.

1.15 a.m.

Mr. Bruce George (Walsall, South)

I apologise for intervening in this debate as I understand that it is not the tradition for back benchers to chip in.

I dislike the concept of FIS. Last year in a parallel debate the then Under-Secretary of State for Health and Social Security, my hon. Friend the Member for Newcastle-upon-Tyne, West (Mr. Brown), said: As we have already made clear, the present administration does not like FIS. He went on to say: It is not our intention to leave FIS as a permanent part of the social security structure. We are working towards its elimination."—[Official Report, 13th May 1974; Vol. 873, c. 1055] I should like to know when that process is likely to be realised.

It is very easy to say that the Government dislike FIS. The danger is that if we improve something that we dislike, it makes an unsatisfactory concept marginally more satisfactory while the goal towards which we are moving recedes further and further into the distance, thus rendering the final abolition of FIS much more difficult. The sooner FIS is replaced by something more adequate, the sooner I shall rejoice. However, I welcome the raising of the rates of FIS. I ask my hon. Friend to pass that comment on to his colleagues.

In previous debates the Labour Party committed itself to the abolition of FIS. I hope that in annual debates of this kind we shall not see the progressive raising of the FIS levels. I hope that the Government will move progressively and swiftly towards the elimination of FIS.

FIS was introduced as a temporary measure, somewhat on the lines of the temporary measure which after the Second World War introduced prefabricated houses which in many cases are still with us. Despite the high hopes of the supporters of FIS, many of its objectives have failed to be realised.

Originally it was estimated that FIS would assist about 190,000 households containing approximately half a million children. It was originally estimated that there would be an 85 per cent. take-up rate, and a lot of money was spent on advertising. Despite the advertising, which was on a low scale, the take-up rate is still approximately 50 per cent. Perhaps even at this stage the Opposition will give us the evidence upon which they based their assumption that the take-up rate would not be quite as bad as might appear at first sight. I should welcome evidence to support the case.

Means-tested benefits clearly do not work. They have not worked in the past. I dislike the propping up of this system of means-tested benefits, which these regulations will assist. The number of persons claiming FIS has declined. Government supporters do not view that situation with relish.

I should like to know what attempts are being made to increase the take-up and to reinforce what was said by the hon. Member for Rushcliffe (Mr. Clarke), with whom I rarely agree publicly or indeed privately, about advertising. In 1971, £310,000 was spent on advertising. In 1974 the figure was £124,000, despite inflation. I believe that it is difficult to find a single correlation between the take-up and advertising. I should perhaps add that at the end of 1971 I estimate that 71,000 families were claiming FIS and £310,000 was spent on advertising. At the end of 1974 the figures were 72,000 families claiming and £124,000 spent on advertising.

When the scheme was first introduced a great amount was spent on advertising, but the take-up rate was low. It is no lower now, even though less is spent on advertising. Therefore, I do not believe that there is any simple correlation.

I wholeheartedly endorse the condemnation of the fact that so little is now being spent on advertising. If we are to have means-tested benefits, clearly people must be fully informed of what they are entitled to receive.

Many aspects of the family income supplement are open to criticism. I do not want to labour the point at great length at this time. However, I should like to refer to the difficulties facing people applying for family income supplement.

Filling in the application form now is still something of an obstacle course. It is difficult for people to complete. Large numbers of people have their applications rejected. I believe that a considerable number of applications were rejected in 1974. The numbers of those who appealed against the rejection of their applications clearly indicate that people find great difficulty, as I do when looking at statistics, in ascertaining whether they are eligible to claim.

The family income supplement was conceived as a small measure. It is small in terms of cost. It has been small in terms of impact. Poverty cannot be abolished on the cheap. Whatever claims we may make for FIS, the expenditure has been derisory. If we are to combat poverty, which I believe the Government are doing, more money must be spent.

It was ironic listening to the hon. Member for Rushcliffe chastising the Government for failing to combat family poverty, recalling that the Conservative Governments record is hardly worthy of great appreciation. The present Government have on many occasions taken measures to combat family poverty, but to come here annually to uprate the FIS is no substitute for combating family poverty.

1.23 a.m.

Mr. Alec Jones

I understand that on one occasion the hon. Member for Rushcliffe (Mr. Clarke) and my hon. Friend the Member for Walsall, South (Mr. George) played for the same football team. They certainly seemed to be shooting the same ball at me tonight.

I should like to deal first with the take-up, to which both hon. Members have referred. The hon. Member for Rushcliffe said that the numbers of people in receipt of FIS in 1974 had dropped. That was because the numbers entitled to FIS had dropped. In 1972 it was estimated that 225,000 people were entitled to FIS. In 1975 the numbers entitled to it had dropped to about 100,000. If there is a drop of half in the number of people entitled to FIS, it is obvious that there is likely to be a similar drop in the numbers claiming it.

Concerning the take-up percentage, the position is not as gloomy as both hon. Members suggested. In 1972 the take-up was 50 per cent. The estimate for 1974 is that about three-quarters of those who are entitled to claim FIS were in receipt of it.

The other point I want to make concerns publicity. The Department will continue to carry out a publicity campaign. Perhaps the hon. Member for Rushcliffe will be interested in this issue because the Department for the first time has decided with this increase, to send out 26,000 leaflets to the 26,000 people whose claims were last rejected, since they are likely to be the very group who will be brought in as a result of this uprating.

I hope that the hon. Member will take it that we are aware of the need for publicity and are trying to do something rather new in making a direct approach to people we think likely to benefit.

The hon. Gentleman went on to talk in general terms of the poverty trap. It is true that the problem has bedevilled successive Governments for a long time.

I do not think that either Government have been complacent about the problem of the so-called poverty trap, which has certain problems inherent in it. One of them is that many of the benefits are spread over and there is a time lag before they are brought into operation. It is thus not always easy to show exactly the extent of the poverty trap.

This is one of the undesirable side effects of any system of means-tested benefit, but it is clear that as a consequence of this measure—and I accept the hon. Member's point that we must seek some co-ordination in all measures dealing with poverty—families receiving FIS will be better off as a consequence of the uprating. At present we consider that to be an overriding factor.

My hon. Friend the Member for Walsall—

Mr. George

Walsall South.

Mr. Alec Jones

I am sorry. We must be careful in talking in such general terms. There are differences in different parts of Walsall, I gather. I did not mean that disrespectfully to my hon. Friend or to the people of Walsall.

What my hon. Friend the Member for Walsall, South said is true. We dislike FIS, as we dislike all sorts of means-tested benefit, but in FIS we are faced with a practical problem. That is true. We shall bring in something better in its place, but we have to live with it and to work towards the implementation of non-means-tested benefit. In the meantime hon. Members will agree that while we are working towards that it would be undesirable for the existing protection to be removed.

When child benefit starts in 1977, FIS will have to be restructured to take account of the changed pattern of family support. Provision for restructuring is contained in the Child Benefit Bill, but the exact form cannot be worked out until the benefits are known. Those benefits will reduce dependence on FIS.

Mr. Kenneth Clarke

Do I gather, therefore, that it is intended that when the Child Benefit Bill comes into effect, some form of FIS will survive for a measurable period? Is it the fact that the Government's Child Benefit Bill is not seen as replacing it effectively?

Mr. Jones

It would be unwise to make general assumptions about the extent of the coverage of the Child Benefit Bill until the rates are announced, and then we shall be in a position to check or verify any assumption about it.

I have tried to answer the points raised by hon. Members. I am sorry that my hon. Friend the Member for Walsall, South seemed to think that the filling in of the form was causing trouble. Obviously, the fact that so many people are being benefited shows that some do not find it difficult. I accept, however, that some people find this difficult. My hon. Friend said that a considerable number of claims had been rejected. We hope by this uprating to include many of those whose claims have been rejected in the past.

The hon. Member for Rushcliffe and I have been at this all day. I understand why he should give his usual welcome at the beginning and spoil it by his attack at the end. When he prays in aid the Child Poverty Action Group he is taking things a bit far. His Government made a categorical promise to the group that they would raise family allowances in 1970. He knows only too well that the family allowances were not raised from 1968 until this Labour Government raised them this year.

Question put and agreed to.

Resolved, That the Family Income Supplements (Computation) Regulations 1975, a draft of which was laid before this House on 1st May, be approved.