FAMILY INCOME SUPPLEMENT

HC Deb 20 May 1976 vol 911 cc1883-907

12.12 a.m.

The Under-Secretary of State for Health and Social Security (Mr. Eric Deakins)

I beg to move, That the draft Family Income Supplements (Computation) Regulations 1976, laid before the House on 26th April, be approved. Family income supplement is a benefit for the lower-paid working family with at least one dependent child payable if the family's normal gross weekly income is below amounts prescribed by Parliament. The weekly rate of the benefit is one half of the amount by which the family's total weekly income falls below the appropriate prescribed amount, subject to a maximum payment.

The draft regulations provide for the prescribed amounts and maximum weekly payments to be increased with effect from 20th July 1976, a year after the last up-rating. Regulation 2 increases the prescribed amount for a one-child family by £7.50 from £31.50 to £39, for a two-child family by £8.50 from £35 to £43.50, for a three-child family by £9.50 from £38.50 to £48, and so on, the amount for each additional child being £4.50 higher instead of £3.50 as at present. Regulation 3 increases the maximum weekly payment for all families by £1.50. Thus the maximum for a one-child family will be £8.50 a week, for a two-child family £9 a week, for a three-child family £9.50 a week, the amount increasing, as now, by 50p for each additional child.

The effect of increasing the prescribed amounts—subject to the new maximum payments and to the Family Income Supplements (Child Interim Benefit) (Consequential) Regulations 1976, which provide for awards current at the uprating date to be adjusted to take account of child interim benefit—will be to increase the weekly sums payable to existing payees. Two-parent beneficiaries with one child will receive an extra £3.70 or £3.80 a week after rounding, while one-parent beneficiaries with one child will receive an extra £3 a week on top of their child interim benefit of £1.50 a week. For larger families the increase will be 50p higher for each additional child. For the small number of families receiving maximum payments the increases will be limited to £1.50. But the higher prescribed amounts will help those families to remain on the maximum rate when they come to renew their awards even though their gross weekly income has gone up since their last annual award was determined.

On previous upratings of the supplement the qualifying income levels have been increased broadly in line with prices, with the result that, as the earnings of the low-paid outstripped prices, the supplement has reached progressively fewer people until only about 60,000 needy families are getting this help. The increase we are now proposing is expected to restore the relativity between average gross earnings and the prescribed amounts which existed in 1971 when the scheme was introduced and to bring into entitlement a considerable number of families who are at present excluded because their incomes are over the existing limits. Furthermore, the new qualifying income levels will ensure that families now getting the supplement who have received up to a £6 pay rise during the year will continue to be entitled to the benefit when their current awards expire. Overall, in the period immediately following the up-rating we expect that some 85,000 families will receive family income supplement at a total cost, including the uprating, of about £19 million. This compares with a cost of £13 million for the year from July 1975 and will thus represent an improvement in real terms.

As in previous years, the change-over to the new rates will be affected with the minimum of inconvenience to beneficiaries. Families already holding payment books at the old rate will be asked to return them for over-stamping; new claims received between 25th May and 20th July will be assessed under both sets of prescribed amounts with awards determined at she old rate until 19th July and at the new rate thereafter.

During this difficult economic period the Government consider it essential to maintain tile scope of a benefit which is so directly geared to working families bringing up children on very low incomes. As long as this means-tested benefit has a role to play in helping working families in need, we are determined that the supplement will be effective. I am pleased, therefore, to be able to commend these regulations to the House.

12.17 a.m.

Mr. Kenneth Clarke (Rushcliffe)

It has been difficult to get any information from the Government in recent weeks about their policy intentions on family poverty and family support. Therefore, it is reassuring that the Government have come forward with some measures in this respect.

It is also reassuring, if rather surprising, to see that what is being brought forward is an uprating of the Conservative-introduced means-tested family income supplement. No longer do Labour Members attack this innovation of the Conservative Government but, instead, Labour Ministers acknowledge its con- tinuing rôle in support of low-paid families. Indeed, there were cheers from a surprising part of the House, just below the Government Gangway, when the Minister announced the extent of the increase in the supplement.

However, having got this measure, one would like to fit it into some scheme of Government policy for family incomes support and to relate it to some kind of strategy. But, unfortunately, it is clear that this ad hoc up rating relating to the circumstances of the moment is a temporary stop-gap and does not fit sensibly into a long-term strategy for family support. Indeed, I begin to fear that the Government no longer have any longterm strategy and are getting into a hopeless muddle as they try to envisage how they will handle the subject of family support in the next few years.

To put the regulations in context, one has to look at policies of successive Governments in the last few years leading to FIS and its uprating. The Conservative Government pursued a clear policy. They came to office pledged to increase family allowances, but found on examination that the cost of doing that would be disproportionate to the help which it would give to low-paid families. The result was that it was the last Conservative Government that brought in family income supplement—and at that time in the teeth of fierce opposition from Labour Members. The supplement as devised by the Conservative Government was meant to be a temporary measure. It was an immediate way of dealing with problems of the low-paid families while we prepared our tax credit scheme. We got as far as the Green Paper on the tax credit scheme and planned that FIS should be phased out when a new and better scheme of tax credits, not means-tested, could be introduced.

When the present Government came to power, they inherited that position with the tax credit scheme admittedly in a comparatively early stage of preparation. They scrapped any further work on the proper integration of the tax system with the social security system and legislated last year to produce the child benefit. We supported that Act in principle because it at least represented the child benefit part of our tax credit scheme.

Since then, mainly because of their mismanagement of the economy which is in a dreadful state—though the Minister at the Dispatch Box is not responsible for that—the Government have got themselves in a great mess and have postponed the introduction of the new child benefit until April 1977, producing a succession of excuses, but not the real one--the economic crisis. They have even referred as an excuse to difficulties with high alumina cement in buildings which would be vital to the scheme.

It has been extremely difficult to get a clear statement from the Government about the future of FIS, family allowances and the child tax allowances, all of which were originally meant, by both sides to be consumed by a new and better system of child benefits.

The Government have made no announcement about the level of child benefit, which is the most critical thing that people interested in these matters want to know. The Government have delayed discussions and legislation. There is nothing in the Finance Bill about the child tax allowance, and we have had some pretty delphic answers to Questions in the House.

Now that they have been thrown totally off course on the child benefit scheme, the Government have produced FIS regulations again and made clear that they are more committed than any previous Government to using FIS as the main weapon for the foreseeable future to alleviate child poverty and for family support.

The Minister's remarks could have been neatly abbreviated by saying that this increase was necessary to ensure that anyone who had a £6 pay increase last year would not be made worse off if he is a FIS beneficiary. On that basis, the FIS increases look generous, but they are a bad omen for the general policy because of the shortcomings of this means-tested benefit, which was why we saw it as a temporary measure.

It throws a grave light on the Government's intentions on child benefits. From the information we have been able to extract—it is like drawing teeth when one goes through the columns of Hansard looking for such information—it appears that, at nil cost in public expenditure terms, the child benefit will be £2.34 per child in April 1977. The level leaked to the Press, in an attempt to test the temperature of reactions, has been £2.50.

But if FIS were to go and family allowances and child tax allowances were put together in a new child benefit of £2.50 per week per child, the FIS recipients would be dramatically worse off. Consequently, one can see how difficult it would be with the new levels to consider getting rid of FIS in the child benefit scheme.

In a Written Answer yesterday, I was told that a child benefit for a FIS family would have to be £8.90 a week to match the value of FIS. The annual cost to the Exchequer would be £4,000 million.It clearly is an understatement to say that it cannot be done. The fact that the FIS benefits are being set at this level indicates that the Government are giving up all prospect of ending FIS and are beginning to us it as a weapon. It is no surprise to find that my hon. Friend the Member for Wallasey (Mrs. Chalker) received a Written Answer which stated baldly: The Family Income Supplement Scheme will continue after the introduction of child benefits."—[Official Report, 17th May 1976; Vol. 911, c. 422.] Family income supplement will be retained after April 1977 because otherwise child benefits would have to be set at a hugely unrealistic level if the beneficiaries of FIS were not suddenly to be made poorer by the withdrawal of FIS with the introduction of child benefits.

The regulations emphasise that the Government are committed, as someone allowed The Times and The Guardian, but not Parliament, to know, to a very modest level of child benefit, and their main weapon will be FIS. The Child Benefit Bill will turn out to be a public relations exercise for the foreseeable future because economic mismanagement and the state of the economy have overtaken it and there is no way of financing it properly. Means-tested FIS will be the method used by the Government for the foreseeable future to get money to lower-paid workers with families.

The Labour Government should reflect that they have nailed their flag firmly to the only mast left standing in their policy—means-tested FIS for family support. They find that this Conservative used car is running much better and will continue to run much better and more reliably than the Socialist limousine produced last year in the Child Benefit Bill, which will remain gleaming in the showroom for the foreseeable future. What a light that sheds on Government policy after April 1977! I hope that the Minister will acknowledge that he is stuck with means-tested benefit of the kind abhorred by his party in the past.

Let us consider what is meant by the use of FIS as the main means of family support from July 1977. Let us consider what is wrong with heavy dependence on FIS in the context of the Government's economic and tax policy. In comparing FIS eligibility levels with the tax thresholds and the tax liabilities of low-paid workers, one snag is the overlap of FIS with tax and the effect that has on recipient families.

It is clearly a nonsense that the Government should hand out FIS to families on the basis that their earnings are regarded as inadequate to maintain their families and, at the same time, take back income tax at the standard rate of 35p in the pound on the basis that their earnings are so substantial that they can afford that amount of taxation towards bloated public expenditure. That overlap between FIS and income tax is the most important source of the poverty trap about which there is such growing legitimate concern. It existed when we were in office but it has become worse in the last two years and the regulations make it dramatically worse.

If FIS beneficiaries earn an extra £1 at their work, that £1 becomes subject to income tax, they lose 50p. of their FIS entitlement, they may lose part of their rent and rate rebates and part of their free school meals entitlement. FIS beneficiaries who earn an extra £1 may find themselves worse off because they lose more than the £1 by way of tax and loss of benefits.

The Government acknowledge that 50,000 heads of families are already—before the regulations come into effect—in theory worse off every time they earn an extra £1 and in practice worse off taking account of the 12-month delay in registering FIS entitlement. This is the problem of means-tested family support together with such appallingly low tax thresholds as this Government have set. Government spokesmen in the past have blamed all this on means-tested benefits. It is actually a combination of means-tested benefits and tax—a combination of the Government raising the benefit levels much faster than the tax thresholds. This Government have consistently raised benefits much faster than tax thresholds and have made the poverty trap much deeper and much worse.

This year's Budget, and this regulation, will go a long way towards making matters worse. Child tax allowances are to go up by £60 fo reach child as a result of the Budget and the Finance Bill. The family income supplement eligibility limits in this regulation will go up by substantially more. Putting it another way, last year the gap between FIS and tax thresholds was roughly £9; this year it is £12.

The Child Poverty Action Group estimates that 75,000 people will in future be worse off for every pound they earn. instead of the 50,000 I have mentioned. I hope the Minister will acknowledge that fact, because today the Chancellor attempted to explain a meeting he had with the Child Poverty Action Group. In a long reply to a Written Question he said the poverty trap would get no worse. He added: In practice, however, no one getting a £6 rise will lose FIS in consequence, compared with his entitlement a year earlier, because the increases in the FIS income limits will in all cases be more than £6."—[Official Report. 19th May 1976; Vol. 911, c. 570–1.] The Chancellor gives that as his argument for saying that the poverty trap is not worsening. He is using an extraordinary definition of "the poverty trap" I do not think he, or whoever provided the answer for him, understands this point. I accept that this regulation will mean that no one getting £6 a week more will be worse off as far as FIS entitlement is concerned. But it is a fact that the FIS eligibility levels will now be even higher above the tax thresholds, and because the child tax allowances have been put up less than FIS, the result is—I ask the Minister to confirm this—that this regulation and the Budget will in fact worsen the position.

This regulation, and the Budget, will mean that a greater number of FIS recipients will be paying tax than were paying last year. This is another step towards discouraging the family man to get into work or to keep in work or to work harder. It puts more people than ever into a position where extra effort and earnings are simply not worth it. This is the first real flaw in the regulation. The answer is a proper child benefit scheme paid to all those in work and out of work at an adequate level. The Government's economic mismanagement has meant they have had to abandon this as a target.

The next deficiency relates to the position of single-parent families. The regulation provides us with an important opportunity to discuss a group which is still not discussed often enough in the House. One-parent families have become increasingly dependent on family income supplement. When we alter the rates of FIS we ought to bear in mind that this is the main help which will go to working one-parent families in our community. They are an ever-rising proportion of the beneficiaries—32,000 out of 62,000 in October 1975.

My hon. Friend the Member for Wallasey produced, in a Written Answer on 25th February, a statistic showing that the proportion of FIS beneficiaries who are one-parent families has increased from 32 per cent. of all beneficiaries in 1971 to over 50 per cent. More than half of them are now one-parent families. They will look to this regulation to see what the Government will do for them. They will also look to the child interim benefit, which is the most appalling confidence trick foisted on them in the Child Benefit Bill last year, which gives full value to a few one-parent families and leaves a few worse off.

This regulation makes it much more difficult for the Government to deny that a number of one-parent families will be worse off if they claim child interim benefit.

Child interim benefit is taxable. It is taken from those who receive supplementary benefit. The Minister has been trying to deny that there are many people who are worse off as a result of these factors. But in July this year the FIS entitlement will be reassessed, and when one-parent families are reassessed for income supplement in July, child interim benefit will be taken into account and will count towards income for FIS purposes.

Every one-parent family which has applied for child interim benefit which also receives FIS will not get the full benefit of this FIS uprating. If any one-parent family has applied for and has received the benefit, it will normally reduce its FIS by 70p or 80p. But in some cases applying for child interim benefit will put some one-parent families above the eligibility limit for FIS in this regulation and deprive them of entitlement to FIS; that is, where FIS would have been 80p or less. So their loss is 80p. But if they lose FIS, they also lose the free pint of milk for each child, worth 60p a week, and they will lose their automatic entitlement to free school meals, although they may retain entitlement on their income if they apply for it. When one couples the effect of child interim benefit and tax on FIS claims, they may be worse off.

Let me quote the clear explanation from the Child Poverty Action Group's memorandum to the Chancellor of the Exchequer which it submitted a few days ago. This passage illustrates the point: The tax threshold, for example, for a one-child family is now £26'63 a week, but the FIS eligibility levels have been raised to £39 a week. In table 2 we presented the tax threshold together with the FIS eligibility limits for a one, two and three child family. The effect on a family's income if it falls between the tax threshold and the FIS eligibility limit is as follows. For each £1 increase in earnings, a family will pay 35p in tax, 5ip in national insurance, and risk losing 50p in FIS. This is a marginal tax rate of 90¾ per cent. and takes no account of other means-tested benefit—such as free school dinners which are valued at 75p a week for each child—which the family may also lose as its income rises". A tax-paying, FIS-receiving one-parent family which has been so misguided as to apply for child interim benefit runs the serious risk of being worse off. Worse still, their tax codings are adjusted on the basis that they are receiving child interim benefit when many of them are not applying for it, and the Treasury is taking no steps to warn people that their codes have been changed or that they should not apply for benefit. One-parent families will not get the full benefit of this regulation if they have claimed child interim benefit. Therefore, as a result of this regulation, a number of one- parent families will be worse off if they claim the child interim benefit.

I turn to another anomaly—and I am sorry to take time, but time was saved on the preivous legislation we discussed and we do not often get the chance to talk about family poverty. I am afraid that time has already been taken up by the number of flaws to be found in this measure. The next one to which I draw the Minister's attention is the failure to raise the maximum amount of family income supplement payable in line with the other increases in the regulation. At present, the maximum amount of FIS that any beneficiary can receive is £7, plus 50p for each additional child. That maximum, by definition, affects the very poorest families who apply for FIS. There would become an entitlement to more than that maximum only if the gap between the prescribed amount and actual earnings was very large.

The increase in prescribed amounts in the regulation is quite generous, and, as the Minister has said, most beneficiaries will get an extra £3.70 or £3.80, plus 50p for each additional child, paid as extra family income supplement, but the maxi- mum amount rule is not going up by that much. It is increased from £7 to £8.50. If a person is already subject to the maximum rule, and he is subject to it if his earnings are a long way below the FIS eligibility requirements, it is impossible under the regulation to get more than £1.50 each week however many children the beneficiary may have.

The National Council for One-Parent Families has prepared some estimates which I ask the Minister to confirm or deny. No doubt he has seen them. The council states that at present there are 6,000 beneficiaries subject to the maxi- mum amount rule who will get only the extra £1.50, and that a further 20,000 will be affected because they will be brought up against the maximum amount ceiling for the first time. They will get more than £1.50 but less than the full increase that the eligibility levels would otherwise allow.

Therefore, the regulation is least attractive of all for the lowest-paid families applying for family income supplement. The reason is that the maximum amount has not been raised in line with the other prescribed amounts. Perhaps the Minister will explain why the maximum amount has not been raised in line with the other prescribed amounts so that the poorest families will find themselves less well treated than they might otherwise expect. Presumably this has been done to save money. What is the saving that has been achieved by this feature of the changes that the Minister has announced?

I have asked quite enough specific questions of that sort, but I ask the Minister to give us a fuller account of the Government's policy and reasoning than he has been able to give so far, and his apologies for the regulation's deficiencies.

Finally, I ask the Minister to tell the House how many claimants he expects to take up this means-tested benefit. The total number of claimants has been dropping. One snag with means-tested benefits is that many who are entitled to them do not apply. The take-up for FIS is estimated to be only about 75 per cent.

The Government's budget for advertising FIS has been dropping. In the past I always thought that was because the Government did not like FIS as it was a Conservative measure. When in Opposition they made hostile speeches about it. I thought that they had decided not to advertise it so that there would be a low take-up, so that they could say what an iniquitous innovation it was. But the Government are now using FIS as their main policy, as the main hope they can offer to low income families and all low income groups.

That means that means testing is back in vogue. The Government's strategy for an alternative child benefit scheme is on the point of total collapse. As they are stuck with this means-tested benefit, I hope that it will have a proper advertising budget. I hope that steps will be taken to bring the new levels to the attention of families who can benefit from them, and that something will be done to increase the take-up. As the Government are forced to resort to FIS, they must make the best use of it. They must try to get the best out of a very bad job.

12.45 a.m.

Mr. Bruce George (Walsall, South)

It is a pleasure to see so many hon. Members present tonight. I remember the corresponding debate last year when tripartite talks took place between my hon. Friend the Member for Rhondda (Mr. Jones), who I hope will be with us again soon, the hon. Member for Rushcliffe (Mr. Clarke) and myself. The sudden rush of Members into the Chamber is a clear indication of the developing enthusiasm on both sides of the House for the Government's family policy.

I never cease to marvel at the hon. Member for Rushcliffe, and I have observed him at a distance for over two years. He always seems to manage to portray the previous Government's policy in a scintillating light and to attack this Government's policy in what he perceives to be a devastating way. The man on the Clapham omnibus or the man in the Public Gallery looking down quite impartially might get the impression that the previous Government's record on family policy was successful beyond belief. But we, who view matters more dispassionately, are fully aware of the true effects of those policies. I compliment the Labour Government on their efforts to relieve and to combat family poverty, despite increasingly difficult economic circumstances.

We have a strategy on poverty, but, with the problems facing the Government, regrettably we have to divert somewhat from the overall grand strategy. I hope that the concept of family income supplement, which many Labour Members bitterly opposed, at the time that it was introduced, will be abandoned and that we shall see something much better in its place.

I have an ambivalent attitude to the raising of the family income supplement. I compliment the Government on the largest increase so far in the prescribed rates. Nevertheless, I dislike the principle underlying the concept of the family income supplement. Last year the Under-Secretary of State, my hon. Friend the Member for Rhondda—these phrases were not echoed tonight—said: 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."—[Official Report, 15th May 1975; Vol. 892, c. 846.] I do not want to see a regular patching-up of something that I regard as unworthy. I do not see this as a regular debate in the way that we see debates on Rhodesia, for instance—perennial events that never seem to end.

I hope that debates on the family income supplement will not go on much longer. I hope that the Government will implement their theoretical approach—namely, that the family income supplement is destined for elimination. I hope that it will be eliminated in the not-too-distant future. I welcome the rise in payments, but I hope that this debate will be another swift step towards the ultimate demise of FIS. I hope that it will be phased out as swiftly as possible with the minimum financial disadvantage to the thousands of families who at present are forced to live under the scheme.

I note that the numbers receiving FIS have been dropping. About 47,000 families were in receipt of family income supplement just after it was introduced. Having reached a peak of 101,000 in 197–3, the figure has gone down. In a Written Answer to me, the Minister of State, my right hon. Friend the Member for Salford, West (Mr. Orme), said: Almost 59,000 families were receiving family income supplement in February 1976 and it is estimated that the number will rise to 85,000 immediately after July 1976."—[Official Report, 29th April 1976; Vol. 910. c. 160.] It would appear that there has been a general downturn in the number of recipient families. That downturn is being halted, regretfully, for reasons of which we are aware, from July 1976.

The hon. Member for Rushcliffe said that the advertising of FIS had declined. I pointed out in last year's debate that it had declined. But the supreme irony is that when the Conservative Government spent more on advertising FIS, the takeut, rarely limped above 50 per cent. Yet, with the decline in advertising, which I deplore, I am assured that the figure has reached 75 per cent. I do not want to cast too many doubts on the technique of analysis of the Family Expenditure Survey, but I should like more evidence of the fact that the take-up has reached 75 per cent.

I hope that time is running out for the family income supplement. A possible explanation for the decreasing numbers in receipt of family income supplement is the success of the Government's recent pay policies, which have concentrated on helping the low-paid.

In the recent publication "The Poor and the Crisis", to which the hon. Member for Rushcliffe referred, the Child Poverty Action Group, in a post-Budget memorandum to the Chancellor of the Exchequer, wrote of Government initiatives in pay policy: The policy has had the effect of reducing the rate of inflation, while at the same time giving pay increases which have benefited substantially low-paid workers, particularly those claiming means-tested benefits. It goes on to say that the Chancellor of the Exchequer has distributed benefit from tax concessions so as to favour families with children.

It says of the second stage of the incomes policy: Again, the formula which has been agreed, has favoured the low-paid. I do not want people outside to get the impression, given by Tories, that the Government's policy is to the disadvantage of the low-paid. In fact, it is quite the reverse. A combination of Government initiatives has led to modest gains for the poor, and I hope that in the next 12 months we shall see further and greater improvements.

Mr. Ivor Clemitson (Luton, East)

While my hon. Friend is on the point on raising the wages of the lower-paid, and the other side of the coin—assisting low-paid families—would he say a word about the attitude of the Opposition to the Employment Protection Bill when it was going through the House? I remember sitting on the Committee on that Bill when the Opposition put down amendments which tried to weaken its effect, even though the Bill, which is now an Act, was designed in many respects to help the lower-paid to raise their wages.

Mr. George

I agree entirely. I do not blame the hon. Member for Rushcliffe. If all the Conservatives had his approach to social policy, the plight of the poor would not have been as bad as it was under the previous administration.

In commenting further on the Child Poverty Action Group's publication, the last thing 1 want to suggest is that the group is uncritical of the Government. It is right that the Government should be subject to critical scrutiny from outside organisations. The report points out that with the fall in the tax threshold there are still anomalies of families paying tax even though they are eligible for FIS.

Families are paying tax even though their income is below the rate at which they would claim if they were not working or were drawing supplementary benefit. The tax threshold for a one-child family is £26.63, whereas the FIS level is £39 and the supplementary benefit level £32.25. For a two-child family, the tax threshold is £31.45, the FIS level £43.30, and the supplementary benefit level £35.85. For the three-child family, the tax threshold is £36.17, the FIS level £48, and the supplementary benefit level £39.45.

A further absurdity is that, although there has been a small increase in the tax threshold for families with children, the Chancellor has also increased the eligibility levels for FIS. One consequence has been the increase in the bands of income over which families are caught in the poverty trap. This needs looking at very carefully. I am deeply concerned about it. The Government have estimated that there will be an increase of 25,000 who will be caught, on top of the existing 50,000.

Anxiety has been expressed also by Mrs. Margaret Bramall, of the National Council for One-Parent Families. I hope the Minister will be able to comment on the document she has put out and the Press release in various newspapers today. She says: Discrimination against the poorest has to stop. She goes on to say that a further 20,000 poor families will not get the full increases in FIS, and about 6,000 will get an extra £1.50 regardless of how many children they have. Therefore, tens of thousands of lone-parent families will be worse off from 20th July 1976. She says that the great majority of the lone parents will get less than their full entitlement, and that the poorest of those with the most children will be hardest hit. She adds that FIS is of vital importance to working lone families. It has become a one-parent family benefit because the Government have failed to provide one-parent family allowances. In conclusion, she says Yet another poverty trap has been laid by the Government … Any lone parent who pays tax and claims Family Income Supplement ought to give up their Child Interim Benefit from 20 July, 1976, and inform the tax office at once. One-parent families deserve a full explanation about what is happening. FIS was conceived as a small measure and it has been limited in its impact. In 1975 expenditure on it was only £11.4 million. It has never reached the large core of poor families, who have been oblivious of the existence of FIS. As a means-tested benefit it has deterred those who are too proud to claim. The complexity of filling in the forms has been a not insignificant deterrent to claiming and FIS, child benefit and family allowances together can create a degree of bemusement to people who are potential recipients.

FIS has not helped the majority of the poor. It has done little to encourage employers to raise wages. Therefore, I do not regard FIS with the same euphoria as might other hon. Members. I desperately hope that the child benefit, which is to be announced, will be generous when introduced in 1977, and I hope that it will be regularly reviewed. If it is not, I hope that it will be sufficiently high to offset the effect of long delays between upratings.

FIS is, at worst, a device to supplement poverty wages—that is, for those who work to earn their poverty. In 1972 the report "Two-Parent Families in Receipt of FIS" came out. This revealed for the first time the occupation breakdown of workers receiving FIS. It showed that a high proportion of such workers were employed in agriculture and related industries and a high proportion in distributive trades. It also showed that the low-paid came from the industries where the workers were badly unionised. We must not look simply to FIS to combat family poverty. We must aim to get higher wages in many industries.

A good report was recently produced by the Low-Pay Unit on wages councils. It showed that the wages councils, of which there are 46, determine very low wages, and that a high proportion of establishments under the aegis of wages councils do not even pay this pittance. It shows that the wages councils inspectorate is much too small, and that the numbers in it have declined. In 1975 there were only 128 wages council inspectors to inspect more than 500,000 establishments. In addition, 90 per cent. of all establishments were not investigated by the councils, inspectorate in 1975. That represents 419,000 firms. Millions of pounds were under-paid to workers covered by the councils in 1975. Of the small number of firms investigated, 11,000 were proven to have underpaid. The wages councils inspectorate recovered over £600,000 from those companies. Of the establishments visited, 22.1 per cent. failed to display the prescribed notices informing staff of their minimum rates. None of those companies was prosecuted. If I did not display the requisite documents on my car, I would be prosecuted—and deserve to be. But these companies are not paying their workers the basic minimum wage, nor are they informing them about it.

The Government must do a great deal further to strengthen the wages councils. They must increase the size of the inspectorate, and introduce more sanctions against companies which fail to keep within the law. There must be more prosecutions, and more publicity to inform workers in the low-paid industries about their rights.

If family incomes supplement is renewed next year, I hope that it will be again a large increase, but I also hope that the Government are working on a scheme to phase it out. It has some advantages but, like pre-fabs, built after the war, it was intended to be a temporary measure. Prefabricated buildings lasted year after year, long after they should have been demolished. The Government should devise a strategy so that poverty can be eradicated and family income supplement eliminated when the resources are available.

1.1 a.m.

Mr. Deakins

My hon. Friend the Member for Walsall, South (Mr. George) shares one thing in common with the hon. Member for Rushcliffe (Mr. Clarke) in accusing the Government of a lack of strategy towards FIS.

The Government have made clear their dislike of means-tested benefits generally. We have made solid progress in reducing dependence on means-tested benefits by introducing the non-contributory invalidity scheme and the mobility allowance. Our object is, to reduce payments of such means-tested benefits as soon as resources permit. That applies to FIS, which we do not regard as a permanent benefit. I was delighted that the hon. Member for Rushcliffe also regarded FIS as temporary—in that both sides are united.

On the grounds of cost and the heavy tax burden involved, it must be recognised that the paying of social benefits on a non-selective basis is impracticable for the foreseeable future. For some time we shall need to rely on means-tested benefits, including FIS, to help low-income families. So long as FIS has a role to play in helping working families in need we are determined that the supplements will be effective.

Mr. Kenneth Clarke

That is all very well as a general statement of policy but the Government have so far not removed any means-tested benefits and they are proposing to introduce a new one—support for school transport. The regulation increases the dependence on this benefit for the foreseeable future. Will the Minister tell us of a new attitude which relates to the practicalities of what the Government are doing?

Mr. Deakins

I mentioned two important examples of non-means-tested benefits which were introduced by this Government but not even considered by the previous Conservative Government.

I shall now deal with the poverty trap issue since it worries me as a Minister who is new to the Department. There have been misunderstandings about the action taken to eliminate the poverty trap. Many people, including pressure groups, say that following a rise in pay there is an automatic immediate reduction in means-tested benefits because of tax and higher national insurance contributions. That is not the case for tax paying families. Every £1 of increased earnings will be subject to an immediate reduction of 40.75p in income tax and national insurance contributions. But FIS will remain unaltered until the 12-month anniversary of the last award, because it is fixed for 12 months. That is, a change in family circumstances or income does not affect the amount of FIS in payment over a 12-month period. As it is up-rated every 12 months, it will have been increased some time during the currency of the pay award—sometimes before, sometimes after. The value of increased earnings is taken into account only at the end of the 12 months, and is then compared with a new and higher income level. For this reason the number of people affected by this poverty trap is very small.

As for the family income supplement in relation to the tax threshold, it is true that ever since the introduction of FIS in August 1971, or the date on which it effectively began, prescribed amounts for FIS have, with two small exceptions, been above the tax thresholds, under both the previous Conservative Government and the two Labour Governments. The two exceptions were in August 1971 and April 1972. The prescribed amount for a four-child family was then marginally below the tax threshold for such a family, but, apart from the prescribed limit, it has always been for one-, two-, three- and four-child families and others above the tax threshold. Therefore, it is not a new problem, as the hon. Gentleman tried to imply, but a problem that has existed ever since FIS started.

The question of tax thresholds can be tackled in two ways. Obviously, there is a case for raising them specifically to alleviate problems of family poverty, but, to put the problem the other way round, surely it is not wrong to pay a benefit to people who are above the tax threshold. I do not think that any of the poverty pressure groups are claiming this, nor—to be fair—is the hon. Gentleman.

Those who take the benefit for granted and criticise the tax are being rather unfair. Surely the tax burden at any particular level is given and accepted, and the benefit given, which is tax-free, helps to mitigate it.

I know that the matter of one-parent families is a source of concern not only to the hon. Gentleman but to my hon Friends. The hon. Gentleman made the point that one-parent families were increasingly dependent on FIS, and said that nearly 51 per cent. of one-parent families last year—the last time we did a calculation—were beneficiaries of FIS. That is not quite correct. Fifty per cent. of FIS beneficiaries are one-parent families, but of one-parent families only a relatively small proportion are in full-time work. Most of them cannot do the requisite 30 hours a week.

The hon. Gentleman raised a very important point about the interaction between the child interim benefit—CRIB—and FIS. Although CRIB can cause loss of benefit in particular weeks, the effect of not taking it into account until July is that over the year from April this year to April next year as a whole—the tax year—taxpaying families receiving both FIS and CHIB will not generally lose by comparison with those who do not claim or are not entitled to this benefit.

Because of the interaction between taxable and non-taxable and means-tested and non-means-tested benefits, it is not possible to assess the effect of claiming child interim benefit in every case. But only in unusual circumstances over the year April 1976 to April 1977 could a person or family be worse off as a result of claiming the benefit. To be put in this position, a lone parent would not only have to be paying tax and receiving a combination of means-tested benefits but her circumstances—it is usually a woman—would have to remain unchanged throughout the year. That is, she would have to remain in work, pay tax and continue to qualify for housing rebates as well as FIS.

Moreover, the overall effect of up-ratings of FIS and other means-tested benefits is to give every family a worthwhile improvement in its resources over the year.

Mr. Kenneth Clarke

Taking up the point the Minister made, he says that everybody will be better off over the whole year because from now until July 1976 the child interim benefit will not be affected through FIS, but will some who are receiving it and paying tax not be well advised to claim child interim benefit now and to cease claiming it in June? If so, will he take steps to publicise that, so that people can get the maximum benefit from child interim benefit, which the Government are constantly saying is a worthwhile thing?

Mr. Deakins

There would not be time, with only two months before it comes into effect, but we have given notice that CHIB would be taken into account in the operation of FIS in July. It will be up to the individual family. It is a complicated problem and many families will need advice but there is no advice which can be given generally by the Government or any organisation. However, I strongly recommend a pamphlet written by Mr. Lewis of the National Council for One-Parent Families, which sets out as clearly as I have seen in a document, official or unofficial, considerations which one-parent families should bear in mind in considering their attitude to FIS and CHIB and the uprating this year.

Mr. Patrick Jenkin (Wanstead and Woodford)

I endorse what the Minister says about the clarity of Mr. Lewis's pamphlet. Is he saying, as a Government Minister standing at the Dispatch Box that Mr. Lewis's figures and conclusions are wholly accurate?

Mr. Deakins

I cannot say that they are wholly accurate for every individual family, but the bulk of general recipients and individual families to whom the pamphlet is directed can rely on the excellent advice in it, but obviously there may be individual cases which one cannot cater for in the three or four pages of detailed explanation which Mr. Lewis gave.

I shall quote CHIB because it is vital to introduce CHIB quickly to help the poorer families. We recognise that we are dealing with a scheme with rough edges and that some families, particularly families in work on means-tested benefits, might not gain overall. The important point is that it is expected that some 200,000 will gain financially through claiming CHIB, and the total income of CHIB recipients will in all cases be larger than before its introduction because of the increased child tax allowances, the FIS uprating and the likely changes in the needs allowances for housing benefits this autumn.

Hon. Members, the National Council for One-Parent Families and the Child Poverty Action Group have raised the important point about maximum grant payable in FIS. It has been a feature of FIS since its introduction, and the nature of the scheme makes it necessary. FIS is a benefit in support of poor working families with a minimum of inquiry and a quite simple means test. It is run on a postal basis from a central office in Blackpool, and, once awarded, runs for 12 months regardless of change in circumstances in that period. There is no intention to gauge the supplement, but the process needs a broad-brush approach with low administration costs. It inevitably has rough edges. If, because of the large payments, we were unable to allow the benefit to run on unchanged by changed circumstances, one great attraction of the scheme would be lost. Since the Government took office the maximum payments grant has kept pace with inflation. With uprating, this relationship should be maintained.

I now come to the point about the earnings of low-income families over the past year. I could give the House a lot of detailed information, but it would be wrong at this late hour to go into too much detail. With regard to the benefits to varying categories of one-child families who are not receiving CHIB but have received the full £6 increase in the current year, in 1976 a family which is now earning £20 a week—a very low wage indeed—having received the full £6 increase, will now have a total income, because of the FIS maximum, of £28.50, and will have had an increase over the comparable figure last year of 35.7 per cent. The one-child family not receiving CHIB, on £25.30 a week currently, having received a £6 increase also in the past year, will now get an increase of £7, making £32 a week, which is a 26.5 increase on last year.

I quote those examples and percentages to show that in general the lower income families, if they have had £6 a week, have benefited more than the higher income families.

It is very difficult to make accurate estimates of the take-up of FIS, but, if we start with the first year, it is estimated that the take-up in 1972 was about 50 per cent. In 1973, it increased to about two-thirds. In 1974 it is estimated to be about three-quarters. That is still not good enough, but it shows that over the period since FIS was introduced there has been an improvement in take-up.

Currently about 59,000 to 60,000 families are getting FIS, and, with the uprating in the regulations, about 85,000 will be expected to take up the benefit.

With regard to publicity, a national Press and television advertising cam- paign will be carried out when the prescribed amounts go up in July. The total expenditure on the campaign is estimated at £175,000. Information about the scheme will also be given to potential beneficiaries who claim other social security benefits during the year. Leaflets and posters will be distributed to post offices, local authority offices, citizens' advice bureaux and so on.

In addition, where claims were received after October 1975 which failed because the family's income was above the 1975 prescribed amount, those claimants who were rejected will be identified and invited to re-apply for FIS for July if their income at the date of the previous claim was below the prescribed new income levels.

Lastly, the document from the National Council for One-Parent Families, circulated to a number of Members in preparation for the debate, was not sent to my Department, as far as I am aware, or to me as a Minister or Member of Parliament. But, thanks to the good offices of my hon. Friend, I was given a copy of it today. It would be inappropriate and unfair of me to comment on what is obviously a well-thought-outdocument, or to attempt to go into it in great detail at this late stage on the basis of only a few hours' acquaintance with it. The council deserves more than an off-the-cuff and perhaps rather offhand and even slightly inaccurate reply. We shall be considering very carefully the proposition put forward in the document.

My hon. Friend's last point brought an echo of acclamation almost on this side of the House, and I hope it will be supported by the Opposition. It was that the main problem in dealing with family poverty, where people are in work, is that of low wages. It is not basically a problem of tax thresholds or means-tested benefits. If wages could be higher for the lower-paid quintale of the population, we would do more to alleviate family poverty than by any other step that the Government or our society could take.

My hon. Friend said that we should strengthen wages councils. That is not my direct responsibility, but I shall see that his remarks are brought to the attention of my right hon. Friend the Secretary of State for Employment. Suffice it to say that I shall do my best when considering future strategy—and the hon. Member for Rushcliffe was right to say that we need a strategy—to lay down a strategy that will seek to alleviate family poverty.

Such a strategy must not only take account of benefits—means-tested and non-means-tested—and of tax and tax thresholds; it must also take account of low, sometimes poverty, wages paid not merely to one-parent families but to low wage-earners generally, many of whom are in two-parent families with a large number of children. If we adopt that tripartite or three-pronged approach to alleviate family poverty, we shall get somewhere. If we can carry the Opposition with us, we shall have done a good deal.

Question put and agreed to.

Resolved, That the Family Income Supplements (Computation) Regulations 1976, a draft of which was laid before this House on 26th April, be approved.