HC Deb 21 May 1990 vol 173 cc5-6
4. Mr. Corbyn

To ask the Secretary of State for Social Security how many low-paid workers are entitled to claim means-tested benefits and also liable to pay income tax; and what was the number in 1985.

Mr. Newton

Although the information is not available on the basis requested, there are at present about 470,000 benefit units where the head is in full-time employment, pays income tax and receives an income-related benefit. Comparable information is not available for 1985.

Mr. Corbyn

I find that answer extremely surprising, because on 16 March 1990 such an answer was indeed given to my hon. Friend the Member for Islington, South and Finsbury (Mr. Smith), and an analysis done by the Low Pay Unit showed that in the past four years the number of people who fall into the means test trap has risen from 290,000 to more than 400,000. That is because—I hope that the Minister will tell us what plans he has to change this rule—indexing is linked to prices, not earnings, so many more families than before are worse off as a result of the policies adopted by the Department. If the Minister is serious about conquering poverty in this country—I have my doubts whether he is—will he kindly change the indexing formula so that more families will not get caught in the poverty trap as they do now?

Mr. Newton

I think that the hon. Gentleman may agree that the position is rather more complicated than he has acknowledged. He has referred to figures relating to the number of people with marginal deduction rates of 70 per cent. or more. An important part of the reforms that we undertook was dramatically to reduce the numbers subject to marginal deduction rates far higher than that. For example, whereas before the reforms more than 200,000 people were suffering deduction rates of more than 90 per cent., that number has fallen sharply but there has been some corresponding increase lower down.

Mr. Brazier

Does my right hon. Friend agree that since the Conservatives took office we have taken people out of the income tax net because real income tax allowances have increased by 25 per cent. more than inflation, and that the reason why the overlap has increased is that we have also increased benefits available to the low paid? Indeed, the family income supplement, the forerunner of the present family credit, which was designed to assist the low paid was introduced by a Conservative Government.

Mr. Newton

My hon. Friend is right to say that the number of people paying income tax would be far higher but for the changes that the Government have made. He is also right to refer to the changes that we have made which mean that income-related benefits are now calculated on income net of tax and national insurance contributions, which has helped to reduce those high marginal deduction rates and been a significant improvement in the system.