HC Deb 26 January 1999 vol 324 cc149-246

[Relevant documents: The First Report from the Social Security Committee, Tax and Benefits: Implementation of Tax Credits (HC 29) and the Government Response contained in the Second Special Report from the Social Security Committee (HC 176).]

Order for Second Reading read.

Madam Speaker

I inform the House that I have selected the amendment in the name of the Leader of the Opposition.

3.53 pm
The Paymaster General (Dawn Primarolo)

I beg to move, That the Bill be now read a Second time.

I am delighted to be opening the debate on the Second Reading of the Tax Credits Bill. Families are the bedrock of a stable and healthy society, and in a fast-changing economy—with its uncertainties and vulnerabilities—families, now more than ever, need security of support when bringing up children.

The Government are determined to support families by making sure that work pays and by helping people to move from welfare into work. The working families tax credit and the disabled persons tax credit are central elements of our strategy. It is shameful and a condemnation of the major opposition parties that they are not prepared to be on the side of working families, and that their amendments would prevent the assistance that the Bill will provide. Despite all that they say about supporting families, they really want to maintain a system that could be improved only by the introduction of the working families tax credit, which would especially help those who are in work, but on low incomes.

The working families tax credit will provide £4.5 billion a year and support 1.3 million working families. That is a contribution of £17 a week more in the system and it will help families. The hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) should explain why the previous Conservative Government agreed with support for child care and for families. They apparently agreed with ensuring that the poverty trap was eased and that people should be helped into work. It is just that the mechanisms that the previous Government put in place did not deal with that problem. When the hon. Member for Chingford and Woodford Green rises to the Dispatch Box, perhaps he could answer that question.

Mr. Iain Duncan Smith (Chingford and Woodford Green)

Will the hon. Lady, who has to give the explanations, please explain to the House and to the public why, this morning, she indicated that the child care tax credit section was in the Bill, when it is not? Why is it not in the Bill as it is such a cornerstone of the whole policy.

Dawn Primarolo

The Bill provides for the transfer to the Inland Revenue of the family credit unit and, as the hon. Gentleman has rightly pointed out, for the development and explanation of those measures through regulations. As he knows full well—because, presumably, he has read, for example, the House of Commons briefing on the matter—both the assessment of the impact on business, which is to be available for the Committee, and the details of the Bill, which are to be available for the Committee, will enable the detailed discussion that he claims that he requires.

Mr. John Bercow (Buckingham)

Will the hon. Lady give way?

Dawn Primarolo

Hang on a minute.

In opening the debate, I am laying out the major points that will be covered in the Bill, which the Committee will be able to scrutinise. If the hon. Member for Chingford and Woodford Green wanted to pursue that, he could have chosen to speak first from the Dispatch Box today, but he chose not to. I would certainly welcome him on the Committee that considers the Bill in order to pursue those matters.

Mr. Duncan Smith

Will the hon. Lady give way?

Dawn Primarolo

No, I want to make some progress. I have answered the hon. Gentleman's points. He just does not like the answer and the fact that there are responses to the details that he seeks. He is trying to conceal the fact that his party has said that it wants to repeal—if it were fortunate enough to be elected again—the working families tax credit and to take away from working families all the benefits that the Bill provides for. I am not surprised that he is embarrassed, and that he wants to take the debate in another direction and shout at me from a sedentary position.

Mr. Duncan Smith

Will the Minister simply answer the question that she was asked? Nothing in the Bill refers to the child care tax credit. Why is that the case? Why have the Government left it out and how will they bring it in?

Dawn Primarolo

The child care tax credit has not been left out. The Bill gives us powers to introduce it. We are discussing the powers that are being transferred to the Inland Revenue to deliver the tax credit; the regulations provide for that. It has been made clear that the details will be available for the House, including the impact assessment, which has been conducted very thoroughly with business, with which we have co-operated over the past year.

The reason why the Opposition want to pursue that line of argument is because they do not want me to lay out the details. I will make some progress in the hope that I make it clear to Opposition Members exactly what is being proposed in the Bill.

The Bill is targeted at families with children, on low to moderate earnings, for whom the unemployment and poverty traps are particularly severe. It will help to encourage people to move from welfare into work by improving incentives. It will give families with children a guaranteed minimum income of £10,000 a year—£190 a week. That is the message that Opposition Members want to prevent being delivered in the House.

The Bill will remove the obstacle of the lack of affordable child care that affects so many families. As the hon. Member for Chingford and Woodford Green said, in transferring the family credit unit to the Inland Revenue, what is important is that the Revenue is given the powers to remove that obstacle, which is what the Bill provides for. It will also enable those who are disabled to make the transition from welfare into work more easily, and provide a guaranteed minimum income for those who do so.

The working families tax credit is complemented by other key Government policies that will make work pay and help people move from welfare into work. The national minimum wage—

Mr. Bercow

Will the Minister give way?

Dawn Primarolo

No, I want to make some progress. I know that just mentioning the national minimum wage forces the hon. Gentleman to his feet, but I have been asked to explain how the system will work and I am about to do so.

The national minimum wage will ensure greater decency and fairness in the workplace by removing the worst excesses of low pay. From 1 April, all adult workers will earn at least £3.60 an hour, benefiting another 2 million workers, two thirds of them women. Opposition Members oppose that policy. They do not want to help the poor earn more despite the fact that last week they were claiming to be the champions of the poor.

We are increasing child benefit by £2.50 a week from April, in addition to the normal uprating for inflation. When the Conservatives were in government, they did not do that. They did not invest in children or address those issues. At £130 extra a year, it is the biggest ever increase in child benefit.

We are also reforming national insurance to remove the barriers to work for the lower paid. From April, we will cut the burden on all employees—a gain of more than £65 a year. We shall introduce a 10p starting rate of income tax when it is economically right to do so.

There is an increasing polarisation between working and non-working families. The proportion of households with at least one adult of working age out of work has doubled since 1979 when the Conservatives were elected. Those in workless households account for a growing proportion of those living in poverty.

The youngest in our society have often suffered most. A third of all children in Britain live in poverty and half of those live in households with no one in work. That is the Conservative legacy. They failed to address the issue and now try to stop us dealing with it.

The Government believe that the best way to tackle poverty is to help people into jobs. That is good for people and for the economy. Everyone in Britain has talents and potential, and we can all benefit from people being able to use their talents and fulfil their potential.

To help people into jobs, we must improve skills and employability. We must also reform the tax and benefits system that fails to reward work and does not enable people to climb the earnings ladder.

Mr. Bercow

I thank the Minister for giving way and congratulate her on her recent promotion. Why has expenditure on the working families tax credit, which will be approximately £1.5 billion a year greater than the cost of family credit, been taken out of the mainstream Department of Social Security figures and instead listed under the Governments comprehensive spending review, under the heading Accounting and other adjustments?

Dawn Primarolo

The Governments presentation of accounts is hotly pursued for clarity, and the way in which they account for expenditure is clearly set out in recommendations. If the hon. Gentleman looks at the requirements, he will see that the accounting for the working families tax credit follows those recommendations.

Mr. Eric Pickles (Brentwood and Ongar)

Will the Minister give way?

Dawn Primarolo

No. The hon. Gentleman will have the opportunity to speak from the Front Bench later, when I am sure that he will make his points forcefully. I must make some progress.

The unemployment trap means that those in work can earn little more than those out of work. The system fails to recognise the costs of child care. It imposes marginal tax rates on more than 70 per cent. of 750,000 families and it puts a ceiling on the aspirations of men and women wanting to work their way up. The working families tax credit is central to overcoming those obstacles.

The working families tax credit will replace the existing family credit benefit. Under the working families tax credit, those with families who are on low incomes working at least 16 hours a week will be entitled to a basic tax credit, and an additional credit for each child. A credit will also be given for working more than 30 hours a week and, to help with child care costs, there will be a child care tax credit of up to 70 per cent. of a maximum of £105. We have increased the threshold at which the tax credit is withdrawn from £79 to £90. We have cut the taper so that the tax credit will be withdrawn more gradually, easing the transition for those moving from unemployment into work and up the earnings ladder.

The disabled persons tax credit builds on the disability working allowance in the same way as the working families tax credit builds on family credit, and contains a new child care tax credit. These are provided for within the Bill and the detail of the regulations.

Mr. Steve Webb (Northavon)

The Minister has described the new structure. Could she confirm that the 300,000 poorest recipients of family credit who get the maximum amount will not get a penny extra unless they have child care expenditure?

Dawn Primarolo

The hon. Gentleman will know that the change in the taper means that the withdrawal is more gradual, and helps more families claiming the benefit. [Interruption.] Madam Speaker, I am answering the question from the hon. Member for Northavon (Mr. Webb), and it is very difficult with a constant barrage from the Opposition. However, I will do my best.

Madam Speaker

I understand. I am sure that Opposition Front-Bench Members will bide their time until they get to the Dispatch Box. I look forward to hearing what they have to say.

Dawn Primarolo

As the hon. Member for Northavon will know—and as Opposition Front Benchers would know if they listened—the working families tax credit means that as people earn more, they will be able to keep more. That is the whole point of having a work incentive—to encourage people to work.

For many families—especially lone parents—the costs of child care are a major obstacle to work. In the past, that has been recognised by the Conservative party. Apparently, however, the party no longer wishes to recognise that fact. In the past, the problem of cost and access to good quality child care has denied many parents the opportunity to rejoin the work force. Not only has that had an effect on parents confidence in their own abilities, it has denied Britain a major pool of talent and potential.

The previous Government accepted the principle of providing help with child care costs for those who go out to work. The former Secretary of State for Social Security, now the deputy leader of the Conservative party—the right hon. Member for Hitchin and Harpenden (Mr. Lilley)—said in his first Spectator lecture on 30 March 1994 how important it was to reduce the disincentives for people to return to work and how important a child care disregard was in assisting with child care costs.

In his press release announcing the child care disregard, the right hon. Member for Hitchin and Harpenden said: These measures will provide a real incentive to encourage parents to return to the job market. He also said that lone parents, in particular, would also benefit from the maintenance disregard. Unfortunately, the high hopes for that provision never materialised. Yet the Opposition are now saying that they do not support an improved scheme. Having designed a policy that failed, they are not prepared to support a policy that will succeed.

We are determined to ensure that no one is unable to take up work through lack of access to affordable, quality child care, and we are determined to help parents better balance work and family responsibilities. We are introducing a child care tax credit, combined with the national child care strategy. It is designed to make child care support more generous and transparent by providing up to 70 per cent. of the eligible child care costs, up to a maximum of £105 a week for those with two or more children. I am grateful to my hon. Friends, and especially women Members, who have emphasised strongly the importance of child care provision so that women who want to return to paid employment have that route open to them.

Mr. Pickles

I, too, congratulate the hon. Lady on her new post.

Why is it necessary for the Inland Revenue to make the payment, rather than paying it directly through the Department of Social Security?

Dawn Primarolo

That is the point of the Bill. It is an in-work incentive, designed to encourage people to return to work, to remove the stigma associated with the current system and to ensure that we can provide a tax credit. I thought that that was clear to the hon. Gentleman.

Mr. Geraint Davies (Croydon, Central)

Do not the two most recent interventions clearly illustrate the fact that the Opposition cannot distinguish between a tax credit, investing in opportunity and work, and a social security benefit, which is about investing in the dependency culture of failure that we inherited? That is why they are in opposition and not in government.

Dawn Primarolo

Conservative Members do not like to discuss whether they failed to provide in-work incentives, the consequences of their failure to help those in paid work on very low incomes, or their failure to tackle the poverty trap or the unemployment trap. I am not surprised that they do not want to discuss the child care tax credit, because they know that it has been widely welcomed by child care groups and womens organisations. It is an example of how the Government are not only talking about helping children, but delivering help where it matters.

The working families tax credit supports families on low incomes and provides them with a real incentive to work. Working families in full-time work will have a guaranteed income of at least £190 a week, and no family with a wage packet of less than £220 a week will pay any net income tax. That is the highest effective starting point for income tax in 30 years.

The working families tax credit will cut by two thirds the number of families facing marginal tax rates of more than 70 per cent., and it will remove the last grotesque inheritance in this field from the previous Government—instances in which 100 per cent. effective tax rates were imposed on the very worst-off in our communities. The new system will encourage families to try to earn more, as they will get to keep more of what they earn. That is a crucial element in encouraging people into working.

The working families tax credit will retain an additional tax credit for people working more than 30 hours a week, which will encourage those who are employed to move from part-time to full-time work and so move up the employment ladder.

The disabled persons tax credit will help people who have an illness or a disability to find or keep a job. It is more generous than the existing disability working allowance, to ensure that people are better off moving from benefit to work.

Our aim is to create a real incentive to work, and to provide genuine encouragement to move from welfare to work. To reinforce that, we are reforming the system to provide extra help and support through the tax system. The Bill will also remove the stigma of claiming benefits.

I note, for those keen listeners of The Archers, that the scriptwriters recently recognised the problem of stigma. Only last week, apparently, Joe Grundy did not want Clarrie, his daughter-in-law, to fill in her application form for family credit because he did not want the stigma of claiming benefits. Even the scriptwriters on that programme recognise the stigma that is attached to the present benefit, although I am not sure that Conservative Members do.

Miss Julie Kirkbride (Bromsgrove)

Will the hon. Lady give way?

Dawn Primarolo

Not at the moment.

The tax credit will be administered by the working families tax credit unit in the Inland Revenue, which has been working hard with other Government Departments and interested bodies outside, to ensure that the new system is up and running by October 1999.

From April 2000, the tax credits will be paid to employees through the pay packet or directly to the self-employed by the Inland Revenue. The tax credit is also flexible because it provides couples with a choice about who claims and receives it, which means that each family will be able to decide how the tax credit is paid to suit best their individual circumstances.

Miss Kirkbride

Will the hon. Lady explain why she believes that greater stigma is attached to claiming a benefit, which is essentially anonymous because the cheque comes through the post and no one knows about it except for an anonymous person who works for the Benefits Agency? Under her new system, employers will know the precise circumstances of their employees. Conservative Members argue that greater stigma attaches to the employer knowing the personal circumstances of the individual than the anonymous Benefits Agency. Will she respond to that point?

Dawn Primarolo

The hon. Lady knows full well the arguments about family credit and the stigma that many people attach to applying for it. She is wrong in her assertion that the employer will know all the details of an employee. That will not be the case. The employer will simply be directed to pay a specific amount to the employee. Therefore, there is no way that he or she will know the details of an individuals circumstances, or be able to find them out. Clairvoyance may be a talent of some employers, but not all. The information will not be disclosed to them.

The Conservative party has made clear its opposition to WFTC and DPTC. The shadow Secretary of State for Social Security told the House that the Conservatives would cut the working families tax credit, thereby decreasing the budget dramatically. They should explain why they are prepared to take away an extra £ 1.5 billion from the poorest working families. I think that the hon. Member for Brentwood and Ongar (Mr. Pickles) wanted me to give way to him before I sat down. Does he wish to intervene?

Mr. Pickles

indicated dissent.

Dawn Primarolo

Earlier, the hon. Gentleman asked whether he could intervene, but he does not have to do so.

Mr. Pickles

Perhaps because of the excitement of the occasion, the hon. Lady does not realise that she has already given way to me. This morning on the Today programme, she was keen to say that no extra money was involved in the working families tax credit and yet it has been conclusively demonstrated that an extra £1.5 billion will be involved. Will she take this opportunity to withdraw her misleading statement on that programme?

Dawn Primarolo

My interview was not that early in the morning, so I am surprised that the hon. Gentleman was not as awake as he might have been. If he checks the record—Conservative Members seem to be informing me that they have—he will see that there is no inconsistency in what I said.

The Oppositions amendment contains some fundamental errors and misunderstandings about the Bill. They claim that it would penalise women, when it would not do so as it would give them a choice. I remind the House that 50 per cent. of family credit claimants are single families headed by women, who will still receive the payment direct. I note that the hon. Member for West Aberdeenshire and Kincardine (Sir R. Smith) is laughing.

Another group of women are the primary wage earners for the family. In families where both parents are wage earners, they will be able to choose who receives the credit. The self-employed are another group who must be considered. The Opposition are trying to say that the measure will discriminate against women, or families, and that they will be worse off. That is simply not true.

The Opposition claim that there will be extra burdens, especially cash-flow problems, on business. That is also being dealt with in discussions with companies to ensure that there is no cash-flow problem and that companies are supported. Companies will be required to deduct the working families tax credit payments that they have made from the pay-as-you-earn and national insurance payments that they have collected, and pay the difference to the Inland Revenue. Where employers do not have enough money to meet the full obligation, they can apply for a grant that will be paid by the Inland Revenue to ensure that there is no loss to companies in making the payment.

Mr. Archy Kirkwood (Roxburgh and Berwickshire)

The Minister cannot deny that she is constructing an elaborate edifice of administrative change. I listened carefully to her analysis and have no difficulty with her aspirations, which are logical. Most people would agree that it is right to try to get people off benefit and into work. I want some idea of what targets the Government have set for the measures success. Does she have any operational research that suggests how many people will be persuaded to take this route from benefit into work?

Dawn Primarolo

The Government expect that 400,000 more people will want to claim the working families tax credit in the period when we move from family credit to the fully operational new system. Take-up is clearly linked to eligibility and information. That was to have been my next point; we are talking about supporting another 400,000 families. The guaranteed minimum income for working families of £10,000 a year is crucial to that.

The case is clear. The Bill makes economic sense, provides support for families, gives families incentives to work, eases the taper in helping people move from welfare into work, gives them certainty, and provides for a child care credit. That means that we have put in place the support that is necessary for families hitherto prohibited from moving back into paid employment.

The Opposition, in their amendments, simply want to return to a system that has failed and to deny families the support that they would otherwise get. They do not acknowledge the failure of the child care credit within the family credit system, or recognise that the working families tax credit system is better and that more families will be assisted. I urge my hon. Friends to support the Government, vote for Second Reading and support us in Committee, where the full details can be clearly spelt out.

4.23 pm
Mr. Eric Pickles (Brentwood and Ongar)

I beg to move, To leave out from That to the end of the Question, and to add instead thereof:

this House declines to give a Second Reading to the Tax Credits Bill because it will increase the costs of social security when the Prime Minister has pledged to cut those costs; and it will increase benefit dependency, stigma, fraud and business costs, whilst undermining family structures. There is some consensus on this matter in the Chamber. We share the Governments aspirations and want such measures to succeed, but we doubt whether the Bill will work. It proposes to remove a highly successful benefit, understood and trusted by the British people, and replace it with a tax credit that will increase dependency, stigmatise low-income families and place a heavy burden on small businesses. On the Governments own figures, the measure will add £1.5 billion on top of family credit. It breaks the Prime Ministers pledge to cut the growth in the social security budget. It is a dangerous Bill that will do great harm to the support of working families on low incomes.

Mr. Geraint Davies

May we have a clear commitment tonight that in their manifesto for the next election the Conservatives will pledge to repeal the working families tax credit? Yes or no?

Mr. Pickles

The hon. Gentleman, who I am sure is a very nice person, has been sadly let down by that appalling daily note sent out by the Labour party. It included an incomplete quote. Of course we do not want to see this measure brought in—we prefer family credit—but we recognise too that once we take control there will be people banging on the doors demanding a change from this lousy system. They will want us to address the problems.

Yvette Cooper (Pontefract and Castleford)

Is the hon. Gentleman now committed to supporting the additional £1.5 billion of spending that will go into the working families tax credit, which his colleague on the Front Bench, the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith), said that he wanted to cut?

Mr. Pickles

Again, the hon. Lady has been let down by her Whips. We are saying clearly that when we take control we will have to build on what the Government have done and improve on it. We have made it clear that we will pursue the matter of the extra £1.5 billion. The Government will have their way in Committee and we will have to deal with the problems that they create. Then the hon. Lady will probably be urging us to deal with the problems.

Dawn Primarolo

I am grateful to the hon. Gentleman for giving way so that I can be clear about what he is saying. Is he saying that when the Government introduce these measures and they are a success, his party will not repeal them if it is ever re-elected? Is he contradicting what the hon. Member for Chingford and Woodford Green has previously said?

Mr. Pickles

We are saying that when we return to power there will be a groundswell of opinion among the public—people receiving the tax credit and people who have to administer it. They will say, We want this changed. We will respond because we are that kind of party. I do not know why the hon. Lady is getting so excited.

The Financial Secretary to the Treasury (Mrs. Barbara Roche)

The hon. Gentleman has been extremely generous in giving way. I am anxious to follow his argument. I understand his argument thus: should his party have the great good fortune to return to power, there will be a groundswell of opinion among the British public, who will say, We now do not want this extra £17 a week. Please take it away, and the Conservative party will do so. Is that what he is saying?

Mr. Pickles

It is acceptable for Back Benchers to be misled by the Whips, but the Minister should know better. She knows that a considerable amount of that money will be taken up by the cost of administering this very difficult and expensive system. Now, to use a time-honoured phrase, I must make some progress.

This Bill, perhaps more than any other that I have debated in the House, is dependent on secondary legislation. It is a skeletal Bill that Ministers will fill out at their leisure. We know that an entire tax credit is missing. The child care tax credit is something that the House of Commons Library describes as an integral part of the working families tax credit and the disabled persons tax credit. It is so integral that the Paymaster General spent considerable time on the Today programme saying how important it was. In an exclusive interview with the Daily Mirror, she spent a lot of time explaining how important child care credit was. Yet there are more column inches devoted to child care tax credit in her exclusive in the Daily Mirror than in the Bill. That is not hard, because there are no column inches devoted to child care tax credit in the Bill.

As the House tramples the boards of this Marie Celeste of a Bill, we will have to have important details filled in later. There is a frightening preponderance of Henry VIII clauses in the Bill. As the song goes, Every one was an Tnery. It is ironic that the Government, who boast so often that they are the great modernising Government, should now have as an unsung hero a Tudor monarch.

These concerns are shared by hon. Members on both sides of the House. In a recent report on tax and benefits, the Select Committee on Social Security expresses concern about the parliamentary scrutiny of skeleton Bills, saying that producing such Bills makes Parliamentary scrutiny at that stage very difficult. The detailed rules are contained in statutory instruments made later, although at that point there is no practical opportunity for Parliament to comment substantively, or to amend. When we consider statutory instruments, usually in Committee, our scrutiny is carried out on the basis of take it or leave it. We cannot amend or improve; we can only reject or approve. The Government are reluctant to withdraw measures, even when the arguments made in Committee are overwhelming. We are left a couple of weeks later with a polite note from Ministers saying that such and such a clause had an unforeseen, undesirable consequence and that they will amend it in a statutory instrument, to be tabled in due course. Such a solution is not satisfactory and makes bad use of parliamentary time.

In its report, the Social Security Committee recommended that there should be a new category of statutory instrument: a super-affirmative instrument, whose complexity and political importance warranted detailed investigation. If ever a Bill deserved to be dealt with on a super-affirmative basis, it is the one before us now. Matters as complex as the WFTC and the DPTC need full and effective scrutiny by Parliament; when the further complexity of the child care tax credit is added, that need is undeniable.

There are many questions about how the child care tax credit would work that require answers. The House needs to know whether it will penalise mothers who look after their own children, yet make it an advantage to look after other peoples children. We need to know whether the House of Commons Library research paper is right to assert:

The increased generosity of the tax will potentially create a situation in which parents will have a clear financial incentive to obtain registered child care rather than rely on informal networks, such as friends and relatives. There are practical problems relating to who will qualify under the eligible child care criteria. There are three contradictory views. The Chancellor, in a report in the Financial Times last year, stated that the Credit would only be available for registered and highly qualified child minding and child care. However, section 71 of the Children Act 1989 states that a person who is a parent, relative, or foster parent of a child, or who has parental responsibility for a child is ineligible to be a child minder in respect of that child for the purposes of that Act.

Finally, we have the view of the assistant director of the personal tax division of the Inland Revenue, who gave evidence to the Select Committee. In response to a question asked by my hon. Friend the Member for Bromsgrove (Miss Kirkbride) about whether or not a mother could register as a child minder, he said: There is nothing to stop anyone, if they can meet the conditions, and it is not for us to make a judgment on that, if they passed the conditions in previous years. If that interpretation is correct, the £4 billion estimate of the cost of the child care tax credit produced by the Institute for Fiscal Studies is correct. Perhaps that is the real reason why the CCTC has been left out of the Bill.

Do the Government now intend to regulate and codify child minding? Will becoming a child minder in itself qualify a person for the working families tax credit? Those are decisions that should be taken by the House. From what we can glean from the Bill, the proposals penalise mothers who look after their own children and two-parent families. The House has a right and a duty to decide on that issue and to amend and fine-tune the Governments proposals, and not to be left with a take-it-or-leave-it dismissal.

Ms Sally Keeble (Northampton, North)

Does the hon. Gentleman accept that he has taken small pieces of a complex piece of legislation and juxtaposed them so as to make them look like a jumble, when it is perfectly clear that the proposals will provide flexibility of choice for working mothers and enable them to obtain appropriate and high-quality child care for their children?

Mr. Pickles

The hon. Lady has missed the point. We should make decisions about that complexity. The House should have a view. Those arrangements should not be made by secondary legislation. My point is that the House will not be able to take a view because there is no mention of child care in the Bill.

Ms Keeble

Will the hon. Gentleman give way?

Mr. Pickles

No, I have been generous and I now want to make progress.

The Bill is vague, and not only about child care tax credit. We know that the Royal Association for Disability and Rehabilitation and other disability groups have expressed concern that people who receive the disabled persons tax credit will not automatically be entitled to free prescriptions, as they are with the disabled working allowance. The Minister will be aware that at a recent meeting with the Treasury and RADAR, the Government offered no guarantees about free prescriptions. Concern is also expressed about benefits currently available with DWA, including housing benefit and help from social services for children and young people in need.

Moving from family support to a tax credit is not an original idea of the new Labour Government. In the mid-1980s, the Conservative Government considered such a move and rejected it. I have no doubt that many hon. Members have a dog-eared copy of The View from Number 11: Memoirs of a Tory Radical by the former Chancellor, now Lord Lawson. For those who cannot abide the thought of taking that much-loved document out of the safety of their own library, his views on tax credits are reproduced in the House of Commons research paper 99/3.

The former Chancellor said that there was an overwhelming practical case for keeping the two systems apart. He argued that they are different in that one considers an individuals income and the other considers the income and capital of the individual and the family. I am sure that that is why he withdrew the proposals, but there may have been other reasons.

There was a great deal of opposition from another place and, more importantly, a near revolt by the national womens organisations in the Conservative party. At that time, I was a member of the national executive committee of the National Union of Conservative Associations. I have a vivid recollection of the heated debates on those proposals. The Conservative womens organisations made a positive case for continuing to ensure that income to support the family was paid to the wife, in much the same way as child benefit is paid to the mother. That is a classic case of the argument between the wallet and the purse.

Those arguments were eloquently put by the hon. Member for Regents Park and Kensington, North (Ms Buck), who said that in most households, sole responsibility for meeting childrens needs is the womens domain; women are more likely than men to spend the income they receive directly on the family; and income in some households is unequally distributed which disadvantages women. I have no idea whether the hon. Lady was, in a past life, a member of the Conservative womens organisation, but she describes the dilemma of the transfer of money from the purse to the wallet.

Mr. Peter L. Pike (Burnley)

When considering these proposals, it is important to remember that we are discussing not only replacing family credit with a working family tax credit, which I am sure will be better for the low-paid people in a constituency such as mine, but an accompanying, important proposal to provide an increase in child benefit of £2.50—well above inflation—which will be paid directly to the mother. My hon. Friend the Paymaster General referred to that in her opening speech.

Mr. Pickles

The hon. Gentleman has been misled by the Minister, because the proposals go much further and will mean that families earning as much as £38,000 will benefit.

Mr. Chris Pond (Gravesham)

Is the hon. Gentleman aware that a family earning £38,000 would need to have five children to qualify? Will he tell the House how many people would fit into that category?

Mr. Pickles

The hon. Gentleman's argument is inconsistent with that of his colleagues on the Front Bench, who have been bellowing, from a sedentary position, So are you against that, then?

The Henry VIII clauses might be better described as The Archers clauses—or, more specifically, the Clarrie Grundy clauses. The Paymaster General referred in passing to The Archers, but I think that she entirely misunderstood the Grundy familys problems. As regular listeners to Radio 4s serial about the everyday life of country folk know, the Grundys have fallen on hard times. The money-making schemes of husband Eddie and father-in-law Joe have come to nought: to get extra income, wife Clarrie has applied for family credit by obtaining a form from the local post office.

Under the Governments proposals, the money will not automatically be put into Clarries hands: it could arrive in her pay packet, or by way of her husbands. The latter possibility illustrates the problem described by the hon. Member for Regents Park and Kensington, North. Hon. Members will recall that, in recent episodes, Clarrie has been cheated out of a world cup ticket, council tax money has been misappropriated to meet the familys tax bill, and part of the £25 owed to Caroline Bone over a cushion cover has been used to buy two meat pies.

Jacqui Smith (Redditch)

Will the hon. Gentleman give way?

Mr. Pickles

No, I have been far too generous already.

I am confident that, if Clarrie gets family credit, she will use the benefit money for her boys. If Eddie or Joe gets hold of the money, I am equally confident that they will either spend it on madcap schemes or behind the bar of The Bull.

However, not all households are composed of lovable rogues. The Government must recognise that the more they use working families tax credit to shift income from the purse to the wallet, the smaller will be the amount spent on children.

Ms Keeble

Will the hon. Gentleman give way?

Mr. Pickles

I have been more than generous and have given way more than the Paymaster General did. I intend to make some progress, but if the hon. Lady is patient, I may give way to her later.

The Select Committee proposes that the default payment be made to the mother. The Government, I understand, are less enthusiastic.

Mr. Alan Johnson (Hull, West and Hessle)

Is that the end of The Archers?

Mr. Pickles

The hon. Gentleman will be pleased to know that I shall return to The Archers in due course. The programme is a very good plough to push: I shall come back to it again and again.

As I said, the Select Committee wants the default payment to be made directly to the mother. The Government are less enthusiastic, but are in favour of a choice on the form. We want that choice to be included clearly in the Bill.

One question must be resolved. If there is a conflict in the household, who will receive the payment? Should it go into the purse or into the wallet? Who will decide? Will the first result of the Governments much vaunted family policy be that it sets husband against wife?

Family credit is a remarkably successful benefit. It has a take-up rate of 72 per cent., and that rate rises to 85 per cent. when calculated by expenditure. No other benefit is so successful. According to the Joseph Rowntree Foundation, there is virtually no stigma attached to claiming family credit. The foundation is hardly a right-wing organisation, but it has stated that family credit is often seen as a form of supplementary child benefit. By contrast, the Institute for Fiscal Studies—which has no axe to grind—has observed: As employers and the potential work colleagues would observe the WFTC, it might increase the stigma associated with receiving transfer payments and so decrease take-up. Discouraging families from taking up the benefit is surely not what the Government intend.

Let us return to The Archers. We have examined the case for having the money go to Eddie Grundy, but let us suppose that it went to Clarries pay packet at Bridge farm. That might of course put strain on Pat Archer, but Pat is a benign employer. If, however, the employer was Brian Aldridge, the cold-hearted capitalist, he would be able to know at a glance exactly what Clarries income was, and to adjust her salary to take into consideration the money she would get from working families tax credit.

Jacqui Smith

I thank the hon. Gentleman for giving way to me, because I claimed in my maiden speech to be the Member for Ambridge. Does he accept that when the Government are successful in bringing in the working families tax credit, the Grundys will be better off on average by £17 a week? In addition, as he has said, Clarrie will have the option of receiving the credit herself because she works, meaning that the Grundys are a pair of workers, the group who, as my hon. Friend the Paymaster General said, represent a significant proportion of people on family credit.

However, in addition to all that, does the hon. Gentleman accept that for the first time Clarrie will be able to receive support for child care for her two boys? Will the hon. Gentleman tell the Grundys and other such families that the Conservative party would not support that change, and that he would repeal that type of support?

Mr. Pickles

I was beginning to think of asking the hon. Lady to give way to me. I have a feeling that the hon. Lady, who claims to be the Member for Ambridge, will not believe what I say, and has no confidence in me. Let me give her the views of someone to whom she would listen: the President of the Council and Leader of the House of Commons, the right hon. Member for Derby, South (Mrs. Beckett), warned a Standing Committee on 18 March 1986—

Jacqui Smith

In 1986?

Mr. Pickles

The hon. Lady must pay attention to the good advice of her right hon. Friend. The Leader of the House then said: Unfortunately, there are instances in which employers deliberately manipulate the system and withhold benefits to which employees are entitled … For the Government to propose putting the weight of payments that are an important part of family income on to a system which gives employers that freedom it is a substantial risk.—[0fficial Report, Standing Committee B, 18 March 1986; c. 943.] I agree with that.

Lorna Fitzsimons (Rochdale)

Will the hon. Gentleman give way?

Mr. Pickles

No, I am afraid the hon. Lady has not caught my eye.

Businesses will intrude into personal and family financial circumstances, to the detriment of privacy. The change will also place on business the heavy financial burden of administering the system. Large firms may have a payroll and personnel section, but the majority of people are employed by small firms that do not have such a facility. The owners of small firms will have to fill in the paperwork on the kitchen table after a hard days work.

The Institute of Directors has commented that that could discourage companies from taking on low skilled or semiskilled employees. When, in 1986, the current President of the Council and Leader of the House of Commons considered the problems of using employers to deliver family credit through the wage packet, she said: It will be impossible for the DHSS to make the scheme work without the co-operation of employers and if employers, both large and small, are expressing their considerable anxiety, the Department will be running its neck into a noose.—[Official Report, Standing Committee B, 18 March 1986; c. 942.] New Government, new neck, new Labour, same noose.

We must remember that the credit was not originally intended to be delivered in the way that is now intended. As recently as 16 June 1998, Mr. Martin Taylor, the author of many of the Governments proposals, told the Select Committee on the Treasury: I think that it would be better from the employers point of view that the thing should run through the tax code which would allow the present cumulative principle to apply. The Select Committee heard that officials had devised an N code to run a series of examples in which every case created distortion after some time.

So business must pick up the Governments ambition. The result: a heavy burden of administration and a reduction in job opportunities. For all the Governments intentions to the contrary, if a small firm is faced with two applicants, one in receipt of WFTC and one not, it will plump for the one who is free from burden. How sadly ironic it is that the very measure meant to get people out of dependency will push them further into it.

Lorna Fitzsimons

Will the hon. Gentleman give way?

Mr. Pickles


Experience from abroad shows that a system on which the working families tax credit is based has been more open to widespread abuse and has produced an increase in fraud. Canada introduced a similar scheme a few years ago, but is moving back to a benefits-based system. WFTC will offer huge bonuses for dishonesty and has the potential to pull employees into a web of dishonesty and corruption.

It seems that the lessons of Canada have not been learnt. In fact, they have not even been considered. We know that, because the Governments expert, Mr. Martin Taylor, told us so. In evidence to the Select Committee, Mr. Taylor said:

Canada is one of the few countries whose system I have not studied carefully. In the United States of America, a similar tax credit, the earned income tax credit, was introduced, with the result that the Internal Revenue Service received claims of $4.4 billion more than the refunds that people were entitled to receive. To paraphrase the right hon. Member for Birkenhead (Mr. Field), the working families tax credit is fraught with great dangers. It offers high bonuses for dishonesty, strengthens the employers hold over people, pulls employers into a web of corruption and rewards employers paying low wages. I see that the right hon. Gentleman is in his place. I shall not develop his case further because he may want to catch your eye during the debate, Mr. Deputy Speaker.

It is worth looking at how social security and housing benefit fraud occurs. I had an opportunity a few weeks ago to talk to social security and housing benefit fraud investigation officers. I asked them about the kind of person who commits fraud. It was their view that there were people who went about defrauding the system cleverly and maliciously. It was their experience that some people would create separate identities and make multiple claims. But it was also their view that the vast majority of people simply drifted into fraud because the system allowed them to do so. They then found it impossible to crawl their way out, and ended up having to lie to cover up previous lies, thereby reinforcing the deceit.

This House has a duty to ensure that we do not set up a system that makes it easier for people to drift into deceit. A fundamental characteristic of the WFTC is that fraud is more likely.

Dawn Primarolo

Will the hon. Gentleman give way?

Mr. Pickles


Throughout this speech, I have repeatedly referred to the Grundys. They have one distinct advantage. They are fictitious; they are played by professional and highly skilled actors. Thousands of families up and down the land are in similar circumstances, but will be made materially worse off by the Bill. [Interruption.] Their personal and financial circumstances will be broadcast to their work mates. They will be seen as a burden by their employers—[Interruption.]

Mr. Deputy Speaker

Order. The hon. Member for Rochdale (Lorna Fitzsimons) cannot keep shouting across the Chamber.

Mr. Pickles

I am grateful for your protection, Mr. Deputy Speaker, although I hardly noticed the hon. Lady.

A measure designed to fight low wages and poverty will play a significant role in forcing people into further dependency. This Bill avoids addressing harsh realities. This Bill is without explanation; this Bill is without answers. Ultimately, this Bill will betray precisely the people whom it seeks to help.

4.54 pm
Mr. Frank Field (Birkenhead)

I start by declaring a non-interest. I do not listen to The Archers. I know little about its characters, and I feel, after listening to the speech by the hon. Member for Brentwood and Ongar (Mr. Pickles), that that puts me at a severe disadvantage in debating the Second Reading of the Bill.

I congratulate my hon. Friend the Member for Bristol, South (Dawn Primarolo) on her promotion to the position of Paymaster General, and on the way in which she opened the debate. I thank her for the courtesy that she showed by meeting me to talk about the Bill. If her arguments did not fully persuade me, it was not because they were not applied effectively. I apologise for the fact that she has heard some of what I shall say this afternoon.

I wish to underscore what my hon. Friend the Paymaster General said when she said that the Bill needed to be seen as part of a total package that the Government are putting forward to try to re-emphasise the importance of work in our society. For we are not, as a Government, merely thinking about a working families tax credit; we are thinking of that together with a series of measures designed to ensure that, when people are available to work, they can work and are better off.

I have always supported the Chancellor of the Exchequer in his aim of reducing the starting rate of tax to 10p. I know that there are clever people in this world who say, You can spend the money more effectively on raising allowances and so on; that would be a far better way of helping people who are poor—but in 20 years of representing the constituents of Birkenhead, I have never met anyone who said that changes in tax allowances had played a part in convincing them to work. Constituents have constantly talked about what their rate of tax will be if they can work, or if they can work harder. The aim of reducing the starting rate of tax is therefore another part of the Governments strategy to try to ensure that people can move safely from benefit to work and be better off.

Similarly, the Government have a major programme in developing still further their welfare-to-work initiatives. That is part of ensuring that people make the transition from benefit to work. It is also important to emphasise that what the Secretary of State for Education is doing, in emphasising the Governments commitment to raise standards in school, is part of our welfare-to-work programme. For the first time, it will be our aim that every child leaves school able to read and write. Some people listening in to the debate will say, What an extraordinary country it is that has to adopt that objective. Well, that is the world that we now live in, and which we want to change. That objective will have the important effect of shifting our society from a culture of over-dependence, in the sense that people have drawn benefit when that is unnecessary, to one that rightly emphasises the key place that work can, and should, play in most of our lives—at least for part of the time.

The Bill must be viewed alongside all those other measures. Its essential aim is to ensure that, when people do work, they will be better off than they are on benefit.

I emphasise that I am speaking in general support of this measure, but I—like you, Mr. Deputy Speaker—have been in the House for some time, and those of us who have been in the House for some time realise that the debate has almost come full circle. I was here when the present official Opposition were in government and introduced family credit. I rose from the Opposition Benches to express critical support for that measure, although the official line was one of condemnation, emphasising instead the importance of Scrooge employers and of taxpayers subsidising low-pay employers.

On balance, I did not agree with that line. I thought that there was significant advantage in a new scheme that would help people who were working, but I did not think that my colleagues in opposition at the time were entirely wrong to emphasise the dangers. I am glad to be speaking now from the Government Benches and I merely register the worries expressed by us in opposition. I did not think that they carried the debate then, and I do not think that they carry it now.

My two main worries about the Bill are, first, that some women might become more vulnerable as a result of the measure than they would otherwise be, and secondly, that there is a danger of fraud. It was entirely proper and understandable that, when they heard about the Governments new initiative, a large number of hon. Members on both sides of the House were concerned about who would receive the benefit. I suggest that although we should not dismiss that concern, it is no longer the main concern.

In opening our discussion today, my hon. Friend was right to emphasise that in many senses the Bill is a measure to help single parents and to ensure that they can successfully move from benefit to work, where they consider that desirable. However, many single parents in work are particularly vulnerable, given the nature of their employment and some of the employers they come up against.

In my surgery I have met single mothers who, because they have got on the wrong side of the employer or because the employer has tried to take advantage of them, sometimes sexually, have left their employment, and rightly so. Under the present system of family credit, they have done so knowing that their payments of family credit, often worth twice their wage packet, are safe in the post office or will be delivered to their bank account.

My worry about the proposed system is that it will strengthen the position of employers who abuse their positions. Not only will they behave badly about whether wages are to be paid, but they will have control over the immediate payment of the new working families tax credit.

I raised that point with my hon. Friend this morning, and I was much impressed by her determination to ensure that we have a system that can respond quickly and sensitively to mothers—and possibly the odd father—who find themselves in that position. I should add as a rider that I now know that there is all the difference between a Minister wanting something to happen and being committed to it, and what actually happens at grassroots level.

Dawn Primarolo

I am grateful to my right hon. Friend for giving way. This is an important point, which should be made clear to the House. In circumstances in which an employer did not pay or interrupted the payment of the tax credit, action would be taken. I explained to my right hon. Friend that a code of practice is currently being developed with the employers, and that there will be penalties against employers if they try such things.

More important, if the parent—the young woman in the scenario that my right hon. Friend described—tells the Inland Revenue what is happening, the Inland Revenue will move to ensure that she continues to receive her money, and will deal with the employer separately.

Mr. Field

I am extremely grateful to my hon. Friend for putting on the record what she kindly said to me this morning. All hon. Members will want the measure to operate as she describes, and when we have details of it, hon. Members will use their best intentions to make that machinery as effective as possible

I merely register the fact that I have been here too long not to know that we can express wishes in the Chamber, implement reforms and then find that they do not work out quite as we wanted them to. When they were in government, the Conservatives would make changes in housing benefit, everything would seem to be hunky-dory, and then they would come up against their constituents and all hell would break loose. I know that my hon. Friend is aware of the issues, especially given her past interests. She would, however, be aware of them in any event. We must watch the position very carefully.

There is concern about fraud. The hon. Member for Brentwood and Ongar kindly quoted what I had already said about that aspect of working families tax credit. I wish neither to withdraw nor to repeat my observations, but I am happy to agree that the hon. Gentleman reported me correctly.

Again, this is a question of power—power in the workplace. We sometimes encounter a bit of that when we come up for reselection, but generally we are in a privileged position. We are not, thank goodness, in the position of some of our constituents in the real world, who must sometimes deal with not very pleasant employers. It is clear from the work undertaken by fraud officers in the DSS on family credit that some employers want to strike a bargain with their employees, encouraging them to submit false returns in regard to their wages so that they can claim the maximum, which the employers then top up with cash in hand.

My hon. Friend mentioned steps that the Inland Revenue would take to counter the problem. I welcome those steps, but I should add that it is one thing to discuss such matters in a detached, almost clinical way in the Chamber, and another to know how the real world works, and to appreciate the pressure that some employers will put on decent people to connive at fraud. Certain people, of course, do not require any pressure.

This measure is based on experience in America, where fraud is generally accepted to account for about 15 per cent. of the American equivalent of working families tax credit. If the same happens here, we will face a fraud bill of £750 million. In Committee, we shall need to consider carefully how much more effectively the Treasury will protect taxpayers money than the DSS—sadly—has in the past.

I have serious reservations, but the Bill is part of the Governments overall strategy to move from what has been, for too many people, a welfare culture providing few chances, to a culture that offers real opportunities in the place of work. It would be entirely wrong for us to see the Bill in isolation from the introduction of a national minimum wage, and from the tax changes that the Chancellor has made and wishes to make in the future. It would also be wrong for us to see it in isolation from the Governments important welfare-to-work initiative, which they will develop further. I am happy to give qualified approval to the Bills Second Reading.

5.9 pm

Mr. Steve Webb (Northavon)

It is a pleasure to follow the characteristically measured and constructive criticism expressed by the right hon. Member for Birkenhead (Mr. Field).

Let me explain at the outset the distinction between the Liberal Democrat and Conservative approaches. Both parties will vote against the Second Reading, but for rather different reasons. The Conservatives reasoned amendment says that one of the reasons why the official Opposition will vote against the Bill is the fact that it will increase the social security budget.

We welcome the additional £1.5 billion incorporated in the Bill, but that money could have been better spent. I was therefore disappointed when the Paymaster General chose to misrepresent our position, saying that we were opposed to supporting the low paid. On the contrary, we would spend that money more efficiently and in a more targeted way, and give extra help to the low paid.

All the desirable features of the tax credits scheme could have been introduced through reforms to family credit under the existing benefits system. The Bills unique, distinctive feature—indeed, almost the only thing in it—is that tax credits will be paid through the pay packet. That is also its fundamental flaw. There are four or five substantive reasons why payment through the pay packet is a mistake, most of all—and first of all—the effect on women.

On the radio this morning, the Paymaster General tried to present the measure as pro-women—I would argue that it could be anti-women. This morning, the Paymaster General briefed the press about the recipients of family credit; she knew that we would make a powerful case this afternoon and got her spin in first. She said that half the people on family credit are lone parents, so the purse-to-wallet issue is irrelevant. We agree. She also said that, of the remainder, up to 25 per cent. are couples in which the woman is the principal breadwinner, so if the tax credit goes through the pay packet the purse-to-wallet argument is irrelevant. We agree.

I am concerned about the 300,000 couples receiving family credit where the man is the principal breadwinner. I asked the Library to work out how much family credit is paid to the women in those households. The figure is £900 million. The Government can have it one of two ways: either the money will predominantly be paid through the pay packet or it will not. If not, all this guff about the beneficial effects of paying it through the pay packet goes out of the window, because for lone parents it does not matter and the self-employed and women breadwinners are irrelevant. In respect of couples where the man is the principal breadwinner the response is, It will go to the woman anyway.

If the money is paid through the pay packet—as the Government want, and as they have set up a huge bureaucracy to achieve—women will have to negotiate with their partners to get back the £900 million that they currently receive.

Ms Keeble

Perhaps because there are not many women on the Liberal Democrat Benches, the hon. Gentleman has not been involved in the kind of discussion that Labour Members have had. Does he not accept—[Interruption.] This is a perfectly fair point. Does he not accept that the child care tax credit—which will pay for child care, either on invoices or receipts, and will go straight to the person giving the care—will make it possible for women, for the first time, to go out to work knowing that they can have quality, flexible child care? That will be greatly beneficial for women and is what makes the measure positive for women.

Mr. Webb

The hon. Lady points out the beneficial effects of subsidising child care. I would argue that there is a more effective way of achieving that, rather than having a child care tax credit that reaches beyond those on £30,000 a year. I accept what the hon. Member for Gravesham (Mr. Pond) said about £38,000 being an extreme figure, that five kids meant £150 a week and all the rest of it. Even so, stretching the figure to £30,000 a year is hardly targeting the low paid. That is not a sensible way to spend public money.

We should use the same money—not extra money—on cash subsidies for families with younger children and allow parents to choose whether they want to pay someone to look after their children or whether they want to do it themselves. The Government are obsessed with paying people to look after other peoples children; they do not give people a choice.

Mr. Pond

On the particular example of how well targeted the working families tax credit is, the hon. Gentleman will be aware of the work of the Institute for Fiscal Studies, which tells us, of course, that the greatest benefit will be obtained in those deciles in the lower part of income distribution. Surely that suggests that the measure is rather well targeted, certainly in comparison with other ways of spending the money.

Mr. Webb

As the hon. Gentleman will be aware, I am vaguely familiar with the work of the IFS. The point that I made to the Paymaster General was that, if the poorest 350,000 or so recipients of family credit continue their present working hours—I accept that, in an ideal world, we want them to work more—they will not get a penny out of the measure: the poorest family credit recipients will not get the money. The people who will get the money are those further up the income scale. I accept that huge amounts will not go to people on £30,000 a year, but the benefit will be paid further up the income ladder than I would like.

If we follow the approach that I have described, where the additional cash goes to families with young children, including those on the minimum amount of family credit, that would focus help on the poorest family credit recipients, which I thought was the point.

Ms Keeble

Those are important points, but does the hon. Gentleman not accept that one of the reasons why we need to get women to go to work is that the economy needs some of their skills? As we know, there are certain sectors where we desperately need women: for example, nursing. Child care is a real barrier; it is wildly expensive. For all sorts of reasons, therefore, it is important to ensure that women have the option of going back to work, and flexible child care should be available if they work shifts, so that they can work and be sure that their children are being properly looked after.

Mr. Webb

The hon. Lady raises an important problem: the loss of womens human capital while they are out of the labour market and the loss of their valuable skills, which we do not want to lose. She says that it is important that they have flexible child care. If we follow my route of giving them cash through extra money for the under-fives, they can spend it on flexible child care which does not have to be registered, whereas the Bill allows only for registered child care, which is often not available for people such as nurses who work shifts.

The evidence on the incentive effects of the scheme—making people who are out of work move into work—is almost invisible. The hon. Member for Gravesham mentioned the Institute for Fiscal Studies. We understand from the Today programme that it has calculated that the incentive effect might lead to 40,000 extra families working.

I have no idea whether that is the right figure; nor do the Government. Here is a £5 billion scheme—the existing £3.5 billion and another £1.5 billion on top—and the incentive effects are simply not known; the Government do not have a clue.

We support that £1.5 billion because it helps poor people in a static situation. If it has a beneficial incentive effect, that is all well and good, but that is not the key point. The measure will benefit people who find it hard to get by but there is no evidence that it will have a big incentive effect.

Ms Margaret Moran (Luton, South)

Will the hon. Gentleman not accept the view of the Child Poverty Action Group that the measure offers a well-targeted approach to dealing with those working families in poverty? It says: Only 5 per cent. of Family Credit Claimants benefit from the current childcare disregard. The new childcare tax credit will help more families. It is more generous and is payable for children up to age 14. It is targeted more closely on the poorest families, so it will benefit those families to a greater extent than family credit could ever do, with cash benefit in the way that the hon. Gentleman implies.

Mr. Webb

The hon. Lady might like to look at what the Chancellor of the Exchequer did in his first Budget. He said, There is a £60 child care disregard in family credit. I am going to raise it to £100. I was sitting in the Chamber and I recall cheers from Labour Members. I tabled a question asking how many people would benefit from the change and the answer came back, 3,000.

The Chancellor has finally caught up with the point that we already knew: the child care disregard was indeed an ineffective way in which to support families and children; it did not work. The question is: is it better to have a child care tax credit that reaches people on £20,000, £25,000, £30,000 or more, and probably does not do much for people on very low wages because they cannot afford to pay for registered child care; or would it be better to pay the money in cash, through child credits on the tax credit, to families with younger children?

The Government must trust people. They must let them have the cash and decide what to do with it, rather than insist that they spend it in a particular way. Then those people can decide who brings up their children.

The effects on women are clear cut. The response of the Minister so far has been, Not to worry. If there is a problem about whether the woman will see the money, there is a choice, but the right hon. Member for Birkenhead has raised the important issue of relationships in which there is no equality—where there is an imbalance of power. One example is violence in families. If we were debating a different issue, Labour Members would be telling us time and again that violence in families is a huge problem and that tens of thousands or hundreds of thousands of women may suffer abuse or unequal power within a relationship. If there is a choice as to who gets the money, who will get it in those families? Will it go to the mother or to the father? We all know the answer. In those families, the money will go to the father.

Dawn Primarolo

Perhaps the hon. Gentleman would like to explain to the House the current arrangements for family credit. Although he touches on an important point about violent relationships, the family credit system does not deal with it either because the woman can be forced to sign the money away and, as he knows, it can be cashed by either partner.

Mr. Webb

Inevitably, there cannot be a perfect system that takes into account difficult family relationships, but the present presumption is that the money will go to the mother. That is better than a system that provides a balanced choice. My hunch is that the new system will be loaded to try to encourage payment through the pay packet. If it is not, what is the point of the Bill? The Bill has only one significant provision—payment through the pay packet.

Last night I was surfing the net—my nickname is Worldwide—and at 10 oclock I came across the Inland Revenue website. I discovered a memo from the Inland Revenue on the working families tax credit and disabled persons tax credit. I have seen Labour Members waving that document around. It comprises pages of riveting detail about the complexities of the new scheme. It does not just say that the money is to be paid to the carer, but raises a variety of issues.

Let me give the House one example of the absurdity of the regime that we are about to introduce. Let us suppose that someone is on strike. It is a shame that the hon. Member for Bolsover (Mr. Skinner) is not here because we could be to referring to a striking mineworker who receives the tax credit through his pay packet. When he goes on strike, he no longer receives pay from his employer, so what happens to the tax credit? To get the tax credit, he has to get a form from his employer saying how much tax credit has been paid. He then sends the form to the Inland Revenue which pays him the money directly until the strike is over, when he sends the Revenue another form to enable the tax credit to be paid through his employer. How many people in such circumstances would be able to get a form from their employer? As there are not many mineworkers in my constituency, I am more concerned about the children who will be affected. Any interruption in the payment of tax credit—which would not occur under family credit—will create problems for the children concerned.

Dawn Primarolo

The hon. Gentleman touches on an important issue relating to certainty of delivery of the tax credit. He uses the example of a trade dispute. I hope that he has noticed that the code of practice and the procedures that are notified by the Inland Revenue state that the Inland Revenue must be informed. If an employer refuses to co-operate, the employee can tell the Inland Revenue and it will pursue the matter. As the hon. Gentleman knows, the Inland Revenue already has powers to demand and obtain information which it uses in respect of PAYE and national insurance contributions.

Mr. Webb

Does the Minister accept that any period without cash could cause problems for the children concerned? How long does she think it will be before it is clear that an employer is not co-operating? Let us suppose that a striking employee is paid once a month and approaches the payroll office towards the end of the month. The payroll people agree to provide a certificate but say, Were a bit busy at the moment. Maybe at the end of next week. Time goes by and the child goes without.

Dawn Primarolo

The hon. Gentleman will also know that the provisions state that an employer who fails to deliver to the employee as specified by the Inland Revenue would be in default and the Revenue would deal with the matter. The hon. Gentleman is trying to suggest that people will go without money, yet there are provisions to ensure that that does not happen.

Mr. Duncan Smith


Mr. Webb

The hon. Gentleman may wish to intervene.

Mr. Duncan Smith

I am grateful. The real point—which the Minister has totally missed—is that she assumes that all the people whom the hon. Member for Northavon (Mr. Webb) is describing are capable, clear thinking and not likely to be under any pressure from a difficult employer, particularly at a difficult time. That is quite the wrong assumption. The worst-off—the people who are under most pressure—will not be able to make those assumptions, and they will be scared.

Mr. Webb

There may be redress after the event, and it may be that—some weeks down the line—it gets sorted out. However, the employee has to obtain a certificate and it may take him a week to find out that he cannot. He then complains, and there then must be an investigation. All of that takes time. None of it is necessary bureaucracy—the Government should simply pay the money to the principal carer and get on with it.

In terms of the effect on women, the Minister cannot have it both ways. Either the carers will claim it—in which case we do not need the whole edifice of bureaucracy—or the credit will be paid through the pay packet, in which case women will be deprived of £900 million, which they will have to try to ask for.

The second big problem is the effect on business. I have tabled written questions to find out whether the tax credit will be a burden on small firms. I have asked at what point does somebodys earnings become such that the tax credit to which he is entitled becomes greater than the income tax and national insurance that his employer has to pay to the Government.

A two-child family with one earner can be earning £200 a week—£10,000 a year—and have a net entitlement. In other words, a small employer who employs one person, who has two kids, on £10,000 a year will have to pay net money to the employee, and the Government will have to sub money through the firm. Now, £10,000 is not a particularly low figure, and I have tried to ascertain how many people are in that situation. That is a complex question—it depends on the number of children someone has, the earnings of the spouse and so forth.

I have found out how many people are working for smaller firms—firms with less than 25 employees; most of the firms will have very few employees—and earning less than £10,000 as a family. There are 200,000 couples with children in that position, and another 200,000 lone parents. If all of those people were the sole employees of firms, small businesses would have to pay them money and the Government would have to pay the small businesses money.

The Minister will say, Not to worry. All the firm has to do is to say to the Government that it thinks that it will have to pay some net money next month, and that it would like the cash up front. However, the firm may have to give at least three weeks notice, unless it pays on a weekly basis. What if the Inland Revenue is a touch bureaucratic? It is quite busy at this time of year. Might not it have other things on its mind?

Clearly, there will be cash ramifications for small firms. The small businesses of this land are not jumping up and down with joy at the prospect of administering the scheme. However, the Government do not know how many firms are in that position. I have asked them—the answer is not available. How can the Government introduce such a scheme without knowing what effect it will have?

The scheme will not just affect firms. What about people with complex circumstances? What about people who change their job? The Inland Revenue document says that if someone works for two employers, the person who pays that individual the most pays that person the tax credit—fine. If someone starts a second job, the tax credit is paid to that person while the system is being worked out. It is then paid to the employers, once the system is up and running. If someone leaves one of the firms—which may be quite common for people with multiple employment—that person tells the Inland Revenue, and gets a form from the employer which gives the amount of tax credit. He sends that to Revenue, which pays him directly while the matter is sorted out. It tells the second employer that the employee has moved, and then that person starts getting the tax credit from that second employer. What is the point of all that bureaucracy? Why not just pay family credit? Why not just get on with it? What is this change achieving?

A worse example than changing jobs is changing family circumstances and relationship breakdowns. The tax people are not used to dealing with cohabiting couples—tax allowances are given to married couples. However, the benefits system is used to recognising cohabiting couples. Suppose a relationship—between a cohabiting or married couple—breaks down. What happens to the tax credit? Suppose the man is getting the credit through the pay packet. Does the woman who has moved out contact the Revenue and say, I have moved out with my child? Again, the woman could be leaving because of a violent relationship. If the Revenue contacts the firm to say that it should stop paying the tax credit, what is the first question that the small firm will ask? It will be, Why are we not paying you this tax credit any more? The answer might be, Well, the wifes left me.

The new system is much more intrusive than paying family credit to the carer, because in that case, if the wife leaves, the money goes with her and the children do not have to go without money for a week or two weeks. Under the new system, the wife has to apply to the Inland Revenue, at a very difficult time in her life; the Revenue has to send a letter to the employer; the employer has to tell the employee and perhaps ask embarrassing questions; and the employee may appeal to the Inland Revenue and say that his wife has not left him and is merely visiting her sister. That is all irrelevant, so why not stick with family credit?

Fraud is another problem with payment through the pay packet. The Paymaster General asked why the position was different with the new system. The obvious answer is that the money goes through the firms books and not directly to the recipient, so the firm has an incentive to declare payments lower than the real wages, make up the difference in cash and pocket the tax credit.

There is a provision in the Bill that says that, if people are unfairly dismissed because they are on tax credit, they can do something about it, but the right hon. Member for Birkenhead mentioned examples of the insidious pressure that people will be under. The Bill is a frauds charter. It has been said that one should design fraud out of benefit systems, but the new scheme designs it in.

Ms Karen Buck (Regents Park and Kensington, North)

Is not the hon. Gentleman aware that there is plenty of evidence that employers advertise jobs as suitable for claimants of family credit? The point that he is making is equally true of the existing system.

Mr. Webb

It is not true, because firms like people on family credit, as they can pay them low wages without the administrative burden of the tax credit. They will certainly not advertise for people on the tax credit. The question was asked how prospective employers, when choosing between two candidates, would know whether one was entitled to the credit. In an informal conversation with job applicants, any shrewd employer will be able to ascertain whether they have kids; it will not be difficult.

The Bill is a missed opportunity to reform the in-work benefit system. Martin Taylor was asked to consider the integration of tax and benefits. His report said that he had not considered the tax credit in any detail because it was a given fact and he knew that the Government would introduce it. The task force was not asked to think the unthinkable or come up with a good scheme; it was told that there would definitely be a tax credit.

Instead of integrating tax and benefits, we could first have integrated in-work benefits one with another, integrated out-of-work benefits with in-work benefits and then, having done all that, thought about integrating a unified benefit system with the tax system. Instead, the Government went crashing ahead with the tax credit and said that housing benefit was too complicated to deal with. They said that that benefit was a nightmare and they would not touch it or do anything about mortgages; but the evidence is that the lack of help with mortgages for the low paid is one of the biggest genuine disincentives to work.

We have heard that there is not much evidence on incentives, but research by the Department of Social Security cited loss of help with housing costs on taking a job as one of the biggest barriers—much bigger than child care—to moving off income support. If the system had spent the same amount, focused on the lower-paid, with some help, for example, for people with mortgages, it would have done much more for incentives.

The child care subsidy reaches a long way up the income scale. People on the minimum wage of £3.60 an hour, working 30 hours a week, will pay income tax, but people on higher-rate tax will get child care subsidies. Has not the world gone wrong somewhere? Is not that a crazy system? Incentives are essential to the whole argument. Where is the evidence?

Yvette Cooper

I accept the point that the research is limited, but the most reliable research on work incentives has been carried out by David Card in the Canadian system. One group of lone parents was given extra help—a credit at a similar level to the working families tax credit—and another group was not. The group that was given the credit had an employment rate of 25 per cent., as opposed to 12 per cent. in the other group. Is not that pretty substantial evidence in favour of work incentives?

Mr. Webb

The hon. Lady is knowledgeable on those matters and will know that the Canadians scrapped the scheme—

Yvette Cooper

Not that one.

Mr. Webb

Well, I look forward to hearing the details.

As far as I know, the only empirical research done on this scheme—not the Canadian model, with its very different income distribution, family structure, employment patterns and all the rest—by my former colleagues at the Institute for Fiscal Studies, shows that it would have little effect. That is the only evidence that we have to go on.

The taper has come down from 70 per cent. to 55 per cent, which brings in people further up the income distribution scale. The Paymaster General says that that is good for incentives. What about the person who works overtime to make ends meet—as many families do—and who starts to receive working families tax credit? He or she will have more income for working the same number of hours. What would any hon. Member do if he or she were faced with working overtime, possibly to the detriment of family life, and then could suddenly get the same income by working fewer hours? Any person would give up on the overtime and cut the number of hours worked. That may well be a desirable outcome, but it is an example of one group of people who may cut their hours in response to the tax credit. In other words, lower tapers do not make people work more hours; they may make them work fewer.

Fiona Mactaggart (Slough)

What surprises me most about the hon. Gentleman's argument is that, in the country that works the longest hours in Europe, he is suggesting that it is good to promote the idea of mothers and fathers working longer hours. That is a peculiar suggestion and I hope that he can reassure me that he is not saying that. Does he not think that it would be a benefit to have a system that reduces the incentive for people to work excessive hours, so that they can spend time with their children?

Mr. Webb

The hon. Lady knows that she is misrepresenting my argument grotesquely. I picked the example of overtime because those hours are discretionary and can be changed at fairly short notice. Other labour market choices will result from the changed tapers and they will mean people working less, particularly second earners. I suspect that the hon. Lady supports second earners and believes that married women, for example, should take paid employment given the opportunity. The measure may have beneficial effects for people who are unemployed, but it will be a disincentive for existing workers, in particular second earners, and I was not aware that it was Labour party policy to return to the traditional working family.

Mr. Bercow

Does the hon. Gentleman agree with the view expressed by the right hon. Member for Birkenhead (Mr. Field), if I remember rightly in August 1998, when he observed that the family tax credit venture could take the pressure off improving productivity and thereby the scope for increasing real wages?

Mr. Webb

My argument this afternoon has been that the £1.5 billion should be spent, but not in that way. We want to assist people who are in low-paid work by providing the floor of the minimum wage, which is where we differ. That floor would stop employers from depressing wages and a subsidy would enable people to stay in their jobs, perhaps helping with the mortgage or giving cash help towards child care. I am not particularly concerned about the hon. Gentleman's point.

Drawing my thoughts together, all the welcome aspects of the tax credits could have been achieved through family credit reform. Nothing in the Bill was necessary and nothing in it could not have been done through such a reform. We support the extra cash, but not to be spent in that way. Surely it is legitimate to point out that an addition to Government spending could have been spent more effectively. That is not an unreasonable argument and it is not one that the Paymaster General should parody.

The measure has been introduced in a hurry, without considering housing benefit and the linkages—

Ms Moran

Will the hon. Gentleman give way?

Mr. Webb

No, I must conclude and give other hon. Members a change to speak.

The Bill will take money from women and put burdens on business. It will not cope with flexible families and the flexible labour market that we have today. There is a strong case for helping low-paid workers more, but the Bill is not the way to do it.

5.39 pm
Lorna Fitzsimons (Rochdale)

I was surprised at the opening remarks from both Front-Bench spokesmen for the main Opposition parties because I thought that the one thing they would acknowledge—the Liberal Democrat spokesman, in particular—was that it is better to make work pay if one is trying to help families and children in poverty. All the evidence shows that in-work benefits alleviate poverty. That must be endorsed in the first place.

Secondly, we must be encouraged by the Governments work on the tapers in implementing the working families tax credit. Every Select Committee report acknowledges that it is tapers that clobber people in much of the benefit system.

As for our guided tour of the Grundy family, I am glad that the hon. Member for Brentwood and Ongar (Mr. Pickles) listens to The Archers, because there was not much other substance to his speech. We did not learn whether his concern about the complexities of the child care tax credit stemmed from his wanting it to work or whether he acknowledged that the barrier—primarily for women but also for families—to accepting work is being able to find good-quality, affordable child care. Perhaps when the hon. Gentleman returns he will answer the question that he was not courteous enough to allow me to ask when I tried to intervene on him. Since the working families tax credit was first introduced by the Chancellor, the Government have spent a long time developing, through extensive consultation, a model that will advance the quality of life of working families.

Many have argued that the new credit will disfranchise women. There is a serious point about disparity of access to income in the home. However, given what has happened since we last discussed that, we should congratulate Ministers on how far they have gone to alleviate concern about the problem of moving income from the purse to the wallet. The Treasury teams work demonstrates the advantage of having more women Members. I congratulate the Treasury team on the fact that it includes a record number of women. The advantage of having so many women in the team is shown by the advance they have made in choice and in safeguarding the position of women in the transfer from family credit to the payment of working families tax credit.

I want to draw the Houses attention to several points that I hope will be elaborated on; my hon. Friend the Paymaster General touched on some of them. Much has been made, certainly in the headlines, about the number of women involved. Most people who receive family credit are women because they are single parents. We are talking about a minority of people, who, without the diligent work of Ministers and officials, could have suffered from a transfer from the purse to the wallet.

Currently, in the small number of cases involved, if the form is not signed by the man, the woman cannot receive family credit no matter what she does. The work done on the working families tax credit means that the Inland Revenue will operate a three-stage approach. That will mean that there is a chance that women, if the information on the form can be verified, will be able to receive working families tax credit even without the male partners signature. Women who have problems in the home—domestic violence has been mentioned—will have a greater chance of accessing the money than they do now. If the form is not sent back to the Inland Revenue, it will be followed up with a phone call and, in some cases, a visit. That will mean a better chance of targeting help at poor women and children in difficult relationships than ever there was under family credit. I welcome that step forward to making work pay and alleviating the poverty of children and women. Along with the Governments historic increase in child benefit, it represents a dramatic change in the existences of people in poverty.

I have another point about choice. The form makes no presumption about gender; it talks of the applicant and the supporting applicant. As we transfer from family credit to working families tax credit, the form will go to the current recipient. So for the large part, the woman will be filling out the form. Even though she is not the main earner, she can choose to fill out the main applicants side of the form, which is similar to the family credit form. Even if the woman is not the person in work, she will be able to receive the working families tax credit. We are automatically putting the cards in the hands of women.

I beg to differ with the hon. Member for Northavon (Mr. Webb), who suggested that the position would be worse for women. There is a minute possibility that it could be and I do not underestimate that, but one cannot say that the same problems do not exist in the current benefits system—as they would in any system. I believe the hon. Gentleman acknowledged that.

Mr. Webb

I promise not to hog the hon. Ladys time—she would not let me anyway. The money will go through the pay packet either in lots of cases or in not very many. If it will do so in lots of cases, lots of women will lose money; if it will do so in not many, we do not need this whole edifice. Which is it—lots or not many?

Lorna Fitzsimons

You make great play of the internet, Mr. Worldwide Webb—I am glad you have such an interesting moniker. The Inland Revenue website, which is available in the Vote Office, gives all the details of how the scheme will be implemented. It says that there are three ways in which people can elect to have the money paid. One is by girocheque. The woman can choose. The money does not have to go through the pay packet, even if the woman is the earner. She can choose to have it paid a different way. That is laid out on the website and, as you have seen it, I am surprised that you did not refer to that fact—

Mr. Deputy Speaker

Order. I hesitate to interrupt the hon. Lady because I do not want her to think that I am telling her off all the time, but I have to tell her about the term you.

Lorna Fitzsimons

I am sorry, Mr. Deputy Speaker. I know that it is a terrible habit. It is just that I am getting into my stride and enjoying the debate. You will be aware, given that you have been a Member of Parliament for some time, that, of the 767,000 recipients of family credit in 1998, just over 300,000 women could possibly fit into these circumstances. It is known that a third of those already elect to put the money into a joint bank account or make some other similar arrangement. So we are talking about two thirds of those 300,000. I wish that we would put this matter in context. I am not trying to belittle the effect on those womens lives, but the reality is that we are not talking about the vast number of people currently in receipt of family credit.

The Government have tackled the problems that were set out when the working families tax credit was first debated on the Floor of the House. We must acknowledge that there has been vast movement since then to ensure that we go forward with the philosophy of making work pay while trying to protect women in vulnerable situations and provide choice.

The biggest barrier to work or choice is child care. Many women do not have the choice to work because they just cannot afford child care. The issue that I was clobbered with on the doorstep when I was canvassing before my election to this wonderful place was child care. People said that they could not afford to work. With the working families tax credit, and especially the child care element of it, literally hundreds of women whom I canvassed will be able to choose to work. That has to be a welcome move. Many of them are single mothers. Many of them trained before they became single parents and they want to use the investment that we made in them and they made in themselves. Now they will be able to.

Some hon. Members have said that child care tax credit is not referred to in the Bill. It is clearly referred to in the whole gamut of documentation on the working families tax credit. The child care tax credit is integral with the working families tax credit. The fact that the Government realise the reality of working families lives and the barriers to employment shows the sensitivity of our Government. I am proud to sit on the Government Benches as we make the advances which, sadly, have been lacking over the past 20 years. I found the comments of the hon. Member for Brentwood and Ongar laughable, because I doubt the sincerity of his concern about the complexities or otherwise of the child care tax credit.

People inside and outside the House have argued that the tax credit puts single-earner couples at a disadvantage compared with single parents. There are many commentators in the Chamber today who are more eminent than I am, but having examined the details, I can tell the House that, under the working families tax credit, the positions of a single-earner couple and a single parent will differ only if, in certain cases, their entitlement to child care tax credit is different because of their different child care needs.

The whole structure of the working families tax credit contains no intrinsic disbenefit to single-earner couples. It is important that we nail that lie and so prevent people from claiming disingenuously that the WFTC is antifamily or pro-single parents. The measure is all about families, whether headed by single parents or by two parents. It is about making work pay for them and ensuring that their children are provided for.

We must bear in mind the anomaly whereby people on the sharpest end of poverty paid more tax. Under our proposals, people will earn more and keep more. In my constituency, the old work ethic persists: if people can get work, they will work as hard as they can; they are also prepared to work longer hours to earn a minimal additional sum, which, as my hon. Friend the Member for Slough (Fiona Mactaggart) pointed out, places additional stress on the family unit. After our proposals are implemented, those people will have a chance to make real choices about whether to stay at home, to listen to the children read and to help them with homework.

People have claimed that the Bill is not a family friendly measure, but I beg to differ: the Bill will give families choices that they have never had before. I support the Bill and hope to participate in its progress through Parliament.

5.52 pm
Mr. Howard Flight (Arundel and South Downs)

I am sure that many Labour Members sincerely believe that the new arrangements contained in the Bill will help the less well-off, reduce poverty traps and provide incentives to work. The main cause of our opposition to the Bill is that, as the hon. Member for Northavon (Mr. Webb) pointed out, it will be a disaster in practice.

Questions have been asked about problem cases, such as when someone is on strike or an employer is not behaving properly. We are told that people can go and complain to the Revenue and get the matter dealt with, but most companies Revenue offices are miles away, elsewhere in the country. How can we expect ordinary people to go to the extent of finding out where their companys Revenue office is, getting hold of someone there and raising their problem with that person? By the time all that has been done, people will be many weeks out of their money.

We have been assured that companies will not experience cash-flow strains and that there will be grants in the event of their paying out more than they are collecting. However, a company cannot get the grant until it knows what it is paying out. If cash-flow problems arise in a small company, weeks, if not months, will pass before agreement is reached with the Revenue and the grant is paid.

The Government have got themselves hooked on a concept that has been considered twice before in this country: in the early 1970s and in the 1980s. They are caught on the hook of thinking that the solutions and answers to our problems can be found in north America, where so many things are wonderful, without thinking through the nitty-gritty detail or conducting a proper case study into why, in Canada, a similar system went so wrong that it had to be scrapped. I have to say, with all due respect to the hon. Member for Rochdale (Lorna Fitzsimons), that it is shallow to believe that the proposals will solve all our problems without causing an administrative shambles.

My next point has been made light of, but I believe that it is not proper to come to the House with a Bill of this nature, from which the important provision of help with child care is excluded. In addition, the measure will place an enormous burden on businesses: an assessment was promised, but it has not been delivered. It is constitutionally improper to have reached Second Reading of a Bill without that Bill being in anything close to its final shape.

No doubt, the Government hope that the Bill will be popular, but in principle, I believe that the Bill is both conceptually wrong and wrongly drafted. The Government will rue the day they went ahead with the legislation when, as has been pointed out, there was already a perfectly effective and straightforward system of family credit. Family credit could be made more generous and the system tweaked about, but it must be acknowledged that administratively, it has been one of the most successful welfare arrangements.

My first specific objection relates to the near future. When the Social Security Committee took evidence from various civil servants at the Inland Revenue, I discerned a high risk that, over the next 18 months, the implementation of the WFTC will be chaotic. I was not satisfied by answers saying that issues of implementation were being adequately addressed. I do not doubt that the Revenues staff have worked overtime and produced a detailed document, but it is most unlikely that the system will be up and running efficiently within 18 months of its being put into effect in the workplace and the massive change made from benefits distribution by the Benefits Agency to distribution via the employer or the Revenue.

Mr. Edward Leigh (Gainsborough)

While on the subject of the Social Security Committee, will my hon. Friend remind the House of the amendments that he tabled with me and our hon. Friend the Member for Bromsgrove (Miss Kirkbride)? He has come to the fourth of those amendments, which deals with the cost of administration, but will he stress that we also tried to persuade the Committee to accept an amendment stating our concern that: this proposal will place the two couple household, one of whom works and one of whom looks after small children (the classic Beveridge family) in a disadvantaged position? Will my hon. Friend refer to our amendments at some point in his speech?

Mr. Flight

I thank my hon. Friend for reminding me of that. I shall come to the point he raises later and hope to pick up all the issues that were raised in the Select Committee. In reviewing the Select Committee report, both The Times and The Independent picked up concerns about points of principle, as well as considerable practical concern about whether the measure would be workable, especially during the next 18 months.

The works of professionals and welfare gurus that I have read all make one point: that it is dangerous to split the provision of welfare. How can one easily achieve a single gateway if different benefits are dealt with in different ways? It is pure semantics and window dressing to argue that we are not debating how family credit is paid. The Bill commences: family credit and disability working allowance to be known, respectively, as working families tax credit— in other words, distribution is an issue.

The bogus arguments about stigma add little to the debate. What matters is how much people get; to what extent the tax credit will act as an incentive or a disincentive to work; and how efficiently it is administered. Over the next 18 months, hundreds of thousands of people will not get their family credit benefits through the system on time. There will be much debate and dispute, with companies asking the Revenue how much the amount should be. In addition, the tax credit cannot easily be coded into income tax. Many ordinary people who are in need will suffer.

On the question of stigma, views differ. Many hon. Members will not have worked for medium-size businesses, which are major employers in this country. As one who has done so, I can tell the House that in such companies, everybody knows everybody elses business—it is not like the House of Commons.

Mr. Oliver Heald (North-East Hertfordshire)

We know quite a lot here.

Mr. Flight

Yes, that may be true.

My point is that people will be curious about who is getting paid the credit, they will look it up on the net and they will find out. The proposals will make much more public than do the present arrangements those who are receiving family credit support. There is nothing to be gained in terms of reducing stigma and, potentially, there is much to be lost.

It is argued that the Bill will improve the problem of poverty traps and, at some levels, it may do so. However, hon. Members will know that between 469,000 and 1.2 million more people will now face marginal tax rates of 50 per cent., so disincentives may be alleviated in one part of the system, but even bigger ones will be placed elsewhere. As citizens advice bureaux and the hon. Member for Northavon have pointed out, unless mortgages and housing benefit are dealt with at the same time, there will still be major disincentives to work that the Bill does not address.

Being a little cynical and having spent 30 years working, I believe that there is a danger that the Bill will exert downward pressure on wages.

Yvette Cooper

Does the hon. Gentleman accept that that is a good argument for introducing a minimum wage to create a floor and prevent that downward pressure on wages?

Mr. Flight

That is one of the arguments for a minimum wage. The argument against is that it tends to price millions of people out of work. In Europe, 20 million people have been out of work because the minimum wage is too high. Let us hope that the Government have set the minimum wage so that Britain does not fall into that trap. Many employers are already well aware of the terms of family credit and are structuring pay policies to benefit from those. There will be an increasing element of the early 19th century Speenhamland legislation and deliberate subsidising of employment. If that does not constitute fraud, it will at least exert downward pressure on wages.

No one has mentioned this point, but I note that the Government have not changed the levels for disqualification, which begin at £3,000 of capital with reductions in credit and go up to £8,000 of capital, at which point one would not qualify for any credit. I wonder how that squares with the Governments objective to persuade people to save more through the individual savings account scheme, which is intended to attract many more people who are not well off into saving. Those are self-defeating objectives.

On motivation, as the Government admitted, 470,000 more people will be dependent on welfare. The good side of that is that many of those people will be better off, but another half million people will have less incentive to work and be dragged into the problems of welfare dependency.

On expenditure, Conservative Members have made the macro-economic point that before the election, the Labour party argued that the overall social security bill would be reduced by better use of resources, which would enable there to be higher expenditure on education and health. Our major criticism is that the Government are contradicting that pledge because the bill is increasing enormously, partly due to these proposals. My additional worry is that the costs of the new arrangement could be astronomical. Instead of having a straightforward system, we may have one with substantial administrative costs. I wonder whether those have been taken into account in the estimate of the additional cost of £1.5 billion.

It has already been said that we will know the costs only when we know exactly what the proposals are, but the Institute for Fiscal Studies has suggested that if the arrangements for child care support are not tightly worded, they could add a further £4 billion. If they are tightly worded, they will not achieve the Governments aim. The proposals may, therefore, cost a further £5 billion and will not be particularly good value for money because much of that expenditure will be wasted.

As the right hon. Member for Birkenhead (Mr. Field) and others have said, the proposals contain too much that is designed to encourage fraud, including fraud by employers. That will be semi-fraud rather than wicked fraud. I am vaguely aware that many of my constituents live in a household consisting of two partners, which is structured so that it does not qualify as such and a single mother can therefore gain maximum benefits. That practice will be encouraged by the Bill because, as I shall demonstrate, there will be a major difference in what families receive, depending on whether their household consists of one or two adults.

As I have said, the Bill provides further disincentives to save. I do not understand how the Government think that they can achieve both of their objectives at once.

Miss Kirkbride

I am interested in my hon. Friends important point about savings, which I had not thought of despite being a member, as he is, of the Select Committee on Social Security. Will he make clear the Governments position on savings? What would happen if one gave children money to save?

Mr. Flight

I understand that the rules will not change from those that apply to family credit. Those who have £3,000 or more of capital receive a reduced amount of family credit according to a scale that goes up to £8,000 of capital, at which point they are entitled to no credit at all. I do not know how capital will be measured or whether equity in a house would be included. First, I draw attention to the fact that that issue needs to be addressed. Secondly, it is inherently contradictory to seek to encourage more people to save and to have a major disincentive to save in these proposals and elsewhere.

The Bill is anti-family according to my sense of the word family. I brazenly take the view that a family normally consists of a mother and a father and their children, and that such a unit is best for bringing up children and enabling people to look after themselves in future. The proposals contain significant disincentives to form such units. As hon. Members have said, the main problem will arise from claiming the child care credit. A family of two parents and two children who earn £15,000 a year will receive only 25p of child care credit a week. A family of one parent and two children who qualify for the credit will receive £70.25 a week, which is a major disincentive to form a two-parent family.

Many hon. Members may have read an article by Martin Wolfe in the Financial Times earlier this year. He made the point that when one allows for the expenses of the husband or male partner, it is no longer worth having such a partner unless he earns almost £400 a week, which is the median level of pay in the country. Otherwise, he is a financial liability. The proposals will mean that more than 1 million people in two-earner couples will experience a fall in their returns from employment. That statistic was produced by the Treasury, not the Conservative party.

I remain of the view that children are best looked after by their mothers, particularly in their early years, if that is what their mothers want. Good habits and conditioning result, and childrens prospects of being good citizens are greatly increased, as all studies show. It is complete madness to provide an incentive that will virtually drive wives—particularly those in decent, ordinary families in the middle of the income bracket—out to work for fiscal reasons. [Interruption.] Labour Members may laugh, but that will happen. I know many women who are extremely upset by that because they want to spend time at home looking after their children at least up to the ages of five and six.

I certainly hope that the child-minder arrangements—when we know what the Dickens they are—will include some provision to help women who want to stay at home to bring up their children. Regardless of what the Government say, this Bill encourages and supports, through welfare and fiscal incentives, the single-parent existence. It also establishes fiscal disincentives for mothers to stay at home. Both provisions are anti-family, and go against the traditions honoured by the great majority of people in this country.

The Bill is also unfriendly to children. The argument about the purse versus the wallet misses the fundamental point, which is that mothers should have the automatic right to get the money from the post office. That cannot happen with a scheme administered through the employer. For all sorts of reasons, rows will be caused or the wife will give way: as a result, the changes will mean that it will be more difficult, rather than easier, to get the money to the children. In Canada, it was concluded that the most effective way to help children was through generosity and good old-fashioned child benefit, which could easily be collected from the post office by the mother and which did not involve lots of administrative complications.

It has already been noted that employers could experience cash-flow costs and be out of pocket until they received the covering grant from the Revenue—and we all know how long getting money from that source can take. The scheme will be very costly to administer. Some hon. Members may believe that it will require only an automatic coding from the Revenue and that the process will be done by computer, but there will be all sorts of exceptions. Employers will be in the front line and required to do the jobs of the benefit office and the Revenue. No compensation is being offered to companies, and many small firms will not be able to afford the costs involved. The proposal is an incentive to bad and crooked employers. Moreover, it is wrong for employers and work colleagues to know about private matters, such as the amount of family credit a person is entitled to receive.

I have given five examples of the way in which all the implications of the Bill have not been thought out. There will be major negative effects. A proper study of the Canadian model has not been carried out, and the Bill will lead to a colossal administrative shambles in the next 18 months. Thousands of constituents will complain in our surgeries about the shambles that is the working family tax credit system, as they do about the Child Support Agency. In many ways, the effect of the Bill will be perverse. It will make worse the very problems that the Government, and all hon. Members, want to solve.

6.13 pm
Mr. Chris Pond (Gravesham)

It is a pleasure to follow the hon. Member for Arundel and South Downs (Mr. Flight). He is a fellow member of the Select Committee on Social Security, albeit one with rather quaint views about the role of women in the home and in the workplace. I was also interested to hear that many bad and crooked employers exist who will exploit the system: I should have expected the Low Pay Unit, for which I used to work, to argue that case.

I am pleased that the hon. Member for Brentwood and Ongar (Mr. Pickles) is back in the Chamber. He made a moving opening presentation from the Dispatch Box about The Archers, and informed the House that the Grundys were a fictitious family. That may have been a revelation to the hon. Gentleman, but it was helpful for the rest of the House. If the Grundys are fictitious, so was much of the hon. Gentleman's speech.

Mr. Pickles

If the hon. Gentleman is going to patronise me, he will have to do better than that.

Mr. Pond

I shall certainly try to do better in that regard as I develop my speech. However, to bring the hon. Gentleman up to date, I should tell him that Walter and Grace have passed away.

The hon. Member for Brentwood and Ongar may have missed the point that the writers of The Archers were trying to make. The Grundys found themselves in a difficult position because, although on a low income, they tried to claim family credit—a system founded by the Conservative Government whom the hon. Gentleman supported. The Grundys found the system very complex, and we shall discover in future episodes whether, as a result, they end up as part of the 30 per cent. of families entitled to family credit who do not claim it.

In addition, the hon. Gentleman will know from the episodes that he has heard that Joe Grundy was not prepared to allow the family to claim family credit because, as he put it, he did not want them to go on the parish. That is a major point.

Mr. Nick Gibb (Bognor Regis and Littlehampton)

Will the hon. Gentleman give way?

Mr. Pond

I shall develop my arguments a little further, and then give way. It is important to note that family credit carries a stigma and is considered to be rather degrading. It also creates a poverty trap.

Mr. Pickles

The hon. Gentleman is the one who has missed the point. What Joe Grundy was saying was that he did not want everyone to know that he was on the parish. The problem with WFTC is that everyone will know when a family is on the parish.

Mr. Pond

I am rather pleased that I gave way on that point, as it will at least amuse the House. Employers are of course well aware of their employees circumstances and know when people receive family credit.

However, the hon. Member for Brentwood and Ongar has missed a more important point that renders inappropriate his reliance on The Archers as a vehicle for his opposition to this Bill. The great majority of low-income working families with children who will benefit from the working families tax credit bear little resemblance to the Grundys, and certainly not to Eddie and Joe. The real families involved want to do the best for their children: they are prepared to work hard but often their circumstances mean that it is difficult for them to do so.

During my years with the Low Pay Unit, before I became a Member of Parliament, I met many thousands of such people—hard working, wanting to take advantage of the available opportunities but too often, under the previous system, trapped in poverty and faced with the stigma of the means test. Is it not shameful that, under the previous Government, the largest single group among the poor comprised working families, in many of which the head of the household worked full time? The previous Government regarded those people not as the result of the failure of social policy, but as the instrument of economic policy.

Many of those people struggling to make ends meet also face the problem of the very high marginal tax rates built into the current system. The highest paid people in our society would never tolerate such rates, but those on the lowest incomes are expected to accept them as part of everyday life. I therefore welcome the Bills proposals. I am also a rather enthusiastic supporter of the national minimum wage, and I cannot accept the suggestion made by the hon. Member for Arundel and South Downs that it will cause millions of jobs to be lost. The evidence, both here and abroad, is that it will help to create employment.

Mr. Flight

Will the hon. Gentleman give way?

Mr. Pond

I will give way in a moment. The national minimum wage will ensure that people in employment have a decent income that will give them dignity.

Mr. Flight

With respect, my point was that, if the minimum wage is set too high, millions of people get priced out of work. It is too high in continental Europe, where unemployment has reached 20 million. That is the risk. Secondly, I remarked that I hoped that the level had been set sufficiently low in this country not to cause that to happen.

Mr. Pond

I thank the hon. Gentleman for that intervention, but he should study the statistics. In the period during which this country pursued low-wage, sweatshop policies and reduced wages and employment rights to a level that would not have been acceptable elsewhere in Europe, proportionately fewer jobs were created here than in many other European countries. [HON. MEMBERS: Rubbish.] Conservative Members have bought the propaganda that this countrys sweatshop economy somehow created jobs. That was not the case, and I shall be happy to give them the details later.

In combination with the national minimum wage, the changes to national insurance contributions and the move towards a 10p starting rate for income tax, the Governments package of measures will mean that the lowest paid will for the first time in many years have the opportunity to have a decent basic level of income.

The working families tax credit will provide well-targeted assistance for those on low incomes. I recognise the expertise of the hon. Member for Northavon (Mr. Webb), but I believe that he is wrong on that matter. Virtually none of the benefits of the working families tax credit will go to those in the higher deciles of distribution, or even to the top 50 per cent. The credit will lift many working families out of the poverty trap, and it will lift the stigma associated with that.

Mr. Gibb

The hon. Gentleman talks about stigma, and about the 30 per cent. who do not claim family credit, a figure that I assume he has drawn from case loads. What does he expect the take-up rate to be of the working families tax credit on the basis of both case load and expenditure?

Mr. Pond

I cannot give a percentage.

Mr. Gibb

Higher or lower?

Mr. Pond

I believe that the take-up will be lower. [HoN. MEMBERS: Lower?] I correct myself: the take-up rate will be higher under working families tax credit because the stigma will be much less than it is under family credit. Any Conservative Member who doubts that should ask what is the take-up of tax allowances in general; take-up is very high because there is less stigma attached to allowances than to social security benefits. Working families tax credit is another form of tax allowance.

My right hon. Friend the Member for Birkenhead (Mr. Field) spoke of the importance of the proposed lop tax band. He talked of clever people who argue that the money would be better spent on increased allowances. The Institute for Fiscal Studies has argued that revenue can help the poorest most if it is spent as allowances. However, that is not so clever: the incentive effects of tax reductions are far more effective if acting on the marginal rate of tax than if given as tax allowances. Tax allowances are poorly targeted: they give most cash to the highest income groups, and no help to those at the very bottom who pay no tax. The value of the working families tax credit is that it is one tax allowance that is effectively targeted at those on low incomes.

Mr. Bercow

We do not yet know how effective the working families tax credit will prove to be, but the hon. Gentleman's analogy with tax allowances is misguided. Does he agree that the point about allowances is that they are universal among those of the population who are in work? The new tax credit introduced by the Bill will not be universal. The same considerations simply do not apply.

Mr. Pond

The working families tax credit is not universal in the sense that it is intended to assist low-income working families with children, just as family credit is. My comparison was between family credit and the working families tax credit, which, because it is a form of tax allowance and associated with universal provision through the tax system, will have a higher take-up rate and less stigma.

Working families tax credit will provide a real incentive to make the transition into employment. The majority of people on low incomes desperately want to work, and I defy any Conservative Member to suggest otherwise. Under current arrangements, those people—and their children—pay a heavy price for making that transition and for pursuing the work ethic.

The Select Committee on Social Security examined proposals for the working families tax credit with some seriousness. The response of my right hon. Friend the Chancellor to our report was published earlier today. The Committee welcomed the attempt to provide greater help to low-paid working families, but it expressed concern about the purse-to-wallet issue, suggesting families should have the option of having the credit paid to either partner as a matter of choice. I am pleased that the Chancellor has made it clear—as did my hon. Friend the Paymaster General—that that choice will be available.

The Social Security Committee also recommended that free school meals should be extended to families who are awarded working families tax credit or the disabled persons tax credit. The Chancellor does not feel able to accept that proposal at present, but I hope that it will be further considered as the Bill goes through Standing Committee.

It has been suggested that working families tax credit may discriminate against single-earner couples. An amendment on that issue was rejected by the Social Security Committee, and it is clear that the only element of discrimination is the wholly justifiable matter of child care disregards.

The Bill represents the end of the Speenhamland system of family credit, and it will mean that working families receive a decent income with dignity.

6.26 pm
Mr. Archy Kirkwood (Roxburgh and Berwickshire)

It is a pleasure to follow the hon. Member for Gravesham (Mr. Pond), who is my hon. Friend on the Select Committee on Social Security. His expertise on this subject is a great advantage to the House.

I believe that the Government are trying to approach these matters holistically through a strategy composed of many elements, of which the Bill is one. Certainly, the Bill makes more sense viewed in that context, but I wonder whether there is more to the tax credit philosophy than is contained in the Bill. If the Chancellor has gone to the trouble of making a measure so complex, I wonder whether he may not have it in mind to develop the philosophy in other directions.

I appreciate that the Chancellor wants to smash down hurdles between benefit and work; we all agree with that objective. However, if he sees tax credits as a philosophy to be introduced to other parts of the benefit regime, we must proceed slowly and carefully to ensure that we do not kill that objective by contriving a bureaucratic and administrative edifice with which to achieve it.

Changing the culture is important, and the Government are trying to do that through all their reforms. Perhaps a tax credit approach is better than a benefit approach. The Government may wish to comment later on whether providing money by tax credit routes is better than doing so by benefit routes. Those matters are important, but I should like to be confident that the Bill is the end of the story and that there is no more to that story. I do not mean it pejoratively when I hint at there being an ulterior motive, but if the Government are thinking about developing tax credits in the round as a future means of reforming the benefits system, it would be better for us all to know that now rather than coming at the matter piecemeal in future.

The Social Security Committee—I am lucky enough to chair it—has considered the WFTC for more than a year, completing three reports. The most recent reports are referred to in the Order Paper, and I hope that that has informed the House of the body of work on which people may draw for information. There have been signs during the debate that some have already done so. Our reports will come into their own in the Standing Committee.

I am pleased that my hon. Friend the Member for Northavon (Mr. Webb) spoke for much longer than I intend to take, and I hope that the Committee of Selection will take that into account when it decides which of us will sit on the Standing Committee: I understand how these things work, and I am keeping my fingers crossed.

I have two concerns that flow from what I have just said. The timing of the Bill is a little precipitate; I would have liked to take longer over the process. I perfectly understand that there is a political agenda and that the Government want to get the scheme up and running for the next election so that they can put it in the shop window, but I hope that, in trying to achieve everything as soon as possible—even by means of one phase in October and one next April—they are not being too ambitious.

The hon. Member for Gravesham mentioned that the Chancellors reply to our most recent Select Committee report was helpful. It suggests to me that some areas still need to be worked on and that consultation is proceeding. However, with the best will in the world, we may not have enough time properly to sort out the issues. My hon. Friend the Member for Northavon eloquently adverted to some of them.

The hon. Member for Brentwood and Ongar (Mr. Pickles) rightly said that there was some concern among Committee members—I felt it myself—that relying on affirmative or, indeed, negative procedure to pass secondary legislation dealing with extra elements connected with the Bill is inadequate. The Committee adverted to the fact that the Procedure Committee has been considering so-called super-affirmative orders, which need the Houses special attention and could be amended. Nothing has happened to that recommendation. I should like to enlist the support of those on the Treasury Bench in trying to get the House authorities to look again at the matter.

I confess that I have changed my mind on the issue. Early in my career, when I was the social security spokesman for my party, I always argued that Departments should enshrine everything in primary legislation. The system is now so complicated that it is impossible to do so meaningfully, and there is a case for skeletal enabling Bills. To be fair to the House, even an affirmative, take-it-or-leave-it statutory instrument debate of an hour and a half, sometimes late at night, ending in a vote, is often inadequate. If the Departments involved can put pressure on the Modernisation Committee, the Leader of the House, and the Government Chief Whip, I would be encouraged. If the Government could say that such secondary legislation procedure will be given better consideration, I would have more confidence in this Bill turning out correctly.

Mr. Oliver Letwin (West Dorset)

I have been listening to the hon. Gentleman's recent remarks with the greatest possible interest. Will be speculate on the possibility of pre-legislative scrutiny by his Select Committee of cases as complicated as the one we are debating? Would he favour that?

Mr. Kirkwood

In principle, I am in favour of more pre-legislative scrutiny. In three sections over the past year, the Select Committee produced a report. We took a birds eye view of all the evidence in the public domain, took evidence from interested parties, which took a long time, considered the commission headed by Martin Taylor that the Government set up following the pre-Budget statement, and produced a report on implementation of tax credits. I accept that that is not pre-legislative scrutiny, but it comes as close as possible to it in the circumstances.

I would not like to begin experiments with pre-legislative scrutiny on such a politically contentious Bill. We have a way to go before Select Committee procedures are adapted so that they may conduct pre-legislative scrutiny maturely. In principle, however, such a prospect would certainly have been interesting.

I should like to point to a few of the Select Committees recommendations, which I think are particularly important if we are to make the best of administrative difficulties. In order to try to smooth out peak demand, we recommended that during the first three months of WFTC only, provision should be made for new awards of Family Credit to last seven months —a full 30-week period—

so that, in future, work can be distributed more evenly throughout the year. We visited the family credit unit in Preston, where some very fine work was being done. I was impressed, as were other Committee members, by the staffs commitment to make the proposed system work. They are confident that they can get through much of it. It was clear, from the nature of family credit, that there are two big peaks in work load. If some steps can be taken to smooth out the incidence of work as it falls on staff, there would be a better chance of dealing with some tricky administrative problems. At no extra cost to the Government, that could be considered and resolved.

Secondly, administration costs of the scheme will impose a financial penalty on small employers if we are not careful. I understand what the Government have said. My hon. Friend the Member for Northavon was eloquent on this point. The Minister will know of reimbursement schemes in the statutory maternity pay system. I tabled a written question on the matter on 5 November. The system entitles small employers to an additional 7 per cent. of the payment of statutory maternity pay. Even if we restrict such a scheme to small employers, there is certainly a prima facie case for considering some reimbursement for the administrative costs that will inevitably fall on some small businesses, which are not able to consider such costs with equanimity. The Government should look to that.

Thirdly, the integrated benefit information system of providing better-off advice—IBIS—is not yet reliable enough. The Inland Revenue will have to do much work so that it may more expeditiously provide better-off calculations for people who are contemplating moving into work and off benefit. The Committee recommends the provision of accessible points of contact in local areas where such advice is readily available. That can and should be done. Indeed, it is in the Governments interests to do so in order that they maximise the benefit take-up.

If we change the tapers to take the benefit further up the income strata, we are likely to make more people eligible to tiny amounts of money. That is a disincentive to take-up. If people are eligible only for 50p or less than £1, they will say, What is the point of the hassle? The Minister must recognise that the Government might find low take-up rates because people will not be bothered to claim a few pennies.

Martin Taylor was very honest and open when giving evidence to the Select Committee. He spoke of the importance of culture changes, to which I have referred. He said: the drivers in these cases are not purely financial. He also said that, when it comes to the incentive effect,

we are dealing with intuition rather than any scientific proof. For my money, I will watch this piece of legislation very carefully. I am prepared to be persuaded that it can be successful. It will be successful for me only if it succeeds in getting people off benefit and into work in big numbers. I would feel a little more comfortable if the Government had an idea of what measure of success they will apply. What test, what scales of justice, will they use to measure the effectiveness of the legislation? That important question will take time to resolve, but hon. Members on both sides of the House will be very interested in the answer.

A very important question lies behind the Grundy issue which has permeated the debate. Agricultural businesses find it very difficult to access family credit or any other means-tested benefit because of their income streams and the way in which their accounts are structured. The test period for income which determines eligibility to family credit is very difficult to ascertain. Mr. Grundy and many of my farming constituents would be an awful lot happier and would sleep easier in their beds at night if specific measures, forms and application methods for agricultural workers enabled easier access to benefit.

6.39 pm
Yvette Cooper (Pontefract and Castleford)

I welcome the opportunity to speak in the debate, because I believe that the working families tax credit embodies several important principles. It is not just about a small, detailed mechanism to change the workings of the tax and benefit system. There are principles at stake: first, about making the system fairer; secondly, about directing more support to children; and thirdly, about encouraging work. Yes, it would be possible to go further in pursuit of all three principles, and I believe that, in the long term, we should do so, but this is a right first step in that direction.

Interestingly, many technical and practical issues have been raised tonight—primarily by the Liberal Democrats—but the debate has also revealed deep differences of principle between the Government and the Opposition. I am astonished that the Conservatives so strongly oppose not only the Bill, but the additional £1.5 billion for low-income families. I qualify that by saying that I assume that that is still their position, because a U-turn seemed to be taking place at the Dispatch Box earlier this afternoon. [Interruption.] Perhaps the hon. Member for Brentwood and Ongar (Mr. Pickles) or the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) would like to qualify that. Unfortunately, they are obviously not prepared to state their exact position on that additional £1.5 billion. That seems to be the critical issue at stake.

Mr. Gibb

Does the hon. Lady accept that much of that £1.5 billion will be wasted because it is spread way up the income scale, to people on £28,000, £30,000 or £35,000—even people on 38,000? Does she accept that point?

Yvette Cooper

No, I do not accept that point. Undoubtedly, most of that additional money will go to low-income families in the bottom two deciles of the income distribution. A few families higher in the income scale will get additional money because they have child care costs. If a family on £38,000 have five children needing child care, good luck to them—they will probably need the help. However, there are very few of those families, and the real additional help is being concentrated in the pockets of low-income families.

It is interesting that the hon. Member for Bognor Regis and Littlehampton obviously objects to additional child care help for those families on £28,000. I shall return to that subject later.

Mr. Owen Paterson (North Shropshire)

Will the hon. Lady give way?

Yvette Cooper

I shall give way later; I want to make progress first.

A family in my constituency approached me about their financial situation, and I wrote to the Paymaster General about it. The couple are working more than 60 hours a week between them, and they told me that they reckoned that they were about a tenner better off in work than they would have been on benefit. That is not fair, and it is not a good incentive for the couple to stay in those jobs.

I received the following answer from my hon. Friend the present Paymaster General. With the minimum wage, and with the working families tax credit combined with the child care tax credit—because the couple have one child in part-time child care—the familys existing income of £228 per week after tax will increase to £263 per week. That is an increase of £35 per week—a 15 per cent. increase. Effectively, the Conservative Opposition, by opposing the Bill and saying that they want to abolish that additional spending, are saying that they want a 15 per cent. increase in that familys tax bill. They want to present that family with a huge tax bombshell, instead of giving them the help which I think that they need.

It tells us a lot about the Conservative party that, throughout the passage of the Bill that became the Finance Act 1998, the Conservatives tried to block any closure of tax loopholes—which, effectively, are tax breaks for the rich—and yet they are determined to block tax breaks for low-income families.

The working families tax credit has two main functions—to support children and to support work. Measures to support children, increase their well-being and get them out of poverty have often acted as disincentives to work. Equally, measures to try to help people into work have penalised families and pushed them further into poverty. The important thing about the working families tax credit is that it targets both measures.

I believe that the help that the working families tax credit will give low-income families—especially children—to get them out of poverty should be sufficient reason to support the Bill, and to support the extra £1.5 billion that will go into that tax credit. Thirty-two per cent. of children grow up in poverty, in households on less than half the average income; that means less than about £185 a week for a couple with two children. However, childhood poverty is even more damaging.

We should take into account not only the number of children in poverty today, but the impact that that poverty will have throughout those childrens lives. Research by Paul Gregg and Steve Machin shows that the children of families who face financial difficulties are far more likely to leave school early, to end up in crime, to have contact with the police and to be less healthy throughout their lives. The legacy of that poverty will linger. We have an obligation to tackle poverty now, not only because of the situation today, but because of the inter-generational inequalities that will persist for decades. Therefore, raising the income of so many families by, on average, £17 per week makes a difference. It will improve childrens health, and adults health in 10 or 20 years time.

The second aim of the working families tax credit is to support work. That matters, partly because the greatest cause of poverty among children is unemployment among their parents. That gives us a strong reason to help parents into jobs—not only so that they can set a good example for their children, but so that they can bring more money into the household.

We have had a few contributions about the lack of evidence on work incentives, and whether raising peoples income by giving tax credits will make a difference to work incentives and encourage more people into work. I understand that the Institute for Fiscal Studies, in soon-to-be-published work—mentioned by the hon. Member for Northavon (Mr. Webb)—suggests that between 30,000 and 40,000 more women will be encouraged into the work force as a result of the working families tax credit. I believe that the IFS simply considered the impact on women, especially lone parents, but I understand that a success rate like that would have the added bonus of saving about 15 per cent. of the extra costs of implementing the working families tax credit.

However, that estimate is conservative compared with those that result from other academic work. I have not read that piece of research yet, but I understand that it has some econometric limitations, which would make it not as reliable—

Mr. Gibb

Perhaps I may help the hon. Lady. The IFS says that, on its estimates, only between 30,000 and 45,000 individuals will enter work as a result of the measure. It is costing £1.5 billion to put 45,000 people into work; that is £33,000 a job. Does she consider that that is taxpayers money well spent?

Yvette Cooper

I have argued from the start that this measure is primarily about helping children, but that it has the added bonus of creating work incentives. The IFS estimate is very conservative, so I do not accept those figures as they stand.

Mr. Webb

The hon. Lady has made a powerful case for spending the money, and for supporting children. I presume that the IFS model takes into account only lone parents, which is where the plus 40,000 figure comes from. I presume that the IFS has not considered woman second earners who are married. Does she accept that, almost certainly, the marginal effect of the tax credit on all those who are currently receiving it will be to reduce their work incentives?

Yvette Cooper

I do not know whether the IFS has included second earners. The hon. Gentleman is right to say that it would be easier not to. I believe that the impact on second earners is unclear because of the child care tax credit. There has never been any modelling of the impact of that type of child care tax credit, and that type of child care help—for which those second earners would be eligible if they went out to work. There is a complete lack of information on the subject.

I do not want to spend too much time on the IFS report, because I do not consider that it has made the most reliable estimate. The most reliable work, which I mentioned earlier, was done by a very well-thought-of economist called David Card, on an experiment in Canada. It was research not on the Canadian system, but on a specific experiment with lone parents. Half the group, assigned randomly, were entitled to a credit of a similar value to the working families tax credit; the rest were not. The two groups were compared to see what the impact on their employment would be. That is probably the most reliable economic assessment under current circumstances, compared with all the other studies that have been carried out.

It was found that the employment rate doubled among those eligible for the additional help. That represents a huge impact. Among the people who were not eligible for the extra help, the rate was 12 per cent. Among those who were eligible for the extra help, it was 25 per cent. That is a massive increase in the proportion choosing to go into work as a result of the measure. We should be pleased about that, but it is an added bonus. We should remember that the main purpose of the measure is to get money into low-income families and help to support children. The strength of the proposal is that it would achieve both objectives. It would not either help children or provide an incentive for work; it would do both—a double whammy, effectively, increasing the labour supply—

Mr. Pickles

I am grateful to the hon. Lady for giving way. She is making an interesting speech and my remarks are not meant to trip her up. She has been forthright about what would constitute a success. The figure of 40,000 clearly would not be—that is regarded as a conservative estimate. In a year or two, when the measure has had an opportunity to bed in, how many people would have to be brought back into the labour market in order for it to be regarded as a success?

Yvette Cooper

I do not think that we can specify a figure. The working families tax credit will be a success if it simply manages to get an extra £17 a week, on average, into the pockets of low-income families. I would regard that as a success, because it is so important to help the children living in poverty and the families who are struggling to support them.

Miss Kirkbride

Family credit does that.

Yvette Cooper

It is interesting that Conservative Members are calling from a sedentary position for those families to be given family credit. Will any of those hon. Members stand up and say that they want an extra £1.5 billion to be spent on that? There are two key elements to the measure. One is the extra money—the extra generosity—to help low-income families. The other is the change in the structure of the tax and benefit system to encourage people into work. Conservative Members clearly do not support that. None of them has stood up.

There is a further important element, if the proposal is to work, which has been touched on by other hon. Members. There is a fear that money will be given away and swallowed up by employers, because they will cut wages. Working families tax credit would not work without a minimum wage. I do not believe that family credit could ever be substantially extended or expanded without a minimum wage. How could people be convinced that taxpayers money would be spent efficiently, unless there were a floor on wages and on what employers could do in response to in-work benefits? Without a minimum wage, there would be no bottom line.

Opposition Members should be honest about their own arguments and their apparent concerns. They should recognise the strength of the case for introducing a minimum wage. That would allow in-work support, in the form of the working families tax credit, to act as a work incentive, to encourage more people into work and to get more money into the pockets of low-income families.

The Conservatives are trapped in a ludicrous ideological corner on the issue. Do they want the extra £1.5 billion to be spent on working families? Their motion states that they will oppose the Bill because it will increase the costs of social security … and … increase benefit dependency. Cost seems to be a factor for them. They seem reluctant to spend the extra £1.5 billion—presumably, they want to cut it.

The hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) has said previously that the Conservatives would cut the working families tax credit. I did not understand the comments of the hon. Member for Brentwood and Ongar at the Dispatch Box. He seemed to be all over the place. Would he cut the £1.5 billion extra spending on the working families tax credit or not? A simple answer, yes or no, would help to clarify the position for the House and for my constituents, who want to know whether they will have to pay an extra £35 a week at the next election.

Those are important questions, but the Conservatives are prevaricating. They are not sure what they want to do about the £1.5 billion. The last we heard—

Mr. Pickles

The hon. Lady was no doubt present for the Prime Ministers speech to the parliamentary Labour party at Church house on 7 May 1997. When he said that he would reduce social security bills, did she heckle him?

Yvette Cooper

The aim of effective welfare reform is to cut the spending on the bills of failure, for which the Government that the hon. Gentleman supported were responsible for so long. It is tragic that they spent money keeping people trapped on benefit, rather than providing proper incentives to get those people into work.

The Conservatives do not know what they want to do about the £1.5 billion or the working families tax credit. Their leader said relatively recently that he wants to spend £5 billion on a transferable married couples tax allowance. Perhaps that proposal has now been quietly dropped and the £5 billion has disappeared, unexplained, along with the £1.5 billion.

Mr. Paterson


Mr. Bercow


Yvette Cooper

Alternatively, perhaps there has been another U-turn on the £5 billion transferable married couples tax allowance.

Mr. Bercow

I am sorry to trouble the hon. Lady. The speech made by her right hon. Friend the Prime Minister on 7 May 1997 was explicit. He said that there should be far-reaching reforms that will tackle insecurity and poverty, as well as reducing social security bills. Does the hon. Lady understand? There was no reference to the bills of economic and social failure. The Prime Minister called specifically for a reduction in social security bills. The Governments measure will increase those bills. Why did she not condemn and heckle him at the time, as she should have done?

Yvette Cooper

The hon. Gentleman is desperate to think of something to say, because his party has no answer to the question of what it would do about the Bill, and whether £1.5 billion should be put into the hands of low-income families. I believe that that would be a worthwhile use of Government money.

Do Conservative Members think that the £5 billion transferable married couples tax allowance proposed by the Leader of the Opposition is a worthwhile use of money, when it would presumably put extra cash into the hands of Greg and Carla, the couple of strangers who married yesterday, having only just met? The people who would lose from the Opposition proposals are families who do not have enough income to keep going and to keep their children out of poverty.

Mr. Julian Brazier (Canterbury)

The answer to the hon. Ladys original question is yes. I, like most Conservative Members, strongly support our leaders commitment to that policy. However, the hon. Lady is wrong about two of the details that she has given. The cost would not be as much as £5 billion, and she knows perfectly well that the couple to whom she referred would not be eligible for the allowance, as they are not supporting children or disabled relatives.

Yvette Cooper

In that case, what does the hon. Gentleman believe that the benefit would cost? Where would his party get the money, given that it already thinks that the Governments spending plans are reckless, according to the right hon. Member for Horsham (Mr. Maude), the Opposition Treasury spokesman?

The Conservative Opposition do not have a position on the working families tax credit, nor do they know what to do to tackle poverty or help families on low incomes. It is sad that they cannot come up with more intelligent alternatives.

However, the Liberal Democrats have come up with sensible points that are worth discussing in detail. Their main point is that they consider the measure to be inefficient. I disagree. The focus on efficiency stems from a view that the system must be pure and simple, and target one problem purely and efficiently. That is an academic economists approach. In fact, the Bill has two separate aims, and it is not possible to achieve both with complete efficiency. It is not possible to produce a perfectly efficient system helping to tackle child poverty, which also provides work incentives. The Bill will do both those things.

My hon. Friend the Member for Rochdale (Lorna Fitzsimons) advanced a credible argument about the benefits for women. We are not talking just about the huge benefits for women who are lone parents or main breadwinners; they will clearly benefit.

Mr. David Ruffley (Bury St. Edmunds)

The hon. Lady, whose remarks have been entertaining us, will know that the system that we are discussing will not allow a woman in a two-parent single-earner family to claim the child care allowance. A similar system in the United States led to family breakdowns and the non-declaration of couple relationships. What evidence has the hon. Lady to demonstrate that the American experience will not be duplicated here?

Yvette Cooper

The American and Canadian systems have been raised repeatedly throughout the debate, but I think that, in many ways, they are not comparable to the system that we are proposing. Many of the problems inherent in both those systems have already been incorporated in the British arrangements for dealing with benefits and income tax.

The benefits for women that the Bill will provide will not only have a huge impact on womens incomes, but give them flexibility when they choose whether or not to work. Conservative Members are very foolish if they want to spend the next three years campaigning against help with child care for women who desperately want to work, and who want to be able to choose to work. The Bill will make a huge difference. It will not just help people in the short term, assisting them to find employment and secure a better future; it will tackle inter-generational problems. It will help those peoples children during the next 10 years, and the next 20 years.

That is why I think that working families tax credit is so important. I wish that the Conservatives would get their act together, and would realise what a benefit it will be for low-income families.

7.3 pm

Mr. Julian Brazier (Canterbury)

I shall not attempt to follow what was said by the hon. Member for Pontefract and Castleford (Yvette Cooper). I shall merely say that, although nearly every hon. Member would support the aims that she espouses, she seems to be seriously confused about how to achieve them. Perhaps the best example of her confusion was to be found in her closing remarks: she observed that we should not draw parallels with the American and Canadian experience only five minutes after stressing that the best work had been done in a Canadian experiment. What she said was entirely inconsistent.

I say in all humility, because I do not intend to make an especially party political speech, that as I listened to the Paymaster Generals opening speech my mind was taken back to a time in 1988, just after my election, when, listening to proposals for the sweeping changes that we made shortly afterwards, I was convinced. A small number of very intelligent voices were raised from the Back Benches on both sides, making criticisms that struck me as arcane in the extreme. I particularly remember the voice of Sir Brandon Rhys Williams on our side, and that of the right hon. Member for Birkenhead (Mr. Field) on the Labour side. Within two or three years, I had decided that what we had done in 1988 had been profoundly mistaken, and that the lone voices had been right.

I am sorry to say that I think that, far from reversing those mistakes, the Government are going down exactly the same path. They are making the same mistakes, while including far more people in them. I believe that the cost, in terms of both social misery and expense to the taxpayer, will be horrendous. The Paymaster General spoke of helping people into jobs, reforming the tax and benefits system and rewarding work; she referred to the problem that those in work can currently earn little more than those not in work, to ceilings on earnings through the various tapers and to increasing thresholds. Above all, several Labour Members have mentioned targeting. That is exactly the language that we heard 10 years ago.

I have five arguments against the measure. Several of them apply to earlier measures, but each one shows that the outcome of this Bill will be worse than the outcome of the provisions that it will replace. Let me begin with the effect of pulling more people into the means-testing traps. The Government estimate that an extra 400,000 people will be involved, but I believe that the number will be much greater.

We have heard the quibbling objection that the working families tax credit is a tax relief rather than a benefit. I personally support the idea of focusing on tax reliefs, not benefits. I strongly support the commitment of the Leader of the Opposition to a policy for which those of us in the Conservative family campaign have argued for a decade, favouring transferable tax allowances for families containing one earner supporting another who is caring either for children, or for an elderly or disabled relative. I also support child tax allowances.

The objection that was raised all those years ago to such universal allowances—an objection that is now being raised by Labour Members—does not focus enough on what matters. Ultimately, we all have the same objectives in this regard, although that does not apply to issues that I shall raise later. The problem is that, in attempting to focus on low earners, the Government are doing exactly what we tried to do in 1988, on a smaller scale: they are trying to push money towards people, and then withdraw it on a taper.

As a number of speakers—including the right hon. Member for Birkenhead—have observed, the catch is that the result will be a taper that is much higher than the going rate of income tax, which overlaps with a number of other tapers. Housing benefit is one of the most obvious examples. We heard a good deal of rhetoric earlier about people in work finding that they are earning little more as the taper goes up. That is exactly what will happen in this instance, but with a difference: more people will be involved and there will be more cost to the taxpayer.

That brings me to my second objection, which relates to complexity. There is a rather odd point here. Superficially, the proposed measure may appear simpler than the existing arrangements. The objection of the right hon. Member for Birkenhead, Sir Brandon Rhys Williams and others was based on the absurdity of a system under which people who were paying tax were also receiving means-tested benefits, which resulted not only in disincentives but in considerable cost.

It might be thought that the fact that both the tax and the working families tax credit will be handled by the same organisation would make the system simpler. Far from it. The problem comes when we hit the real world. I happen to have a couple of direct windows into these matters: my father owns and runs a small business, and my wife works part time for another. In the real world, fewer and fewer people earn the same each week. Not only does money go up and down because of overtime, it is heavily affected by bonuses, which are sometimes paid weeks or months in arrears.

For a short time, I worked for a business in which bonuses were calculated each week, but were paid a couple of weeks in arrears. As everyone knows—or should know—such arrangements have landed DSS offices with a complicated family credit problem. We are taking the administration away from a series of local offices that have learnt to cope with it and dumping it on to our small businesses. Few people believe in privatisation more strongly than I do, but this is a privatisation too far. Asking struggling small businesses employing a handful of people to take on such an administrative nightmare—week after week after week—is too much.

That, I understand, is one of the major reasons why the Canadians, following a groundswell of public pressure, are abandoning their system after five years, which brings me to my third argument.

Mr. Ruffley


Mr. Brazier

Inevitably, my third argument is fraud, as my hon. Friend has guessed.

Hand in hand with the problems of complexity tend to go those of fraud, for exactly the reason that was so articulately discussed by my hon. Friend the Member for Arundel and South Downs (Mr. Flight). As he rightly said—and as the Social Security Committee, under the chairmanship of the right hon. Member for Birkenhead, said in the previous Parliament—most people who get involved in fraud do not deliberately aim to cheat the tax system or the benefits system. They become involved because they find the system too complicated. They are asked a lot of questions and would lose a lot of money if they answered honestly, so they get sucked further and further down the slippery slope.

The proposed system will prove even more complicated than the previous system, will involve an even larger number of people and will—incredibly and for the first time—bring employers into asking employees about their capital holdings. The scope for increased fraud and complexity is very much greater than under the old system.

That brings me to my fourth objection. All my hon. Friends who have spoken have said that the measure is an attack on the traditional family. I ask the House to think about that for a moment. There will be an impact on the traditional family. Whether mothers will be allowed to register as carers or not is a grey area. I fear that the answer will be no, although we do not know because that is dealt with in one of the Henry VIII clauses. If they are allowed to do so, the measure will become incredibly expensive. If they are not, here will be another Government policy that subsidises child care while doing nothing at all for low-income families in which one parent is caring for small children.

Most of us would accept that hon. Members on both sides of the House are trying to bring their own views and experiences to the debate but, of all the remarks that have been made, the one I most resented was made by the hon. Member for Gravesham (Mr. Pond). He intervened on my hon. Friend the Member for Brentwood and Ongar (Mr. Pickles) to challenge him about people earning £38,000 gaining from the measure, and asked how many families have five children.

Let me put on the record, because the hon. Gentleman is not in the Chamber, the story of a family with five children who visited my surgery on Saturday. Two of those children are by a previous marriage, and they were severely mistreated by the previous husband. The present husband, who does two extra jobs and works a seven-day week, is struggling to bring money in for his family, including the two daughters by the previous marriage. His income is at such a level that the difference that the measure will make to him can be measured in pence.

I wish that I could share with the House the resentment that my constituent feels about the people who are, as he sees it, sponging off the existing system. They will now receive considerable extra sums as a result of the measure. I do not know whether we can call the measure family friendly, because the word family seems to mean different things to different people, but it is deeply unfriendly to marriage.

My fifth and final point relates to cost. People talk as though the extra cost—£1.5 billion—is a relatively small sum, and Labour Members have suggested that we are being petty because we are concerned about the way in which the money is being spent. Of course we are concerned. The biggest single cost arising from the benefits system—the biggest single driver—is the cost arising from the dynamics of the system. Sir Brandon Rhys Williams was the first to make the distinction between the dynamic model and the static model for the benefits system, and the right hon. Member for Birkenhead and others have since run with that distinction.

There is a difference between a dynamic model—a system based on genuine incentives, not only to work, but for married couples to stay together and to raise children—and a static model focusing on existing need. I leave this thought with the House: the rhetoric with which the Paymaster General began the debate could have been lifted word for word from the announcement on benefit changes made by the Conservative Government in 1988.

The difference is—[Interruption.] Had the Paymaster General been present earlier in my speech, she would have heard me give six examples from the speech made from the Government Front Bench at that time. Whatever her commitment, and whatever she may claim, this measure is going in the same wrong direction as the 1988 measure, but embraces a much larger number of people.

The Paymaster General and a series of Back Benchers have embraced the measure enthusiastically, although the Canadians have had to abandon their system after five years. I say to new Members of the House that I bitterly regret supporting those measures in 1988. I believe that, within a year or two, they will come to regret supporting these measures.

7.17 pm
Ms Sally Keeble (Northampton, North)

I am grateful for the opportunity to speak in a debate on what will be considered to be one of the Governments radical, reforming welfare measures. We have had an interesting and constructive debate. I disagree with many of the views expressed by Conservative Members. In particular, I do not agree with the conclusions reached by the hon. Member for Canterbury (Mr. Brazier), although I acknowledge a number of the pressures that he identified. We must address them, and I hope to deal with some in my speech.

I am not speaking as a great expert on social security, but I have drawn on the experiences of my constituents, who will be a touchstone for the measure, as they are for so many other Government policies. My constituents are by and large on relatively low incomes, although they would not regard themselves as poor. Average incomes are between £15,600 and £16,400, so many of them will draw some benefits from the range of measures in the Bill.

Many women in my constituency work, although perhaps not full time, and their incomes are important in providing a reasonable life style for their families. They are very pro-family, and we need to make people absolutely sure that these policies are about supporting families and enabling people to give their families the kind of life style that they want, in the way that they want. I share my constituents views on that.

There are many family breakdowns in my constituency, because of the current pressures on families. Cases concerning families with five children from two different partnerships are common. Many of the women who come to my advice surgeries ask about the ways in which they can go back to work and reorganise their lives after the breakdown of their relationship with their partner.

I am sure that the Bill will be welcomed by my constituents, including families on low income, who want family earnings to be topped up in some way so that they can enjoy a better lifestyle. It will certainly be welcomed by single parents; I have already seen much evidence of that.

The Bill will be welcomed by other people who want the welfare state to be reformed. The point was picked up by my hon. Friend the Member for Pontefract and Castleford (Yvette Cooper). The Bill will be, and will be seen to be, an important measure to reform the welfare state, because one of the most important reforms that we can achieve is to get people off benefits and into work so that they can be financially independent. Many of my constituents would be prepared to pay quite a high start-up cost, because they know that, in the end, there will be a saving to them, and that the burden of taxes that they pay will be lower. I assure hon. Members that that issue comes up frequently on the doorstep.

The working families tax credit will—although perhaps not in itself, because there is the extra cost of the £1.5 billion—be an important way of breaking the cycle and getting people back into work: it will make work pay for many more people on low earnings. In doing that, it will ensure that more people, once they get off benefits and into work, stay in work and leave the revolving door that takes many people out of low pay on to benefits and back on to low pay. That will be a huge benefit for all concerned.

The working families tax credit will ensure that people feel that, when they go into work, they will not have to go through the social security system—a humiliating system to have to negotiate—to claim benefits and top up their pay packet. The Bill will end that stigma.

I understand the point about the need for confidentiality at work so that the employer does not go blabbing around the workplace about what different employees are getting from them and what they are getting from the welfare state. I understand that, because many of my male constituents have told me how aggrieved they are when their employers start chatting about who is paying what to the Child Support Agency. I am sure that that can be dealt with. The employer will not gain confidential information from the application form in the same way that, the minute a letter from the Child Support Agency comes winging through the employers letterbox, he finds out that one of his employees is in trouble with an ex-partner.

The Bill will be warmly welcomed because it is profoundly pro-women. That is important. We have looked at some of the figures. Half of family credit claimants—this has been mentioned often this evening—are single parents and almost all of those will be women. The working families tax credit deals in particular with some of the real barriers that have stopped women, especially single women with children, from going back to work, and it will encourage many more women to come off benefits and go into work.

I profoundly disagree with the people who say that the Bill moves money from the purse to the wallet. It will provide liberating benefits for many women because of the child care tax credit. For the first time, as far as I know—and I have two young children and have to pay an enormous amount in child care costs—a Government have recognised how much it costs to have children properly looked after, and have made some reasonable allowance for that, which women will recognise reflects the real costs of child care.

The Bill provides flexibility. That is important, too—particularly in my constituency, because many women in my constituency do shift work. They work at places that have 24-hour operations: call centres, retail places, packing and distribution companies and so on. They need to be able to get child care that operates at different times and can suit their working hours.

Let me pick up some of the points that hon. Members have made about whether parents can pay granny to look after a child. The Government are right to have certain restrictions on who can be paid child care costs. I confess that I have forgotten some of the details of the restrictions, but the Government are right to limit the measure to people who are properly qualified and registered, and to premises that are properly registered.

It is important that, if the Government pay money for something, they insist on quality. Given the panics and scares about low-quality child care and the fact that the Government, through the Department for Education and Employment, are trying to drive up child care standards, it is important that we insist on those same standards if money is being paid to someone to do the purchasing themselves. If we were paying the money to a local authority, we would insist that they buy to standard. If we pay to an individual person, the same rules have to apply.

Some ask, Why cannot an auntie be a child minder? If she goes through all the requirements that are needed to register and gets the premises inspected, I assume that she can be a child minder and operate as a child minder would, but it is right for the Government not to pretend that family care and professional child care are the same thing. There will always be a difference between people who decide that they want a family member to provide family care for their child and people who want to have a professional child minder, professional nursemaid or whoever to look after their child.

Anyone who has had to make arrangements for child care—the child might be looked after in a child minders place for a while, then picked up by a family relative or friend and taken elsewhere—knows that there are differences in the type of care that is provided. It is right to reflect those differences in the way in which we pay benefits to parents.

Mr. Flight

While I understand the logic of what the hon. Lady is saying, does she not feel that that is a somewhat elitist view in that, in many communities, people are used to their children being looked after by the extended family and their neighbours, many of whom may be just as good at looking after children as a qualified professional? I fear that, if the measure is confined to qualified professionals, it will be satisfactory for graduate women who have careers, but it will not help people who are less well qualified and who are used to a different sort of child care.

Ms Keeble

I am grateful to the hon. Gentleman for giving me a bit of breathing space. Those are difficult issues, but, in many communities, particularly in new towns—and half my constituency is a new town, where many women work because, by and large, new towns grew up with that ethos—many people do not have extended families, so we are dealing with different communities. Some people may find that, with the hours they work, it is not convenient for a family member to look after their child.

The other factor—it comes back to the point that I made earlier—is that, by putting enough money into the child care tax credit, the Government are giving women a choice. The choice is not just a financial one; it is also about the type of care. It is important that women have that choice. I do not think that it is elitist to say that they can choose between an auntie and a child minder. The sort of money that the Government are putting into the scheme makes a child minder a realistic possibility and will probably mean that the child minder is paid more than the current rate, because some of the pay rates that child minders get are abysmal. One has only to work it out. Many women are paid under £4 an hour, so if they have to pay a child minder, the child minder will receive still less. The Government are doing the right thing in respect of the financial arrangements.

There are many issues concerning standards and quality and how much the state should intervene in family care—for example if an auntie looks after the children. I have spoken to women in my constituency who are deeply concerned about early-years care. They spend a great deal of time discussing the matter and, although they have not reached any firm conclusions, they definitely want a choice. Finance is a big barrier to choice, and the Bill addresses that.

Even if they have had jobs previously, many women returning to work have to accept very low pay. The working families tax credit recognises that problem and provides better tapering. Many women returning to work assume that they will receive benefit for a while, but are concerned that when their income increases they will disappear off the radar screen, lose their benefits and be back where they started. The improved tapering will therefore prove significant.

The Bill clearly puts an end to the link between single parenthood and welfare dependency. My right hon. Friend the Member for Birkenhead (Mr. Field), who made an interesting and stimulating speech, referred to that, and I agree with much of what he said. The Employment Service presented a roadshow in Northampton promoting to single parents the benefits of the new deal. It distributed leaflets about in-work benefits and had some early discussions about working families tax credit. Women were extremely interested in the information and have responded positively to all the measures. Women with partners in work pass on the information to friends who are single parents.

The working families tax credit will also benefit women who are second-income earners in families on low incomes who cannot afford child care costs.

I also welcome the disabled persons tax credit, which has not been discussed very much this evening. It will provide proper support for disabled people who work. In my constituency, a factory called Nordis Industries which makes soap and other products for major retailers has encountered problems with grants that were frozen by the previous Government—and I admit that the freeze was extended by the present Government. The disabled persons tax credit will help to restore the earnings of some employees at that factory. I very much welcome that.

My hon. Friend the Member for Pontefract and Castleford said that the Bill would help children. The main causes of child poverty include having a lone parent or a disabled parent.

The Bill includes some of the key principles of Labours proposals for welfare reform, and I welcome that. That is certainly one reason why the measure is popular in my constituency and elsewhere. The Tories turned the welfare state into a latter-day opium of the masses. It lulled people into accepting a completely unacceptable lot by giving them just enough money to get by, but not enough to do anything or to try and change their lives.

Much has been said about the Tories plans for the working families tax credit at the next election. One has only to look at their track record—particularly in respect of supporting single parents. Like many Labour Members, I saw employment training schemes for lone parents being shut down because of the lack of money, and whole generations of families in inner cities relying on the welfare state. I am pleased that the Government are determined to break that pattern so that the welfare state becomes a solution instead of being part of the problem. We shall make sure that the welfare state promotes the work ethic, supports families, encourages initiative, promotes social and financial mobility, supports aspirations and gives people a real opportunity to put their lives in order and provide for themselves and their families.

The Bill also integrates the tax and benefits system—a policy that could be taken further. Much has been made, particularly by the hon. Member for Northavon (Mr. Webb), of the fact that it does not include measures in respect of home ownership. I have two comments about that. First, my constituents who come to see me about problems with home ownership have mortgage difficulties because of their income levels. Many of those difficulties will be addressed in the Financial Services and Markets Bill, which will provide greater protection for home buyers and those with mortgages. Secondly, for many people on low incomes, the problems of home ownership involve not only mortgage repayments, but the capital costs of maintaining a property.

During the 1980s when the Conservatives were in government, the then Department of the Environment carried out a major study on the costs of inner-city home ownership; sadly, it was never published. It showed that home ownership was a financial burden on people on the lowest incomes. They could not afford to maintain their homes so the capital value of an important capital asset would decline. Home ownership is much more complicated than the hon. Member for Northavon acknowledged.

The main principle of the working families tax credit recognises and removes the barriers to work. The Bill also has to be viewed in context. Many of those who have criticised the measure tonight have considered it in isolation, when it should be looked at in conjunction with the national minimum wage and the new deal programme, as a total package to get people into work, to make sure that work pays and to remove incentives to move out of work.

I believe that, in future, the working families tax credit will be seen as a great breakthrough for the welfare state. It will bring huge benefits to many families in my constituency who are on low or not very generous incomes. It will be a liberating force for many women and I am pleased to support it.

7.38 pm
Mrs. Jacqui Lait (Beckenham)

I begin by adding my welcome to the two hon. Ladies on the Government Front Bench. Let me say to the Paymaster General that I shall miss our annual bouts on smuggling and bootlegging tobacco and alcohol, but I welcome the Financial Secretary to a similar fate. Before moving on, I mildly observe that capable as both hon. Ladies and my hon. Friends on the Opposition Front Bench are, it is sad that the debate on a Bill that was advertised as crucial to the Government policy has not been graced by the presence of either the Chancellor of the Exchequer or the Secretary of State for Social Security. Their presence would have reinforced to the public that the Government take the issue seriously. The Opposition take it seriously, and we have had a wide-ranging and interesting debate. I agree with the points made by my hon. Friend the Member for Brentwood and Ongar (Mr. Pickles) and other hon. Friends who have spoken. Rather than reiterate them, there are a number of specific issues to which I wish to refer.

The right hon. Member for Birkenhead (Mr. Field) said that, primarily, the measure was designed to help lone parents. All of us know that under the heading of lone parents we lump together those who are widowed or divorced, and those who have never had a stable relationship.

My hon. Friend the Member for Canterbury (Mr. Brazier) and the hon. Member for Northampton, North (Ms Keeble) referred to the Child Support Agency. Given the complexity of the human relationships thrown up by the case work of the agency, I wonder whether we will have to deal with exactly the same sort of problems in relation to the working families tax credit in our surgeries. Mothers and fathers might argue about how many days they care for the child over the week, or, because one parent with care looks after the child for 240 days and the other for 110, about whether the benefits should be split between them. That would be an administrative nightmare—on top of the administrative nightmare that we are predicting. That may be a Committee point, but it would be useful to know whether the Government have even begun to think about it.

The Bill also aims to encourage two working parents, but it penalises one-earner couples. My concern is that low-income families with two or three children under the age of five, and with a mother at home who is not working, will not get the child care tax allowance. I understand the theory that the mother should be looking after the children all the time. However, it has been apparent to many of us for many years that even when a mother is at home looking after children, those children can benefit from nursery school. Children in low-income, one-earner families will not be able to benefit from pre-school education, other than the rising fives.

Ms Buck

I am slightly confused by the hon. Ladys point. The provision of pre-school places, such as by the Pre-School Learning Alliance—those places are virtually free; there is a nominal charge—is widely available to parents. Such provision took something of a hammering under the previous Government as a result of the nursery vouchers scheme, but it is now witnessing a resurgence. There has been a significant expansion in places for three and four-year-olds in the state nursery sector. I am confused by the idea that there is no free or affordable child care for children under five.

Mrs. Lait

That is most interesting. On the one hand, the hon. Lady argues for not having a child care allowance for children under five because the care provision exists and is free. On the other, she is suggesting that one-earner, low-income couples should not be able to benefit from other forms of child care. The hon. Member for Northampton, North spent a lot of time saying that women need choice. That is what we should provide for them. The Government have not done so.

As a member of the Conservative party, I may not think that widespread and generous tax allowances are the best way to help people back into work, or to provide for children. However, we must get some logic into the scheme, and that is what is missing. I am not recommending one thing or the other. I am merely asking the Government to think about that exclusion of low-income, one-earner couples.

Ms Keeble

Does the hon. Lady accept that a couple with a child, with the woman at home, will shortly have the choice—if the child is over three—of putting the child into a nursery? However, the other option of a child minder would not normally be taken, because a child minder normally provides child care at home—which, if the mother is staying at home, she would do herself. The choices offered by the Government are perfectly realistic in both cases.

Mrs. Lait

I am very glad to hear that, and I hope that that proves to be true in practice. I would imagine that a mother with three children under the age of five—and one over the age of three—will still have the problem of getting the other two properly ready for school. That is the result of pre-school education. We must make sure that the Government have thought this through properly.

I accept that this is a tax credit and not a benefit, but there is an increased dependency on state provision because of the terms of the credit. The Government have said that they want to get away from the dependency culture. The Conservatives have long wanted to do that, but the working families tax credit increases the number of people who are dependent on the state.

In the long run, those people who are not dependent on the state will find that they become resentful of the number of people for whom they are paying through their taxes. We must remember that this is not Government money—it is taxpayers money, which comes from companies and individuals to pay for other people. Eventually, if the burden becomes too great, we could have a taxpayers revolt, as in the late 1970s.

The hon. Member for Northampton, North dwelt at great length on the issue of child minders—another point that may well come up in Committee. At present, there is confusion as to who can be a child minder. In the Social Security Select Committee, it became clear that the Inland Revenue believes that it is possible for relatives or friends to become registered child minders. I do not have a problem with that, and I suspect that we shall see a growth in the number of registered child minders. However, there is a gap in the provision of care for children between the ages of eight and 14.

If both parents are at work and there are no after-school clubs, we will have latchkey kids, and all of the problems that go with that. Will the Government amend the Children Act 1989, so that registered child minding can go up to the age of 14, or 16 if the child has a disability? Are the Government going to insist that every child between the ages of eight and 14 is looked after in something like a kids club? What would happen if the child did not want to go to such a club?

My mother was widowed when I was 12, and I used to come home to a house where sometimes there was somebody there, and sometimes not. I must say that I preferred it when no one was there—that suited me down to the ground. That was the choice of a child and, under the provisions of the Children Act, we must give children choices.

I wish to ask about au pairs, because au pairs are being hit badly by the national minimum wage rules and regulations. The Government are saying that au pairs are employees and are not there on an educational basis. Under the terms of the working families tax credit taper, some couples who employ au pairs may be eligible for the working families tax credit and child care allowance. The au pair currently does not necessarily get paid the national minimum wage and is not a registered child minder, but could well be the person providing child care for eight to 14-year-olds.

If we increase the number of registered child minders, local authorities will incur registration and inspection costs. If we ask employers to take on the burden of distributing the working families tax credit—leaving aside the question of who will know what—there will be increased costs for the public sector, which employs nurses, teachers and others. What provision have the Government made to ensure that the public sector does not have to try desperately to find the funds to administer the system?

We need some answers. We have had a very wide debate, and I have added some more aspects to it. I hope that the Government will have considered all the issues by the time that the Bill goes to Committee. The questions need to be teased out and answered, otherwise the chaos that I am sure will attend the birth of the credit will be worsened.

7.52 pm
Ms Karen Buck (Regents Park and Kensington, North)

I warmly welcome the introduction of the working families tax credit, which I see as an integral part of the strategy to make work pay. It is the third leg of the stool of the minimum wage and welfare to work. I am pleased that it has also been warmly endorsed by organisations with a wealth of experience and knowledge of issues concerning poverty and low pay.

The National Association of Citizens Advice Bureaux, which daily deals with thousands of people who are trying to calculate whether they would be better off going back to work, has welcomed the proposals. It said that the introduction of the Tax Credits will mean considerably greater resources being directed to boosting the earnings of groups in low paid work. The Child Poverty Action Group said: In conjunction with the minimum wage, the working families tax credit will make a substantial difference to families in low paid work. Those organisations have not hesitated—and, I am sure, will not hesitate—to criticise the Government if they feel that resources are not being directed in the best possible way to assist people on low incomes.

I apologise for the fact that I was out of the Chamber for an hour and missed some of the contributions, but I was more than a little disappointed with what I heard from some Opposition Members. I was especially disappointed at the lack of willingness to recognise the additional incentive that will be introduced by making payments through the wage packet.

That incentive has been casually dismissed by many, although the hon. Members for Canterbury (Mr. Brazier) and for Beckenham (Mrs. Lait) recognised that the proposal offers a tax credit and not a means-tested benefit. That is what distinguishes it from the family credit system, and there is a profound psychological difference. There is a real prospect of people being able to supplement their incomes without having to go into the social security system. That is the central raison detre of the Bill.

It is absolutely impossible to estimate what the impact will be, but common sense dictates—and we know from speaking to people in our surgeries and elsewhere—that people do not like going into the means-tested social security system if that can be avoided. In particular, they want to be able to work without having to do that.

Opposition Members asked why we should not simply build on the family credit system, ignoring the fact that that system is by no means perfect, not only for the reasons that I have outlined but because family credit is taken up by only 76 per cent. of those who are eligible, although about four fifths of the money available is claimed. The system cannot be held up as unimprovable.

Opposition Members made something of a meal of the. wallet-purse issue. It is to the Governments great credit that they listened to the strong arguments of various organisations, including the ones that I mentioned earlier, and of members of the Social Security Committee, who considered the proposal in great detail. The Government listened to the initial concern, that the working families tax credit would automatically go into the pocket of the earner, and choice has been introduced into the system. The large majority of claimants of family credit, who are likely to claim the working families tax credit, will be unaffected by the proposal.

Mr. Pickles

I am grateful to the hon. Lady for giving way and, especially, for her questioning in the Select Committee, which was useful on this point. If there is a dispute between partners as to who should get the money, who ultimately should decide?

Ms Buck

Personally, as in the Select Committee, I favour the default option. As far as I remember—I may be proved wrong—Opposition Members on the Select Committee accused Labour Members of making heavy weather of the proposal, effectively saying that we were accusing men of being difficult and playing down the fact that, in the majority of families, it is perfectly possible to come to an amicable agreement over the division of resources; but in fact we pressed for and achieved a significant recognition of the wallet-purse issue. I, along with the Child Poverty Action Group, which dealt with the matter in the briefing that it published in response to the working families tax credit, am largely reassured that the issue will not be a great problem, although I do not consider the system absolutely perfect.

Mr. Webb

The hon. Lady stressed the psychological benefits of payment through the pay packet and said that means-tested benefits carry a stigma. Why, then, would any woman in a couple choose the means-tested option?

Ms Buck

Families on low incomes may make the decision that it helps them with budgeting; others may not feel that they need to organise their budgets in that way. It is perfectly possible for people to opt for either method, and we are giving them a choice.

In my remaining remarks I will deal with the operation of the child care tax credit, which is the flagship of working families tax credit. It has been said that child care costs are the single most significant barrier to single parents entering the workplace and I agree. Although having said that, housing costs are probably running a pretty close second in London and it is important that the Government deal with housing benefit later.

A large number of single parents live in my constituency and I have made it a priority to talk to parents in nurseries and play groups and to their representative organisations. There is no question that child care costs are the principal barrier. Women and single parents want to get back into the workplace. First and foremost, they want to do so through education and training so that they get not so much a job as a career. The availability and cost of child care is the most significant barrier that they face.

The child care tax proposals set out by the Government exceeded my wildest expectations. They are very generous and an innovative, and radical response to that most serious barrier to work. The child care tax credit will replace the child care disregard within family credit, which was paid to only 40,000 families throughout Britain—it took a rocket scientist to understand that system and two rocket scientists to explain how it operated. The Chancellor was right to give it a short-term boost in the first few months of this Government as an indicator of our support in dealing with child care, but we have rightly and properly moved swiftly on after only 19 months in government to replace it as part of the review of tax credits.

Child care costs vary dramatically throughout the country, but in London it is not uncommon for child minders to cost £120 a week and for nursery places to cost £170. I do not begrudge child minders a single penny—a child minder is the principal source of my child care—because they are grossly underpaid for the demanding job that we expect of them. However the costs, particularly in London and the south-east, make child care a pipe dream for the overwhelming majority of parents.

Another aspect of the Bill that is pleasing—and here I am picking up on some of the comments of the hon. Member for Beckenham—is that the operation of the child care tax credit will deal with another significant worry, which is the quality of child care. Much child care is undertaken not merely by mums and grandmums—thank God it is, and wonderful it is too—but in other wider and more informal networks of friends. To all intents and purposes those people are doing the job of child minding, but they are doing it without the benefits of registration and inspection, or of being connected into the education and social services networks that provide support mechanisms, drop-in facilities, education, and the national voluntary qualification in child care, which helps to lever up standards.

I hope and expect the child care tax credit to encourage a significant proportion of unregistered child minders to register. That will be good news all round. It will raise the income of women who are unregistered child minders, which is a good thing, and encourage registration, also a good thing. The hon. Member for Beckenham mentioned the pressure on local authorities because of the additional costs that might accrue from such registration. That is a reasonable argument and it deserves to be tackled. However, the chronic shortage of registered child minders is one of the most serious problems facing local authorities. Those with statutory child care responsibilities need a supply of child minders to help them with the daytime care of children who are being assisted under the Children Act 1989. It is a chronic problem and it leads to additional costs. The Bill will also help local authorities out of that bind.

I envisage the money that will be made available through the child care tax credit—I am evangelising with this message in my local community—being used not only to encourage women to register, but to provide the opportunity for them to come together to organise child minder support groups and drop-in facilities, which are woefully inadequate. Child minding is an isolating job at times and people need support. I also envisage the resources that will become available to groups of parents being used to help to finance after-school facilities and homework clubs.

The Government have made a welcome commitment to the extension of after-school clubs through the sixth good cause of the lottery. Evidence of that is now all around us. However, that will not be enough, for example in isolated rural communities where, under present circumstances, it will be impossible for every village primary school to have an after-school club. The measure will provide an opportunity for parents to band together.

The Royal Borough of Kensington and Chelsea, which is not known for its radical support of Government initiatives on such matters, is holding fire on its nursery proposals in the expectation that opportunities will arise out of the implementation of the working families tax credit, which will allow it to revamp and restructure its nursery and after-school facilities. That is a welcome development indeed.

There is an opportunity for a virtuous circle here and for the £200 million or so—I am greedy for more of a good thing, but I will take it for what it is at the moment—to start to cascade down to some of our poor communities and estates.

Mr. Gibb

The Institute for Fiscal Studies states that if many more people register as child minders, which is what the hon. Lady says that she wants to happen, the £200 million could escalate to £1 billion, £2 billion or even up to £4 billion. Does she accept that figure?

Ms Buck

I do not. The figure is based on the assumption that everyone who provides any sort of child care will register, which is fanciful. That will not happen, primarily because there is no reason why relatives who care for their children and grandchildren should be brought into the scheme. It is most unlikely that that will be the case.

Mr. Gibb

The hon. Lady said that she wanted more informal child minders to register. Those registrations would not have been taken into account by the Government when they calculated the £200 million cost. Therefore, she must envisage that her hopes are that the scheme will cost significantly more than that. How much does she envisage her hopes costing the Government?

Ms Buck

As I am sure the hon. Gentleman knows, there is a paucity of information on both current provision and the likely demand for child care. Therefore, it is fanciful to put a figure on it. Again, it is to the Governments credit that the Department for Education and Employment has made money available to local authorities so that they can carry out the first serious audit of child care requirements. The £200 million is a significant increase on the family credit child care disregard, which was payable to 40,000 families—I cannot remember the exact figure for that. The increase is certainly welcome and it will create huge additional opportunities.

Two other issues are worthy of attention and flow from the report of the Social Security Select Committee. First, and in this instance I share the opinions of the hon. Member for Beckenham, the application of the child care tax credit must continually be reviewed to find out to whom it applies. I share with my hon. Friend the Member for Northampton, North (Ms Keeble) the belief that one cannot use the child care tax credit to pay for unregistered child care. It would be wholly inappropriate for public money to be spent to support child care if there were no guarantee as to the quality, the basic soundness of the premises and so forth and to safety. I have not the slightest doubt that the moment that something unfortunate happened to a child in care that was partly paid for through the working families tax credit we would all pay dearly for it. Clearly, registration must be the bedrock. The reliance on after-school clubs, child minders and other categories of care currently registered under the Children Act 1989 does not necessarily reflect the realities of todays labour market.

My hon. Friend the Member for Northampton, North talked about her constituency experience of the sort of jobs that are becoming available. I can echo that from my experience of the inner city. The jobs that are becoming available, especially to younger women entering the job market, are not amenable to the nine-to-three or nine-to-five working day. That is not always a bad thing because it can fit parental preferences. I am talking about service-driven, 24-hour jobs such as those with the Heathrow express coming up at Paddington, call centres, supermarkets and The Gap in Covent Garden. It is not reasonable to make the child care tax credit available only for care provided outside the home.

Even if child care is available and the parent desperately wants to take a good job, the option will collapse if the only care available means that the parent has to ferry a seven-year-old about at 9 pm. No parent wants to do that. Similarly, people do not want to have to shuffle children from a homework club—perhaps in another school—to a child minder and then to some other care. The Government must revisit the idea of making the child care tax credit available for care in a persons home. There is no easy solution, but I hope that the Government will give godspeed to the private Members Bill on registration of nannies and consider the matter when that becomes law.

The second issue, which is dear to my heart, that I draw to the Ministers attention from the Social Security Committees report is free school dinners. The National Association of Citizens Advice Bureaux report on the working families tax credit noted that most people entering work have unrealistic expectations of how much better off they will be. In a citizens advice bureau or benefits office, they get a better calculation and we start to break through the problem. When people consider applying for a job or look at adverts or the job centre, they do calculations in their heads that do not work out. I am supported by several organisations that deal with such issues in saying that free school dinners are central to the problem. A parent with two children in a school finds that the bill can add up to £11 or £12 a week. It is a real barrier.

In practice, once people are in work they are likely to be significantly better off and to start to increase their earnings, so school dinners become less significant. The Social Security Committee recommended that free school dinners should at least be rolled over for the period of the initial claim for working families tax credit. It comes back to psychology, which is not to be underestimated. Such a provision would provide a cushion of security for claimants whom we want to enter the workplace because of the advantages of self-esteem and earning potential that it will give them but who are put off by a barrier in their heads.

Many important points were addressed by the Social Security Committee in our three reports over nearly two years. The Government have listened and responded to many of them. Other concerns were raised tonight. I do not accept all of them but many are serious, specific issues that concern the implementation of the tax credit. However, the key fact is that, taken with the minimum wage and the welfare-to-work package, this is a comprehensive, well thought out, radical proposal to make work pay. For the first time, we are showing people who are in very low paid work or considering entering the workplace that we have a comprehensive strategy to be on their side, to help them and to exchange benefit dependence for the dignity of work.

8.15 pm
Miss Anne McIntosh (Vale of York)

I congratulate the hon. Member for Regents Park and Kensington, North (Ms Buck) on her excellent speech. I apologise for not being in my place for the whole of it, but I had a meeting with the Minister for Local Government and Housing to discuss the standing spending assessment grant for North Yorkshire.

I congratulate my hon. Friend the Member for Brentwood and Ongar (Mr. Pickles) on his excellent speech moving the Opposition amendment. I especially agree with the part that refers to the Bill leading to increased business costs while undermining family structures. It would be ungracious of me not to congratulate the Financial Secretary on her well-deserved promotion. I trust that we have not lost the hard bargain that we struck on the Agenda 2000 deal for North Yorkshire; I hope that her successor will hold to it. I congratulate the Paymaster General in her absence. There will soon be only ladies at the Treasury; we shall watch this space.

I have problems with the tax credit scheme, which is bad for business and a poor deal for electors, contrary to what many Labour Members said. It is particularly bad news for the traditional family unit as we know it. Its effect on business will be negative, even though we heard that the proposals may be revised following the thorough Social Security Committee report, which I welcome.

The tax credit is negative in approach and will be difficult to administer. Small businesses in particular will be burdened by extra administration. The Confederation of British Industry is on record as firmly believing that all employees should have the option to receive credits directly from the Inland Revenue. Speaking up for employees, I think that flexibility for them is important. Many single parents may wish to continue to receive payment through the Inland Revenue for reasons of confidentiality. In that respect, I pay tribute to the contribution of my hon. Friend the Member for Arundel and South Downs (Mr. Flight).

Continued payment through the Inland Revenue would avoid the perception of being on benefits, which carries a particularly negative social connotation. It would also cover temporary workers and employees with more than one employer. I shall return to that momentarily. I think that the Government have closed down that option. Perhaps the Financial Secretary will surprise me by saying that they are minded to reopen it. I make a personal plea to her to consider allowing employees to continue the option of being paid directly from the Inland Revenue and not, as the Government propose, through their employer in their pay cheques.

The administration of the working families tax credit will hit small firms especially hard. A huge raft of extra administration is involved, and small firms will inevitably suffer from the cash-flow problems mentioned earlier. I understand that the Government may not have considered the point that in the vast majority of cases, the amount of credit will exceed the tax liability of the claimant. Will they will give that some thought, because that it will impose a heavy administrative burden on employers?

The Paymaster General has said that the Inland Revenue intends to put employers in funds when requested. I still argue that the administrative burden on smaller employers of paying credit up front and having to claim funds from the Inland Revenue in advance will be a significant burden that many cannot meet. It is not fair to ask small firms to meet that extra responsibility. Will the Financial Secretary consider exempting smaller firms from the requirement to administer the credit through the pay packet? Perhaps employees of very small companies should have their benefit administered by the Revenue. I wonder whether the Financial Secretary can satisfy me that the Government have not yet considered such an exemption, but may be minded to agree to it now that I have given them the opportunity to consider it this evening.

I mentioned low-paid workers in multiple employment. Individuals may have several employers paying their salary. Which employer will be asked to pay the credit and whose decision will it be? I have not so far heard an answer to that question. It is not a hypothetical question; it is a concrete question.

The Government have paid lip service to helping small businesses and reducing the administrative burden on them. I appreciate that the Government look to small businesses, as the previous Government did, to create jobs. Small businesses are perhaps the most positive generators of new jobs, so this is the most extraordinary time for the Government to introduce an extremely complex working families tax credit scheme, which will clobber small businesses and put an unacceptable burden on them.

I argue that the Government intend to use employers as unpaid tax collectors and will inevitably impose an even greater burden on small businesses. Perhaps we can pause for a moment and consider the already lengthy list of statutory schemes imposed on businesses. Income tax, national insurance contributions and VAT, and benefits such as statutory sick pay, maternity pay, paternity pay—I am not sure whether that has been introduced yet—and redundancy pay have to be funded by employers. The Financial Secretary can imagine the impact on small businesses of adding to that impressive and growing list the working families tax credit, especially on small and sole-employer businesses. It is an unacceptable burden to ask them to take on at this time.

I would go further and say that the scheme gives entirely the wrong message to the business community. The Government are asking it to create jobs and to act as an unpaid tax collector. I echo the comments made by my hon. Friends in saying that it would be more appropriate to leave the administration of support for families with the Government, as it is now through the Department of Social Security, and not, via the back door, to use the good offices of already hard-pressed employers.

The relationship between an employer and an employee is extremely finely balanced. If the working families tax credit is introduced in the way that we have heard this evening, employers may even be accused of invading the personal and private life of an employee—not by their choice, but because they are required to do so by statute. As we heard from my hon. Friend the Member for Arundel and South Downs, fellow employees may be able to link into the computer system and find out not only what other employees earn, but what tax credits they receive. Employees may be offended and the employer could be placed in an embarrassing situation. The scheme could also lead to ill feeling on the part of an employee should an administrative error occur. The complicated nature of the tax credit and the manner in which the Government expect the employer to administer it on behalf of the Government mean that the potential for administrative error, in my humble judgment, is huge.

The Paymaster General said that there was a choice to be made by the Government and, by implication, by the Opposition, between being business friendly and being family friendly. I put it to the House that the Government have failed on both counts. It comes as a great sadness to me that the Government have wasted an opportunity in the Bill. It is neither family friendly nor business friendly. For the reasons that I have given, it is positively unfriendly and unhelpful to business.

Mr. Desmond Swayne (New Forest, West)

My hon. Friend has been eloquent in examining the Bills unfriendliness to business. Is she satisfied at the prospect that the Bill will impose a means-tested benefit, with all the corrosive effects that that may have, on people earning incomes up to £37,000? Is she satisfied that the Bill is fair to two-parent families with only one earner?

Miss McIntosh

My hon. Friend can obviously read my mind. I was coming to the specific question of two-parent families with a single earner. As for means-testing up to £37,000, I have a hazy recollection of figures in the early morning—or not so early morning as the Paymaster General said—interview on the Today programme this morning. The Paymaster General did not refute the figures. If my memory is correct, in a study undertaken by Alan Duncan of the Institute for Fiscal Studies, it was said that not many jobs would be created by the tax credit scheme. On the institutes calculation, the cost of each job would be a staggering £40,000.

I was left with the impression that £40,000 would be the cost of each job and that not many jobs would be created. I was mildly surprised that the Paymaster General let that allegation go past without refuting it. Perhaps, like me, the Financial Secretary is having some difficulty finding that figure. I have read through the press release and the revised press release from the Institute for Fiscal Studies, and the evidence that it gave to the Select Committee, and I have to confess that I did not find that figure. However, that allegation was made this morning and was not refuted. That amount is an unacceptable cost to the taxpayer for no saving.

The hon. Member for Pontefract and Castleford (Yvette Cooper) alleged to my hon. Friend the Member for Brentwood and Ongar that the Conservatives were not in favour of increasing the bill by £1.5 billion. I had the impression that the Government were elected on the basis of a commitment to cut social security spending. I put it no higher than that I am left confused. Perhaps the Financial Secretary could answer that point. How a £1.5 billion increase in one measure can be interpreted as a cut leaves me in a state of confusion.

As my hon. Friend the Member for New Forest, West (Mr. Swayne) says, the Bill is not family friendly: the tax credit would penalise two-parent, single-earner families because, unlike lone parents, such families do not qualify for the child care tax credit. That is positive discrimination against two-parent, single-earner families and I wonder whether it was a deliberate omission on the part of the Government to exclude the nuclear family, in which one parent goes out to work while the other stays at home and takes responsibility for bringing up the next generation.

The Bill is unfriendly to the traditional family, which I was brought up to cherish and which, I understand, the Prime Minister and his family also cherish; and it is unfriendly to small businesses. The Second Reading of the Bill is a real tragedy for the traditional family. It demonstrates the Governments unwillingness to support the structure of families, many of whose members are employed or employ others in small businesses.

Mr. Paterson

My hon. Friend has touched on a point that brings together both of her arguments. In America, many new businesses—small businesses, employing fewer than five people—have been created by families. The Bill, by imposing time-consuming extra regulation on hard-pressed entrepreneurs, will hit both families and businesses in this country.

Miss McIntosh

I shall have to ask my hon. Friend to help me with my next speech. He has provided a positive argument which does indeed neatly bring together my two arguments. In North Yorkshire, 95 per cent. of businesses employ fewer than 25 employees, so any business employing more than that number qualifies as a large business in that area. The point is that the Governments tax credit policy will hit 95 per cent. of the businesses in North Yorkshire. I thank my hon. Friend for helping me with that argument. The Bill is a bad one and I shall vigorously oppose it on Second Reading.

8.30 pm
Ms Beverley Hughes (Stretford and Urmston)

We have had a wide-ranging debate and many hon. Members on both sides of the House have made their points ably, from differing points of view. However, as this is a Second Reading debate and because many of the points made so far have dealt with hon. Members views on the detailed implementation of the Bill, I intend to return to the starting point and to the principles that the Bill is designed to address.

My hon. Friend the Member for Pontefract and Castleford (Yvette Cooper) spoke eloquently about a serious problem that has persisted in this country for some time: the problem of children living in poverty. Children of low-income families suffer the long-term and multiple effects of relative social and economic deprivation. That has knock-on effects on their health, housing, aspirations and achievement. My hon. Friend made it clear that, if we are to address those fundamental problems and achieve a sustainable improvement in the condition of those families, we have to introduce radical measures. I agree, and that is my starting point.

The current welfare system as it relates to work and tax does not help families to improve their lot. Our income support systems trap such families in a culture of dependency. Our family credit and tax systems keep people earning low wages, because punitive tax rates and tapers ensure that they have to take a giant step in terms of additional income if they are substantially to improve their lot. It is important that we develop a radical approach to such problems and so crack the cycle of deprivation.

The only sustainable approach is to direct additional resources to the heart of those families and, simultaneously, to help them to establish a sustainable position in work over a long period. Those twin approaches are essential if we are to enable such families to achieve a sustainable improvement, with all the benefits in future years that such an improvement carries with it. The working families tax credit embodies those twin approaches and makes possible, albeit not inevitable, a sustainable improvement in the lot of some of the poorest people in our society.

We need a proposal that is based on certain principles and embodies certain characteristics. First, it needs to contain a minimum income guarantee which will give families the certainty that their income will not drop below a certain level as a result of the legislation.

Secondly—I have heard various views expressed on this point—we need also to link assistance with employment; in other words, to link the measure with the rewards that people get from work. We have discussed income a great deal, but it is not only income, important though that is, that people receive from work. Being in work changes peoples life styles and aspirations and the way they feel about themselves. It enables them to develop an approach to life that emphasises moving forward and having routines and disciplines. All that has an impact not only on parents in work, but on their children.

Mr. Swayne

I entirely agree with the hon. Lady, but does she accept that concern about the Bill, certainly among Conservative Members, relates not so much to a minimum income guarantee, but to the fact that a means-tested benefit will be available to more families, up to and including those who are relatively well to do, which can only have a corrosive effect on society?

Ms Hughes

No, I do not share the hon. Gentleman's view. The mechanism for the delivery of the benefit as a tax credit rather than the current welfare benefit—which is separate from the wage packet and the world of work—will make a crucial difference to the way in which people perceive it. The stigma that many people feel is attached to receiving benefits will be significantly reduced, if not eradicated. That is an important element of the proposal.

The attempt in the Bill to inculcate a psychological change was one of the features that Martin Taylor specifically referred to when he reported on proposals to introduce a tax credit. He thought that it was important to have a tax credit system because it would associate the payment in the recipients mind with the fact of working, a potentially valuable psychological change. Hon. Members have commented on the relative paucity of research on the direct relationship between the psychological effect of a change in delivery of a benefit and an incentive to work, and I acknowledge that paucity. We are dealing with the unknown, but I suggest, particularly to Conservative Members, that it is common sense that a benefit that is firmly attached to the rewards of work is much more likely to provide an incentive to work by making work more rewarding than it is to have a neutral effect or to act as a disincentive.

Thirdly, we need a system that is more generous to families at the low end of the income scale than at present. We need an arrangement that enables them to keep more of their pay.

Fourthly, as my hon. Friend the Member for Regents Park and Kensington, North (Ms Buck) clearly pointed out, we certainly need a much more generous .and effective measure for child care assistance than the child care disregard on family credit, which is particularly ineffective.

Fifthly, we need to give help to those already in work, but we need also to make work more worth while for those families who want to work. We need a child-centred approach which provides assistance directly to the heart of the family. Delivering help through the wage package does that.

Mr. Swayne

I thank the hon. Lady for showing me her customary courtesy in giving way a second time. Does she accept that the advantage to which she refers will be confined to single-parent families, and that the fact that the same help with child care costs will not be available to two-parent families in which only one parent works will at least give an impression of setting those families at a disadvantage?

Ms Hughes

I have listened carefully to the argument advanced by Conservative Members that the Bill goes against the traditional idea of the family. I have been bemused by it because, as far as I can assess from the detailed documents that I have read, the notion that the Bill will penalise families in which one parent stays at home to care for children is false. The Bill will be neutral in that respect.

Mr. Ruffley

Will the hon. Lady give way?

Ms Hughes

I shall finish this point first. Under the working families tax credit system, the parents in a two-parent family who do not pay for child care because they choose to have one parent staying at home to provide that care will benefit, as the member of that couple who goes out to work and earns an income will be eligible for the adult credit and the child credits, but not for the child care credits. However, that will not be a penalty, as that couple will not be paying for child care.

In contrast, when both parents in a two-parent family work—and they usually do so for low incomes—they will get an additional credit to help with any child care for which they pay. However, that additional credit is worth only 70 per cent. of the cost of the care, so the argument that the scheme penalises one-parent working families is based on a false premise and is an incorrect analysis of the information that we have received so far.

Mr. Ruffley

I am grateful to the hon. Lady for letting me intervene in her interesting speech. She argues that the effect will be neutral, but the empirical evidence from America about systems such as the working families tax credit system does not support her. The American research shows that, when a two-parent family cannot take advantage of a child care allowance, the incentive is for them to break up to take advantage of the child care provisions for single parents. I should be interested to hear the hon. Ladys analysis of that evidence. If that is what happens in America, why should it not happen here?

Ms Hughes

I am not familiar with that research and so am not able to comment on its validity. Even if it is valid, I am not sure whether the conclusion can be transported to this country. However, I should be astonished if the hon. Gentleman were to contend that couples would break up their families and subject their children to the consequent trauma simply to get the relatively small amount of child care tax credit to which they may then become entitled. I find that extremely difficult to believe, but I shall certainly look at the research if the hon. Gentleman is willing to send it to me.

Miss Kirkbride

I am grateful to the hon. Lady, as this is an important matter. She compared a two-parent family in which both parents work, and which is thus eligible for child care credits, with one in which only one parent works. Although neither family will be very well off, the family in which only one parent works will have a lower income than the one in which both parents work and which is thereby eligible for child care tax credits. Given the Governments commitment to the two-parent family structure, how can that be fair?

Ms Hughes

As I explained earlier, the conclusion drawn by the hon. Lady depends on the way in which individual families incomes pan out. When both parents in a two-parent family work, they are able to claim the child care tax credit because, by definition, they have to pay for child care. However, they will be reimbursed for those costs only up to a maximum of 70 per cent., and the second earners wages will pay at least 30 per cent. of the total child care cost over and above the tax credit. So the extent to which such a couple might be better off than a family in which only one parent works, but which consequently does not pay for child care, is debatable. It would depend on the levels of income in the two families.

I was outlining the principles needed for a system to deal with the difficult problems I have mentioned. The final principle is to maintain an option of giving assistance directly to the woman.

Working families tax credit is the only system that fulfils all the criteria that I have laid out. We have heard arguments in support of family credit as the best way of delivering additional assistance to poor families, but family credit does not in fact deliver on many fronts. It does not guarantee a minimum income, it does not link measure with reward for work, it is not particularly child centred, and it carries, for lots of families, the stigma of many welfare benefits. On the criteria that are important in measuring effective delivery of help, working families tax credit delivers in a way that family credit does not, and tinkering with family credit would not make it deliver on those criteria.

We have heard much from Conservative Members about how working families tax credit will be an inefficient disaster—a complicated and bureaucratic system. [Interruption.] I am paraphrasing the views that I have heard, not giving my own. We ought to stick to our principles. The system will be complex; any system that delivers to hundreds of thousands of people will be complex. The change from the Department of Social Security to the Inland Revenue will also be complex.

However, the points made by Conservative Members are nothing more than speculation designed to fuel fear. It would be refreshing if Conservative Members would genuinely identify issues that they thought the Government should take into account, while still, because of the importance of the Bill, suggesting some constructive ways around problems. Instead, with the dead hand of opposition, they have retreated into saying, No, we dont want it, and we wont support it.

Mr. Paterson

I am grateful to the hon. Lady, who has been generous in giving way throughout her speech. Does she believe that the life of an accountant or a personnel director in a little business will be made easier or more difficult by the Bill?

Ms Hughes

Clearly, the Bill asks business to undertake an additional job, but its impact on business has been grossly overstated, particularly by the hon. Member for Vale of York (Miss McIntosh). In practice, the Bill involves a small addition to what businesses do routinely.

In my discussions with Ministers, I have been impressed by the seriousness with which they take the development of the Bill and its implementation. They understand that no matter how good the principles of the Bill are, its effectiveness will be at least partly determined by the practicalities of its delivery. I am sure that my hon. Friend the Financial Secretary to the Treasury will refer to implementation when she sums up the debate.

I have also been impressed by the way in which Ministers have attempted to bring business on board. My hon. Friend the Paymaster General referred to the code of practice being developed with business, which is a genuine attempt to deal in the most helpful and constructive way with the issues that we recognise will arise for small businesses. I must tell Conservative Members that I do not think it unreasonable as a general principle to expect business to be a partner with Government in trying to assist families in work, particularly those on low incomes. Business already acts in that way, as has been said, with income tax and other deliveries through the wage packet.

Mr. Bercow

The hon. Lady sought to address my point, but has not entirely done so. She used the term gross overstatement about the prospective burden on business. Is she aware that the principal complainants on this score, in the first instance and all along over the past 12 months or so, have been the representative business organisations: the Federation of Small Businesses, the Confederation of British Industry and the Institute of Directors? It is very serious to accuse them of gross overstatement. I feel sure that she would not want to be guilty of any such offence.

Ms Hughes

As the hon. Gentleman knows, my reference to overstatement applied to the speech of the hon. Member for Vale of York. I am aware of the representations that have been made—certainly when the working families tax credit was first being considered—by the organisations that the hon. Gentleman identifies. I am also aware that those organisations have since been in dialogue with Ministers. That process will continue. I have every confidence that those organisations and their members will take this measure on board, because Ministers are committed to ensuring that it as successful and effective as possible for the families whom we are trying to help. That, of course, involves accommodating, as far as possible, the concerns of business. I have no doubt that my hon. Friend the Financial Secretary will want to refer to that.

Reference has been made to the view that, under the proposed system, not only would fraud be easier to perpetrate, but policing would be more difficult. My reading of the proposal is entirely at odds with that conclusion. Clause 8 sets out clearly the arrangements for dealing with fraud and the penalties incurred. That clearly demonstrates that, compared with the arrangements for family credit and many social security benefits, the tax regime will be more stringent. The scope of financial penalties will be extended, the burden of proof required before certain penalties are imposed will be lowered and, unlike other for social security benefits, it will be possible to impose a penalty, for example, for failing to provide information in relation to an application. Hon. Members who feel that the measure is more open to fraud and more difficult to police have misread and misunderstood the proposals.

I share concern about fraud. We must reduce it as far as we can in any system because money should go to the people for whom it is intended. Although I share such valid and serious concerns, I do not share the view that the system is inherently more open to fraud than the present system. As I have argued, it is less open to fraud and will be much more effectively policed when fraud is suspected.

I shall not go through all my points because others want to speak. This measure, taken together with the national minimum wage, the national child care strategy and child benefit increases for all families with children, will give more assistance to low-income families with children than has ever been provided as a package by any Government.

Conservative Members have made it clear not only that they would never have introduced such measures, but that they will resist them. I think that we have established that they will repeal the system if they ever get the chance. I am not quite sure about that, although the electorate will want to be clear. Unfortunately, the fact that the Tories have no interest in assisting those for whom the measure is designed will not be any surprise either to such people or to others. I hope that as many hon. Members as possible will support the measure because it is a radical and genuine attempt to deal with the serious issue of child poverty. For that reason alone, it should be supported.

8.55 pm
Miss Julie Kirkbride (Bromsgrove)

For my sins, I sit on the Social Security Select Committee. As my colleague, the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), said, we have looked into the issue of the working families tax credit three times, with a view to issuing three reports.

Mr. Tony McNulty (Harrow, East)

The hon. Lady was never there.

Miss Kirkbride

How would the hon. Gentleman know, when he is not a member of the Select Committee? If he wants to make such ignorant comments, perhaps he would like to go outside the Chamber and do so. However, he probably would be interested to know that, when the Select Committee discussed the subject of tax credits with witnesses, experts from both left and right roundly said—much to the chagrin of many Labour Members—what a very bad idea it was to introduce those tax credits. The matter has caused some concern among my Labour colleagues on the Select Committee, because it has been very difficult to find anyone who believes that it is a good idea.

Ms Buck

I take it that the hon. Lady was not in the Chamber when I spoke, because I read out the very warm welcomes that were given to the working families tax credit by organisations such as the National Association of Citizens Advice Bureaux and the Child Poverty Action Group, which are the organisations with the most knowledge and experience of dealing with issues of low pay and poverty.

Miss Kirkbride

All I can say is that, as far as I can recall, when I was sitting in the Select Committee—and I have attended all the sittings at which evidence was given—none of those groups said that the tax credit was a good idea. In fact, on the left of the debate there has been huge concern about purse-versus-wallet issues—a concern which I believe that the hon. Lady rather sympathised with, as I think was mentioned in earlier debates. Of course, coming from the right, there was massive concern among various business organisations as to the impact of the tax credits on the way businesses operate. It was difficult to gainsay any of the points that those business organisations raised, and I feel that, so far in this debate, they have not been gainsaid by Labour Members.

I pay sincere and heartfelt tribute to the hon. Member for Northavon (Mr. Webb), whose critique, revealing what is so terribly wrong with the working families tax credit, was exceptionally accurate and very good. All the running on these issues has been made on the difficulties that have been presented by the introduction of the working families tax credit. However strong our desire to help poor families, we should be aware that this is not the way to do so. Tonight Conservative Members have explained—giving many reasons—why that is the case. We sincerely hope that the Government listen before it is too late.

How did the Government get themselves into this position? Curiously, when they came to power they said that they would cut social security bills. The measure before us is not a cut in the social security bill; it is an increase of £1.5 billion, and rapidly rising.

Mr. Vernon Coaker (Gedling)

Will the hon. Lady give way?

Miss Kirkbride

Let me finish the point. The Government said that they would cut social security bills; if we use their flawed methods of accounting—if they are good enough for the health service, they are good enough for the social security budget—over the next three years they intend to increase the social security budget by nigh on £40 billion. On that point, I would love to give way to the hon. Gentleman.

Mr. Coaker

If we reduce tax allowances for poorer people, would that be increased welfare spending? In a sense, a tax credit is like a tax allowance. [Interruption.]

Miss Kirkbride

I am grateful to my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) for pointing out the answer to that question. That would be a tax cut. In my view, it would be much better to increase the value of tax allowances. That would help many more people in the ways that Labour Members have said is their intention by introducing the working families tax credit. That would be a much better, much simpler way to proceed. It would avoid all the difficulties presented by the working families tax credit. I would be keen for my party to increase the value of tax allowances when we return to government.

Ms Keeble

Can the hon. Lady explain how a change in the tax allowance would help people who are just going into work, and how it would deal with a child care tax credit, as the working families tax credit will?

Miss Kirkbride

I hope the hon. Lady will forgive me for saying that the answer to her question is obvious. She does not need me to answer it. If people going out to work on extremely low wages are not paying tax, that is a considerable benefit to them. Under the system that the Government are reinforcing, people on low wages pay tax, but reclaim it in what used to be called a benefit, and is now called a tax credit.

We all want to help low-paid families. It is in the interest of society, children, families and individuals that more people go out to work to earn their own living. We should encourage that, but the measure is not the way forward.

The Paymaster General is not at her Bench. Like other hon. Members, I listened to her interview this morning. [Interruption.] I would not have been so uncharitable in my remarks, had I not been prompted by my hon. Friend the Member for Bury St. Edmunds (Mr. Ruffley). The Paymaster General said—100 times over, it seemed to me in my semi-dormant state—that she wanted to make work pay. Of course, family credit does that.

I criticise the interviewer, Mr. James Naughtie, who does not always point out facts that are glaringly obvious to those on the Conservative Benches. He never pointed out to the Paymaster General that the Government seek to make work pay by introducing the working families tax credit, when the existing system of family credit does precisely that.

That is the difficulty that the Government face. Family credit is designed to top up low wages. We have already heard how it works, that there is a high take-up relative to other benefits, and that there is assumed to be little fraud in the system, although there is some. Labour Members have not made the case for abolishing that and introducing a new system. It is the Governments prerogative to make the system more generous—

Ms Beverley Hughes

Does the hon. Lady believe that family credit creates sufficient links between work and benefit for it to provide an incentive to work and satisfy some of the objectives that she listed?

Miss Kirkbride

Labour Members have not explained why more people will want to go out to work if they are claiming a tax credit, rather than a benefit. There is no real evidence to suggest that that is the case. The Institute for Fiscal Studies states that a very small number of people might be enticed back to work as a result—40,000, as against 1.3 million whom the Government expect to claim working families tax credit. It will serve as an incentive to only 40,000 extra people, who will want to go out to work because it will be called a tax credit, rather than a benefit.

Ms Hughes

I do not know whether the hon. Lady has any experience of claiming benefit, but perhaps she can imagine it. If she had a choice between completing a tax return and sending it to the Inland Revenue to claim her tax allowances, or claiming them from another agency and receiving them as a cheque, which would she prefer? [Interruption.]

Miss Kirkbride

As my hon. Friend the Member for Bognor Regis and Littlehampton points out, claimants will still be dealing with the Benefits Agency. They will not fill in a tax return, like those who are not eligible to claim the credit. The Benefits Agency will need to check their circumstances to prevent fraudulent claims.

If the hon. Lady suggests otherwise, there will be massive fraud because the benefit will not be properly policed. Those on the Treasury Benches have insisted that the same entry system, the same gateposts and the same guard against fraud will be introduced in the new system as are to be found in the current system. I do not accept that the two are substantially different.

Although many families who claim family credit may be poorer than other families, they are perfectly capable of working out for themselves whether they will be better off. Where the money comes from does not matter to them; they want to know whether they will ultimately be better off, and whether they are certain to be paid. Earlier exchanges have made it clear that they will have no such certainty, because the money will be handed to employers, some of whom may be unscrupulous.

Mr. Bercow

As the family credit system is clearly working so well, does my hon. Friend not agree that the Government would have been well advised to follow the dictum of Lord Falkland, who said, That which it is not necessary to change, it is necessary not to change?

Miss Kirkbride

Your eloquence bears testimony to the strength of the point that you have raised. Undoubtedly, no case for change has been made—and we are contemplating an enormous change. Labour Members underestimate the flak that will fly when small employers realise what you are asking them to do. You are all living in cloud cuckoo land. When I talk to employers—

Mr. Deputy Speaker (Sir Alan Haselhurst)

Order. Some difficulties are creeping in on both sides of the House. Hon. Members must bear in mind that they are addressing the Chair, and that they should refer to other hon. Members in the third person

Miss Kirkbride

I sincerely apologise, Mr. Deputy Speaker. I am afraid that I was a little carried away by the exchanges—perhaps because I am giving way too often, and feeling that I am having a conversation rather than addressing the Chair.

Labour Members have not made a case for the proposed change. It was suggested earlier that the increase in take-up would amount to some 400,000, but that is because the benefit is being made more generous. The number of new claimants will be very limited. I do not believe that the new system will make a difference: as long as the money comes from some source, the fact of its being a tax credit rather than a benefit is unlikely to change attitudes to any great extent.

The point raised by Labour Members about the stigma is very dubious. I began to make this point earlier, but as I was intervening on another speech I could not develop it as much as I would have liked. Under the present system, people dealing with the Benefits Agency can apply for family credit anonymously. No one—not the next-door neighbour, or the employer—need know that they are claiming a benefit. Surely the present system imposes the least possible stigma.

Mr. John Randall (Uxbridge)

As my hon. Friend may know, I have some experience as an employer in a small business. Many valid objections to working families tax credit have been advanced, but one factor that concerns many small and medium-sized businesses is the lack of privacy—the fact that employers will be forced to look into their employees private affairs. What effect does my hon. Friend expect that aspect to have on employer-employee relationships?

Miss Kirkbride

My hon. Friend will know the answer better than I, but I think that Conservative Members consider that human nature is such that, if an employer has to know that one of his employees is claiming a credit such as this, the employee concerned will consider it a much greater stigma.

Ms Buck

The hon. Lady is painting a romantic picture of family credit, as hon. Members have done throughout the debate. Does not the Benefits Agency regularly, and on an enormous scale, contact employers to seek verification of employment details, especially in the small-business, low-income sector? The idea that most employers are in the dark about their employees claims is nonsense.

Miss Kirkbride

The difficulty with the hon. Ladys point is that to whatever extent that is true at the moment—we know not—it will be true of every employee and employer in the country as a result of the changes that the Government are introducing. There is no way around that, so I caution the Government about stigma and about the idea that the working families tax credit is better than the original system. That could blow up in their face, because people on lower wages will be deeply embarrassed that their employers—and, inevitably, their work colleagues—have to know the circumstances of their employment.

The House will forgive me for raising a point that has already been discussed, but I have to correct some of my hon. Friends. It has been suggested that we are increasing welfare dependency—I would agree that we are—by pushing up the income scale the level at which people will be eligible for the working families tax credit. It has been suggested that people might earn £37,000 a year and still be eligible for the working families tax credit, but I draw attention to remarks made by the Paymaster General, who said that the highest possible level of family income which will be supplemented by the WFTC depends on the number, and age, of the children in the family. For example, if the family had five children under 11 rather than two, it would still receive some WFTC with family income of … £38,000.—[Official Report, 21 July 1998; Vol. 316, c. 502.] The level is even higher than some of my hon. Friends suggested. In my view, it is wrong that we are encouraging a welfare system that extends so far up the income scale.

I find it particularly surprising that the new Labour Government should want to proceed in such a way, when we share the aim of focusing whatever money we have to spend on disadvantaged groups. How can we suggest that a family earning £38,000 a year—well above the level at which it would pay the top rate of tax—is in any way disadvantaged and should be eligible for a tax credit designed for poorer families?

We should go further. A lot has been said about the unfairness to two-parent families where one parent is left at home to look after the children while the other goes out to work. I do not accept that Labour Members really appreciate how angry many people up and down the country will be when they focus on what Parliament is doing.

We all know that, at this stage, we are the only ones discussing the measure. The majority of people outside have not focused on it and will not know what we have done until the day arrives when it is law and they have to accept the consequences. Two-parent families that want mum to stay at home and dad to go out to work will realise that they are getting no help from the Government, even though they earn less than the family next door which is eligible for more help from the Government, whether through benefits or tax credits.

The fact that a family in a certain segment of society can be helped because of the lifestyle it has chosen—whereas a similar family earning less will receive less help from the Government—will cause deep distress and deep anger. It will rebound in the Governments face when people realise that the legislation will have such an impact.

Ms Keeble

That is a ridiculous argument. If women stay at home to look after their children, they do so because that is their preferred choice. I know that, because I have children. Women certainly do not expect to be paid to stay at home to look after their children. Most women, including many in my constituency, work part time because they have to—they need the money—and the real problem is the fact that they cannot afford the child care that they need. To put this issue up as the politics of envy is complete nonsense. The whole argument is about supporting families, supporting children and giving women choice.

Miss Kirkbride

The hon. Ladys intervention demonstrates the case of Conservative Members, who are trying to point out to the Government that the Bill will be a source of great anger and concern to families who have chosen to stay at home because it does not help them. It is encapsulated in her intervention that she does not understand how aggrieved those people will feel that they should not be eligible for help, while other families, who will have a right to choose how they want to run their lives, will be eligible for Government help. Again, it is one of the unfortunate aspects of the way in which the Government are going forward.

I turn to the biggest difficulty with the Governments proposals. Again, we will see what behavioural effects there will be, but I suspect that they will be deeply shocking to the Government. It is perhaps why we have not seen detailed clauses on the child care tax credit arrangements. The Treasury is worried about what an open-ended commitment those tax credits might be.

The Institute for Fiscal Studies has suggested that, far from the Governments modest estimate being correct—I think that it is a few hundred million; I cannot quite remember—the cost could end up being closer to £4 billion. It is obvious how that might happen.

The Governments proposal could mean that two young women living next door to each other, both with families and both not working, could end up looking after each others children, rather than their own, becoming employed, and becoming eligible for the minimum wage and family credit that the Government propose. An extraordinary volume of public spending could go into such arrangements, whereas now women look after their own children, or their mothers look after them. At the moment, the taxpayer does not pay for that, but under the Government proposals the bill will be picked up by the taxpayer.

Ms Buck

Will the hon. Lady give way?

Miss Kirkbride

I am being told that I should move on a little more quickly, so the hon. Lady will forgive me if I do not give way. I am sure that we can further discuss the difficulties of the Governments proposals in the Select Committee on Social Security.

The difficulties in relation to the business element have been ably explained by all my colleagues. I agree with the Confederation of British Industry that the Government should consider removing small firms from the arrangements. If that cannot happen, perhaps the Minister will consider giving compensation to small firms for administering the new arrangements. I urge the Government to consider the matter. On that point, I end my remarks.

9.18 pm
Mr. Barry Gardiner (Brent, North)

Two minutes is scarcely enough time to do justice to the Bill.

I think that we would all agree that one of the most humbling things about being a Member of Parliament is when people come to us in our surgeries. Two months ago, a young woman came to my surgery. As she walked through the door, I distinctly recall thinking, What can possibly be her problem? She looked self-assured and confident, yet, within 30 seconds of sitting down, she had burst into tears.

That young woman explained that she had two children, she had been a nurse and now had no prospect of getting back into employment. Quite simply, the costs of the travel that she would have to undertake to get to the jobs that she had looked at were so prohibitive that going back to work would make her worse off, and there was no way in which she could get child care for her children and still make work pay.

Critically, the Bill will change that young womans situation and that of 1 million other families throughout the country, so that work becomes not simply a possibility for those people, but something that they will embrace; it is, after all, what they want to do. Women with children do not necessarily stay at home because they do not want to work. Some of them would be poorer if they went to work because of the cost of child care. I congratulate the Government on introducing such an imaginative scheme to redress that.

The Opposition amendment suggests that the Bill will increase benefit dependency, but it will encourage people out of benefit and into work. It is essential that the remuneration for that work and should be delivered in the pay packet, together with the benefit.

9.20 pm
Mr. Nick Gibb (Bognor Regis and Littlehampton)

We have had a revealing debate on a deeply flawed, ill-thought-through and partially completed Bill, legislating for a deeply flawed, ill-thought-through and partially completed policy. A pattern seems to be emerging in which the Government take a highly successful policy from the previous Government and tinker with it. They add a bit of new Labour and a bit of egalitarianism and, hey presto, the policy is in a complete mess. They replaced personal equity plans and tax-exempt special savings accounts, which were very popular savings schemes, with the inadequate and flawed individual savings accounts or ISAs. Now they propose to abolish family credit, an in-work benefit that has helped and encouraged hundreds of thousands of people on low incomes to remain in work.

Little stigma is attached to claiming family credit, and 767,000 families receive it. That amounts to a 72 per cent. take-up rate by case load and an 84 per cent. take-up rate by expenditure. An in-work benefit with minimal stigma which can be claimed without ones neighbours, employer or work colleagues knowing is being replaced by one which, in respect of a working lone parent, will require the employer, the finance director and the payroll clerk to know that he or she is claiming a benefit.

Just under half of all employees in Britain work for firms employing fewer than 50 people and 99 per cent. of all businesses employ fewer than 50 people. The Federation of Small Businesses stated in evidence to the Select Committee that, as a result of working families tax credit,

there could be the added stigma of being an employee who receives, and knowingly receives, benefit within the workplace. Ministers have very little experience of life in the real world of business, but those are real concerns. The hon. Member for Coventry, North-East (Mr. Ainsworth), the Government Whip, laughs but, through their naivety and ignorance, the Government have devised a system that will increase stigma and not reduce it. If the Minister is so convinced that the working families tax credit will not increase stigma, will she tell the House what her target, expectation or hope is for its take-up rate? Will it be lower than the take-up rate for family credit, which is 84 per cent., or will it be higher? I hope that she will address those points in her reply. If she expects it to be higher, what percentage does she expect it to achieve?

The issue goes to the heart of the debate because the take-up rate of benefits is evidence of whether people feel a stigma in claiming it. Family credit, with an 84 per cent. take-up rate, is evidence of very little stigma. The risk of embarrassment by colleagues discovering that one is claiming working families tax credit could well reduce take-up.

Yvette Cooper

The hon. Gentleman clearly prefers family credit to working families tax credit. Does that mean that he prefers families to be, on average, £17 a week worse off? Alternatively, does he want to spend £1.5 billion making family credit more generous? Which is it?

Mr. Gibb

The hon. Lady churns out the same old soundbites. The £1.5 billion will be wasted by spending the money right up the income scale. By the time that we get back into government, the Labour party will have spent that £1.5 billion—and many multiples of it.

Mrs. Roche

If the hon. Gentleman's party were fortunate enough to win the next general election, would he abolish that extra £17 a week?

Mr. Gibb

The £1.5 billion that the Government keep talking about will have been spent. This is a bad Bill—it will not work. It will leave the incoming Government with a complete mess, and it will be up to the incoming Conservative Government to clean it up—as we will have to clean up every other mess that the Government will leave.

I should like the Minister to give a clear figure of what she expects the take-up rate for the working families tax credit to be. Many lone parents who are struggling to hold down a job and bring up a family could be put in a deeply embarrassing position at work because of the Bill and the Government. That is why the Bill is deeply flawed.

The right hon. Member for Birkenhead (Mr. Field), in a thoughtful speech—as one would expect from him—raised concerns about the increased power that the Bill gives to the employers of the low paid. He talked about the difficulties that may arise if the employee loses his or her job. Despite the best intentions, the reality will be that there will be delays in the Inland Revenue re-routing payments, whereas, under the existing family credit system, there are no such problems because payments are made direct to the household.

The right hon. Gentleman referred to the real likelihood of fraud in the system. He cited the United States and the earned income tax credit, where 15 per cent. of payments are lost to fraud. He is right to say that it is absurd to design into a system the likelihood of fraud, instead of trying to design it out.

In an excellent speech, the hon. Member for Northavon (Mr. Webb) said that all the reforms to tapers and the quantity of benefits could have been made to the existing family credit system. The only distinctive part of the working families tax credit is that it is paid through the tax system and the payroll, and that is where the problems of stigma and vulnerability will arise. He was right to point out the real administrative problems that will arise following changed circumstances, and the intrusive nature of having to discuss changed circumstances—such as the wife leaving the household—with an employer. None of those problems arises under the existing family credit system.

The hon. Member for Rochdale (Lorna Fitzsimons) said that the working families tax credit targets money to women in cases of difficult relationships. How can she know what will happen when there is a dispute over who should receive the working families- tax credit? We have tried to extract the information from the Minister, but we have received nothing. Perhaps the hon. Lady has heard something that we have not.

My hon. Friend the Member for Arundel and South Downs (Mr. Flight), a member of the Select Committee, pointed out that the measure will be a disaster in practice. Individuals will have to go to the Revenue to sort out problems, and companies will have to apply to the Revenue for advances when they pay out more in tax credits than they retain in PAYE or national insurance. That is cumbersome and bureaucratic.

My hon. Friend also pointed out the likely administrative chaos that will arise, in view of the complexity of the working families tax credit and the tight time scale. He raised the problem of the higher marginal withdrawal rates that will affect several hundred thousand people—always a direct consequence when one tries to extend tapering rates.

The hon. Member for Gravesham (Mr. Pond) committed himself, in a way that no Minister yet has—I hope the Financial Secretary will change that—to saying that the take-up rate for working families tax credit will be higher than that for family credit. We will watch this space. If the hon. Gentleman becomes a Minister, I believe that he will come to regret that statement.

The Chairman of the Select Committee, the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), raised his Committees concerns about the use of negative resolution statutory instruments, and emphasised the importance of the Government having targets against which the success of the scheme can be measured.

The hon. Member for Pontefract and Castleford (Yvette Cooper) spent more time talking about the Conservative party than supporting the Bill. She churned out the soundbites but failed to address real concerns about the working families tax credit, dismissing them as merely technical.

Yvette Cooper

The biggest concern for members of the family to whom I referred is whether they will have to pay an extra £35 a week in tax if the Conservative party is elected at the next general election. Taking into account the fact that the £1.5 billion is spent every year, not as a one-off, would the hon. Gentleman make that family pay that extra £35?

Mr. Gibb

The average family is already paying more than £500 a year extra in taxes after 18 months of the Labour Government.

In a powerful speech, my hon. Friend the Member for Canterbury (Mr. Brazier) spoke of the intrusive nature of the working families tax credit and the fact that, as my hon. Friend the Member for Beckenham (Mrs. Lait) also said, the child care element penalises mothers who look after their own children. He said that the Government had played to all the weaknesses in the family credit system rather than to its strengths.

The hon. Member for Northampton, North (Ms Keeble) said that the Governments aim was not to encourage people to use professional child minders but simply to give women a choice. She should accept that the structuring of the new benefit will create a real incentive to use child minders and for auntie to register as a child minder.

My hon. Friend the Member for Vale of York (Miss McIntosh) spoke of the real difficulties that business will face.

The hon. Member for Stretford and Urmston (Ms Hughes) does not seem to understand that the detail of how the credit works matters and cannot simply be left until the Bill is in Committee; it matters to the companies which have to administer it and to the individuals who have to apply for it.

My hon. Friend the Member for Bromsgrove (Miss Kirkbride) said that many groups on the left had nothing positive to say about the working families tax credit in their evidence to the Select Committee. Interventions in her speech by Labour Members highlighted the fact that they simply do not understand the difference between tax and spending. That is quite extraordinary.

When Martin Taylor, who was then chief executive of Barclays bank, was appointed by the Chancellor to examine the tax and benefit system, there were high hopes and great expectations, but reality soon began to bite. He said that a working families tax credit would reduce stigma but, in his evidence to the Select Committee, he said:

As far as the stigma goes, the hard and fast evidence in all these non-financial and psychological matters is hard to come by … The principal psychological assertion, and I agree with you it is an assertion; it is not proven. The entire principle behind the Bill is based on no evidence. The assertion, as Martin Taylor put it, could well be true for large employers such as Barclays, but it is not true for 99 per cent. of businesses that employ fewer than 50 people.

Miss Kirkbride

I was in the Select Committee when Martin Taylor gave his evidence. It was significant that he suggested that the tax credit would be paid through the coding and it was only when we subsequently took evidence from Treasury officials that it became clear that that was completely impossible, as many anomalies would arise. Mr. Taylors assumptions were completely thrown out by the Treasury mandarins.

Mr. Gibb

Indeed. I will come to that in just a moment.

The CBI said that single parents may well want to retain the option of payment through the Inland Revenue because they want to maintain confidentiality or avoid perceptions of stigma associated with payments of benefit.

The payment mechanism was to be the great step forward, and a system was to be created that would deliver not only the working families tax credit but a whole range of benefits through the tax system. Martin Taylor and the Government envisaged that payments could be made simply by altering the PAYE tax code for each employee, but, unfortunately, the Inland Revenue soon discovered that it was not possible to do that. It devised an N code and ran a series of model examples, but every one of them created a distortion after a few payment periods. When the Government discovered that, why did they not abandon the whole project and simply amend the anomalies that they saw in the family credit system?

The practical reality that working families tax credit cannot be delivered through the PAYE code has two consequences. First, it will mean a huge administrative burden on businesses, which have to administer the payment of the WFTC separately, and in addition to, PAYE. The CBI has said:

Implementation of the WFTC will entail additional costs for all employers … the obligations on employers will increase considerably. The explanatory notes on the Bill state that a regulatory impact assessment will be published in time for the Standing Committee. As my hon. Friend the Member for Brentwood and Ongar (Mr. Pickles) said at the beginning of the debate, it is a pity that that study is not available now, as it directly impacts on the viability of the Bill.

The second practical reality is that, because the benefit cannot be paid through the PAYE code, the whole notion that stigma will be removed has been lost. The credit will not be part of the tax system, but will be separately identified on the pay slip. Frankly, the Government are in a mess on the issue and they expect small businesses to pick up the costs of their mess.

The Bill itself has gaping holes where the meat of the legislation should be. It gives no details of how the working families tax credit will operate—for example, whether lone parents can opt to have the benefit paid directly to them at home rather than through the payroll. All that is to be decided in secondary, and therefore unamendable, legislation, which we are promised will be published in draft form by the Committee stage.

Why is that detail not in the Bill? We know the policy. It is set out in the Inland Revenue document, which has already been published. It is not true to say that how the tax credit will work is simply an administrative matter. Those issues are at the very root of the policy. Clause 12 concerns forms and documents to be used, so it concerns administration. The truth of the matter is that such clauses have been left out of the Bill because they are controversial and the Government want them to be debated out of sight and in a form in which they cannot be amended. With a majority of 179, what are the Government worried about?

The biggest gap in the Bill is the lack of any reference to child care tax credit. The phrase simply does not appear anywhere. There is not even a clause giving the Government the power to issue regulations. Clause 16—the definitions clause—does not define child care tax credit. The definition of tax credit does not mention them, simply stating that

tax credit means working families tax credit or disabled persons tax credit. The Inland Revenue document that I have here does mention child care tax credit, stating how much it is worth, how it will be administered and who is entitled to it, but there is no mention of them in the Bill. However, according to the Institute for Fiscal Studies, child care tax credit will cost up to £4 billion a year if everyone who is entitled to it takes them up.

According to the House of Commons Library, the Government intend to issue regulations under section 128 of the Social Security Contributions and Benefits Act 1992—I am sure that my hon. Friends will be interested to hear that. That is very clever but, yet again, it is designed to keep the most controversial part of the legislation out of the debate and out of scrutiny. A £4 billion expenditure plan, to which the Government have committed themselves, will receive no parliamentary scrutiny. I believe that that is what is called new Labour.

The working families tax credit and the child care tax credit were key components of the Chancellors Budget speech last March, but there was no sign of them in the Finance Bill that followed. Now we have the Tax Credits Bill—the flagship Bill of this Government—but it has been introduced in the House by a junior Treasury Minister. As my hon. Friend the Member for Beckenham said, there is no sign of the Chancellor or of the Chief Secretary. The key element of the working families tax credit—child care tax credit—does not even appear in the Bill.

The Bill introduces a new benefit system, but it is a system that will increase dependency by extending state benefits to 400,000 more families, including many on more than £30,000 a year, when the Government say that they want to reduce dependency. The system will result in £1.5 billion more social security spending, according to the Governments figures—according to the Institute for Fiscal Studies, it will result in £5.5 billion more—when the Government said that they wanted to reduce social security spending.

According to the right hon. Member for Birkenhead, the system is fraught with great dangers and offers bonuses for dishonesty. The CBI says that it will impose huge extra burdens on business. Instead of reducing stigma, it will increase it massively by involving employers in the confidential matter of claiming state benefits. The Bill is yet another piece of vandalism and political dogma, introducing an inadequate, ill-thought-through measure. For many thousands of lone parents who work for small companies, it will be disastrous.

9.40 pm
The Financial Secretary to the Treasury (Mrs. Barbara Roche)

Let me start on a note of agreement with the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb): this has, indeed, been a lively, interesting debate with some good contributions. However, the hon. Gentleman's speech was the most arrant nonsense that I have heard in all my life. He completely refused to answer the basic question that will be asked by the constituents of every Conservative Member in the run-up to the next general election: will they abolish the £l7 a week that is going to working families?

Mr. Paterson

Will the Minister give way?

Mrs. Roche

Let me make some progress. The hon. Member for Bognor Regis and Littlehampton asked about take-up. We hope that everyone eligible will apply, which will help 1.3 million families. We hope that they will take their right to the tax credit. That compares very favourably with the old system.

Conservative Members painted a rosy picture of the old system: it was completely confidential and there were no problems. That further illustrates their detachment from the real world. In the real world, employers are often phoned up. Claimants collect benefit from post offices and people can see who goes there. This legislation offers something radical by honouring the ability of people to work and allowing working families to take advantage of it. This legislation is a key element of the Governments strategy to make work pay and help people to move from welfare into work. We want to do something about that because the present system is failing hundreds of thousands of working families. Moving into a job from unemployment often leaves people little better off.

Miss Kirkbride

The Minister said that benefit claimants go to post offices. People who claim child benefit go to the post office, but that is a non-means-tested benefit. People in the post office do not know whether it is child benefit or low-income benefit that is being claimed. There is not the same stigma and it is not the same point.

Mrs. Roche

The hon. Lady and her colleagues made points about confidentiality in the old system that are not borne out.

The Bill will ensure that people can improve their income and circumstances. It will help to eliminate the growing division between working and non-working families. Under the previous Administration, that division became wider and wider. More and more people without work are living in poverty. Unlike the previous Government, we believe that one of the best ways to tackle poverty is by helping people into jobs. We believe that for a historic reason: my party—the party of Government, the Labour party—came into existence around the dignity of work and helping people to get into work, and we very much honour that. Those principles and the principles behind the legislation were well set out by my hon. Friend the Member for Rochdale (Lorna Fitzsimons) and, in a brief but important speech, my hon. Friend the Member for Brent, North (Mr. Gardiner).

The Bill is a radical solution to old problems. What did we have from the Conservative party? We heard from the hon. Member for Brentwood and Ongar (Mr. Pickles) a moving speech about The Archers, which seemed to dominate the theme of the day. I have to say to the hon. Gentleman, for whom I have some liking, that I am very worried because he attacked Eddie Grundy and Brian Aldridge. He may not know that Eddie Grundy has a significant fan club, and that the actor who plays Brian Aldridge is a constituent of mine and lives in my road. The hon. Gentleman had better watch out.

The working families tax credit is not family credit with a new name and a few tweaks around the edge. It is a significant modernisation of the tax and benefits system. The Government believe that it is right to take action to ensure that work pays more than benefits. Through the tax credits, we are delivering just that. People will get to keep more of what they earn and the tax credits will ensure that it pays people to work.

The hon. Member for Northavon (Mr. Webb) made an interesting and well-considered speech. Clearly, he has a different view of how the scheme ought to be structured. There is a fundamental disagreement between the Government and the Liberal Democrats about the nature of benefits and work.

It is right to provide proper help with child care costs so that parents can balance work and family responsibilities. The old system of family credit has failed in its provision for child care. We are determined to ensure that no one is unable to take up work through lack of access to affordable, quality child care, and to help parents better to balance work and family responsibilities.

Let us make no mistake: there is a deep philosophical difference between Conservative Members and the Government. It was well set out by the hon. Members for Arundel and South Downs (Mr. Flight) and for Canterbury (Mr. Brazier), who made clear their view that women should stay at home to look after young children. We want to give women choice. We want to give all families choice about what they do. That is very important.

Mr. Brazier

I am a little surprised by the hon. Ladys claim, given that I made it clear that my wife, who has small children, works for a small business. The Oppositions proposal would offer women the option either to stay at home or to go to work, and either way to enjoy the same tax allowance.

Mrs. Roche

The hon. Gentleman's intervention enables me to make a number of remarks. We have known each other for a number of years, and for more years than I care to mention we were students together. I know that he has an honest and consistent approach, which he showed this evening. He has attacked his own Government in the past and he attacks us now. He said, This Bill is an attack on marriage. It undermines families. The biggest issue that undermines families is poverty, which is what the Bill seeks to address.

Mr. Paterson

The Minister mentions poverty. How many families earning more than £25,000 will benefit from the extra £1.5 billion, which is a crass breach of the Prime Ministers promise not to increase social security spending?

Mrs. Roche

I say to the hon. Gentleman—

Mr. Paterson

How many?

Mrs. Roche

If the hon. Gentleman will do me the courtesy of allowing me to answer his question, I am keen to help him. Hon. Members will know how keen I always am to help them. The answer to the question is that it will depend on the individual circumstances of each family.

The Opposition are fundamentally confused. They have put up a shadow benefits Minister, but the measure is not about benefits. It is about work and tax credits, but they have completely failed to understand that point. The Bill will deliver more help where it is most needed. Every working family will, for the first time, have a guaranteed minimum income of at least £10,000 a year. I shall be interested if, in the run-up to the next election, the Opposition campaign on the basis of abolishing that entitlement.

As a tax credit, rather than a benefit, the WFTC will be entirely different from family credit. The stigma attached to claiming benefit can be harmful to many people, and it contrasts starkly with a tax credit that can be paid directly into a bank account. There is a big psychological difference between receiving a giro and seeing a tax credit on a wage slip. That brings us back to a fundamental Labour principle: that the dignity of work is essential to everybodys self respect.

Mr. Bercow

I hope that the Financial Secretary accepts that the dignity derived from the retention of ones privacy is also important. In the light of concerns on that score that have been sincerely expressed by the Federation of Small Businesses and others, what specific steps is the hon. Lady taking to address that matter and to remove or minimise the threat to privacy that the new policy poses?

Mrs. Roche

I understand the hon. Gentleman's point, but let me reassure him and the House that there is no threat to confidentiality. The information is given to the Revenue, which then tells the employer the amount of the tax credit. Is the hon. Gentleman seriously saying that there is a problem or some sort of breach of privacy in connection with the Revenue? If so, my hon. Friend the Paymaster General will want to know all about it.

Mr. Gibb

Given that the tax credit is to be separately identified on the payslip, how can the hon. Gentleman claim that there will be no breach of confidentiality when the owner, the finance director and the payroll clerk will know which of the employees of the business is receiving a benefit from the state?

Mrs. Roche

Of course they will not know the individual circumstances of that family. Judges often ask, Is that your best point? I say exactly the same to the hon. Gentleman.

The Bill will lead to a radically different way of life for many people. That was well set out by my hon. Friend the Member for Gravesham (Mr. Pond) and my hon. Friend the Member for Stretford and Urmston (Ms Hughes). A key feature is that couples will have a free choice about payment: whether one or both partners work, if they decide that, in their personal circumstances, it would be best for the partner not in work to receive the tax credit, the Inland Revenue will pay the tax credit directly to that partner. In that respect, I am grateful for the helpful comments made by my hon. Friend the Member for Regents Park and Kensington, North (Ms Buck), who succinctly and successfully pointed out to the hon. Member for Bromsgrove (Miss Kirkbride) the error of her ways.

Mr. Webb

Library estimates were that up to £900 million would be transferred from women to men. If the Financial Secretary believes that to be an overestimate, what figure would she put on the transfer?

Mrs. Roche

I listened carefully to the hon. Gentleman's speech. The calculation that produced that figure is based on an assumption that the Government certainly do not accept.

Several hon. Members rightly raised the problem of fraud. My right hon. Friend the Member for Birkenhead (Mr. Field) went into that matter in a characteristically thoughtful speech. In designing the legislation, we have put in place new measures that will help to keep fraud at as low a level as possible, building on the experience of studies into fraud in the existing system. In addition, the Inland Revenue is developing systems for detecting fraud.

The Bill gives the Inland Revenue the necessary powers to carry out inquiries into cases of suspected fraud which will be backed up with sanctions. We shall tackle fraud in tax credits with the same resolve with which we are tackling fraud in other areas of government activity.

Many Conservative Members spoke about the Bills effects on employers. The Bill takes positive steps for employers. A committed, motivated work force is a great asset to any firm. By ensuring that they get their side of the measures right, employers will go a long way to retain employees and gain their respect for and loyalty to the company. This is win-win legislation for employers and employees.

Many Conservative Members referred to burdens on business. I thank the hon. Member for Vale of York (Miss McIntosh) for her kind comments and I shall miss our rather detailed discussions on structural funds and her helpful contributions, but I take issue with her about burdens on business. My hon. Friend the Paymaster General has done a great deal of work with small firms organisations.

Mr. Ruffley

Will the hon. Lady give way?

Mrs. Roche

No, I want to make progress.

Those organisations made an invaluable contribution to the design of the scheme and provided practical advice on the implementation of payment through the wage packet.

We shall take no lessons from Opposition Members about burdens on business. I remember only too well the previous Governments record. [Interruption.] Conservative Members are shouting because they do not want to hear this. They do not like to be reminded of the facts. What was the previous Governments record? They removed 3,000 regulations on business but introduced 10,000 new ones. [Interruption.] They may keep shouting, but we will keep reminding them—

Mr. Deputy Speaker

Order. I am sorry to interrupt the Minister but hon. Members may not keep on shouting. I must have silence while the Minister replies.

Mrs. Roche

I am sorry that Conservative Members do not want to hear what I have to say, but they will hear much more. They will constantly be reminded.

We have been working to reduce the burden of red tape on business. We have reduced the burden of employees national insurance contributions and we are transferring the Contributions Agency to the Inland Revenue to enable businesses to deal with one organisation for tax and national insurance purposes.

On 9 March 1998, I had the great pleasure of making the closing speech for the Government on the Third Reading of the National Minimum Wage Bill, which will affect the working lives of people in this country. Today, with this Bill, we put into place another vital piece of legislation to help working families. I commend the Bill to the House.

Question put, That the amendment be made:—

The House divided: Ayes 126, Noes 365.

Division No. 48] [10.13 pm
Abbott, Ms Diane Campbell, Mrs Anne (C'bridge)
Adams, Mrs Irene (Paisley N) Campbell, Ronnie (Blyth V)
Ainger, Nick Campbell—Savours, Dale
Ainsworth, Robert (Covtry NE) Canavan, Dennis
Alexander, Douglas Cann, Jamie
Allen, Graham Caplin, Ivor
Anderson, Donald (Swansea E) Casale, Roger
Anderson, Janet (Rossendale) Caton, Martin
Armstrong, Ms Hilary Chapman, Ben (Wirral S)
Ashton, Joe Chaytor, David
Atherton, Ms Candy Chisholm, Malcolm
Atkins, Charlotte Clark, Rt Hon Dr David (S Shields)
Austin, John Clark, Dr Lynda (Edinburgh Pentlands)
Banks, Tony
Barnes, Harry Clark, Paul (Gillingham)
Barron, Kevin Clarke, Charles (Norwich S)
Battle, John Clarke, Eric (Midlothian)
Bayley, Hugh Clarke, Rt Hon Tom (Coatbridge)
Beard, Nigel Clarke, Tony (Northampton S)
Beckett, Rt Hon Mrs Margaret Clelland, David
Begg, Miss Anne Clwyd, Ann
Bell, Martin (Tatton) Coaker, Vernon
Benn, Rt Hon Tony Coffey, Ms Ann
Benton, Joe Cohen, Harry
Bermingham, Gerald Coleman, Iain
Berry, Roger Connarty, Michael
Best, Harold Cook, Frank (Stockton N)
Blackman, Liz Cooper, Yvette
Blears, Ms Hazel Corbett, Robin
Blizzard, Bob Corbyn, Jeremy
Boateng, Paul Corston, Ms Jean
Borrow, David Cousins, Jim
Bradley, Keith (Withington) Cranston, Ross
Bradley, Peter (The Wrekin) Crausby, David
Bradshaw, Ben Cryer, John (Hornchurch)
Brown, Rt Hon Nick (Newcastle E) Cummings, John
Brown, Russell (Dumfries) Cunningham, Jim (Covtry S)
Browne, Desmond Dalyell, Tam
Buck, Ms Karen Darling, Rt Hon Alistair
Burden, Richard Darvill, Keith
Burgon, Colin Davey, Valerie (Bristol W)
Butler, Mrs Christine Davidson, Ian
Byers, Rt Hon Stephen Davies, Rt Hon Denzil (Llanelli)
Caborn, Richard Dean, Mrs Janet
Campbell, Alan (Tynemouth) Denham, John
Dewar, Rt Hon Donald Keeble, Ms Sally
Dismore, Andrew Keen, Alan (Feltham & Heston)
Dobbin, Jim Keen, Ann (Brentford & Isleworth)
Donohoe, Brian H Kemp, Fraser
Doran, Frank Khabra, Piara S
Dowd, Jim Kilfoyle, Peter
Drew, David King, Andy (Rugby & Kenilworth)
Drown, Ms Julia King, Ms Oona (Bethnal Green)
Eagle, Angela (Wallasey) Kingham, Ms Tess
Eagle, Maria (Lpool Garston) Kumar, Dr Ashok
Efford, Clive Ladyman, Dr Stephen
Ellman, Mrs Louise Lawrence, Ms Jackie
Ennis, Jeff Laxton, Bob
Field, Rt Hon Frank Lepper, David
Fisher, Mark Leslie, Christopher
Fitzpatrick, Jim Levitt, Tom
Fitzsimons, Lorna Lewis, Ivan (Bury S)
Flint, Caroline Lewis, Terry (Worsley)
Follett, Barbara Linton, Martin
Foster, Rt Hon Derek Lloyd, Tony (Manchester C)
Foster, Michael Jabez (Hastings) Lock, David
Foster, Michael J (Worcester) Love, Andrew
Foulkes, George McAllion, John
Galbraith, Sam McAvoy, Thomas
Galloway, George McCabe, Steve
Gapes, Mike McCartney, Ian (Makerfield)
Gardiner, Barry Macdonald, Calum
George, Bruce (Walsall S) McDonnell, John
Gibson, Dr Ian McGuire, Mrs Anne
Gilroy, Mrs Linda McIsaac, Shona
Godman, Dr Norman A McKenna, Mrs Rosemary
Godsiff, Roger McNulty, Tony
Goggins, Paul Mactaggart, Fiona
Gordon, Mrs Eileen McWalter, Tony
Griffiths, Jane (Reading E) McWilliam, John
Griffiths, Win (Bridgend) Mahon, Mrs Alice
Grocott, Bruce Mallaber, Judy
Grogan, John Marek, Dr John
Gunnell, John Marsden, Gordon (Blackpool S)
Hain, Peter Marshall, David (Shettleston)
Hall, Mike (Weaver Vale) Marshall, Jim (Leicester S)
Hamilton, Fabian (Leeds NE) Marshall—Andrews, Robert
Hanson, David Martlew, Eric
Harman, Rt Hon Ms Harriet Maxton, John
Heal, Mrs Sylvia Meale, Alan
Healey, John Michael, Alun
Henderson, Ivan (Harwich) Michie, Bill (Shefld Heeley)
Hepburn, Stephen Miller, Andrew
Hesford, Stephen Mitchell, Austin
Hewitt, Ms Patricia Moffatt, Laura
Hill, Keith Moonte, Dr Lewis
Hinchliffe, David Moran, Ms Margaret
Hodge, Ms Margaret Morgan, Ms Julie (Cardiff N)
Home Robertson, John Morgan, Rhodri (Cardiff W)
Hoon, Geoffrey Morley, Elliot
Hope, Phil Morris, Ms Estelle (Bham Yardley)
Hopkins, Kelvin Mountford, Kali
Howarth, George (Knowsley N) Mudie, George
Howells, Dr Kim Mullin, Chris
Hoyle, Lindsay Murphy, Denis (Wansbeck)
Hughes, Ms Beverley (Stretford) Murphy, Jim (Eastwood)
Hughes, Kevin (Doncaster N) Murphy, Paul (Torfaen)
Humble, Mrs Joan Norris, Dan
Hurst, Alan OBrien, Bill (Normanton)
Jackson, Ms Glenda (Hampstead) Olner, Bill
Jackson, Helen (Hillsborough) Organ, Mrs Diana
Jenkins, Brian Osborne, Ms Sandra
Johnson, Alan (Hull W & Hessle) Palmer, Dr Nick
Johnson, Miss Melanie (Welwyn Hatfield) Pearson, Ian
Pendry, Tom
Jones, Barry (Alyn & Deeside) Pickthall, Colin
Jones, Helen (Warrington N) Pike, Peter L
Jones, Jon Owen (Cardiff C) Plaskitt, James
Jones, Dr Lynne (Selly Oak) Pond, Chris
Jones, Martyn (Clwyd S) Pope, Greg
Kaufman, Rt Hon Gerald Pound, Stephen
Prentice, Gordon (Pendle) Stinchcombe, Paul
Prescott, Rt Hon John Stoate, Dr Howard
Primarolo, Dawn Stott, Roger
Purchase, Ken Strang, Rt Hon Dr Gavin
Quin, Ms Joyce Stringer, Graham
Quinn, Lawrie Stuart, Ms Gisela
Rammell, Bill Sutcliffe, Gerry
Rapson, Syd Taylor, Rt Hon Mrs Ann (Dewsbury)
Raynsford, Nick
Reed, Andrew (Loughborough) Taylor, Ms Dari (Stockton S)
Robertson, Rt Hon George (Hamilton S) Temple-Morris, Peter
Thomas, Gareth (Clwyd W)
Robinson, Geoffrey (Covtry NW) Timms, Stephen
Roche, Mrs Barbara Tipping, Paddy
Rogers, Allan Todd, Mark
Rooney, Terry Touhig, Don
Ross, Ernie (Dundee W) Trickett, Jon
Rowlands, Ted Turner, Dennis (Wolverhton SE)
Ruane, Chris Turner, Dr Desmond (Kemptown)
Ruddock, Ms Joan Turner, Dr George (NW Norfolk)
Russell, Ms Christine (Chester) Twigg, Derek (Halton)
Ryan, Ms Joan Twigg, Stephen (Enfield)
Salter, Martin Vaz, Keith
Sawford, Phil Ward, Ms Claire
Sedgemore, Brian Wareing, Robert N
Shipley, Ms Debra Watts, David
Simpson, Alan (Nottingham S) Whitehead, Dr Alan
Singh, Marsha Wicks, Malcolm
Skinner, Dennis Williams, Rt Hon Alan (Swansea W)
Smith, Rt Hon Andrew (Oxford E) Wills, Michael
Smith, Angela (Basildon) Winnick, David
Smith, Jacqui (Redditch) Winterton, Ms Rosie (Doncaster C)
Smith, John (Glamorgan) Wise, Audrey
Smith, Llew (Blaenau Gwent) Wood, Mike
Snape, Peter Woolas, Phil
Soley, Clive Worthington, Tony
Southworth, Ms Helen Wright, Anthony D (Gt Yarmouth)
Spellar, John Wright, Dr Tony (Cannock)
Squire, Ms Rachel Wyatt, Derek
Starkey, Dr Phyllis
Stevenson, George Tellers for the Ayes:
Stewart, David (Inverness E) Mr. Clive Betts and
Stewart, Ian (Eccles) Jane Kennedy.
Ainsworth, Peter (E Surrey) Cran, James
Allan, Richard Curry, Rt Hon David
Amess, David Davey, Edward (Kingston)
Ancram, Rt Hon Michael Davies, Quentin (Grantham)
Arbuthnot, Rt Hon James Day, Stephen
Atkinson, Peter (Hexham) Dorrell, Rt Hon Stephen
Ballard, Jackie Duncan, Alan
Bercow, John Duncan Smith, Iain
Beresford, Sir Paul Emery, Rt Hon Sir Peter
Blunt, Crispin Evans, Nigel
Boswell, Tim Faber, David
Bottomley, Peter (Worthing W) Fabricant, Michael
Brady, Graham Fearn, Ronnie
Brazier, Julian Flight, Howard
Breed, Colin Forth, Rt Hon Eric
Browning, Mrs Angela Foster, Don (Bath)
Bruce, Ian (S Dorset) Fowler, Rt Hon Sir Norman
Bruce, Malcolm (Gordon) Fox, Dr Liam
Burns, Simon Fraser, Christopher
Burstow, Paul Gale, Roger
Butterfill, John Garnier, Edward
Campbell, Menzies (NE Fife) George, Andrew (St Ives)
Cash, William Gibb, Nick
Chidgey, David Gorman, Mrs Teresa
Chope, Christopher Gorrie, Donald
Clappison, James Gray, James
Clark, Rt Hon Alan (Kensington) Greenway, John
Clifton—Brown, Geoffrey Gummer, Rt Hon John
Collins, Tim Hague, Rt Hon William
Cormack, Sir Patrick Hamilton, Rt Hon Sir Archie
Hammond, Philip May, Mrs Theresa
Harris, Dr Evan Michie, Mrs Ray (Argyll & Bute)
Harvey, Nick Morgan, Alasdair (Galloway)
Hawkins, Nick Moss, Malcolm
Hayes, John Nicholls, Patrick
Heald, Oliver Norman, Archie
Heath, David (Somerton & Frome) Oaten, Mark
Heathcoat—Amory, Rt Hon David Öpik, Lembit
Hogg, Rt Hon Douglas Ottaway, Richard
Howarth, Gerald (Aldershot) Page, Richard
Hughes, Simon (Southwark N) Paice, James
Hunter, Andrew Paterson, Owen
Jack, Rt Hon Michael Pickles, Eric
Jackson, Robert (Wantage) Prior, David
Jenkin, Bernard Randall, John
Jones, Nigel (Cheltenham) Redwood, Rt Hon John
Keetch, Paul Rendel, David
Kennedy, Charles (Ross Skye) Robathan, Andrew
Key, Robert Roe, Mrs Marion (Broxbourne)
King, Rt Hon Tom (Bridgwater) Rowe, Andrew (Faversham)
Kirkbride, Miss Julie Ruffley, David
Kirkwood, Archy Russell, Bob (Colchester)
Lait, Mrs Jacqui St Aubyn, Nick
Lansley, Andrew Salmond, Alex
Leigh, Edward Sanders, Adrian
Letwin, Oliver Sayeed, Jonathan
Lewis, Dr Julian (New Forest E) Shepherd, Richard
Lidington, David Simpson, Keith (Mid-Norfolk)
Livsey, Richard Smith, Sir Robert (W Abdns)
Lloyd, Rt Hon Sir Peter (Fareham) Soames, Nicholas
Luff, Peter Spelman, Mrs Caroline
McIntosh, Miss Anne Spicer, Sir Michael
MacKay, Rt Hon Andrew Spring, Richard
Maclennan, Rt Hon Robert Stanley, Rt Hon Sir John
McLoughlin, Patrick Steen, Anthony
Major, Rt Hon John Streeter, Gary
Malins, Humfrey Stunell, Andrew
Maples, John Swayne, Desmond
Mates, Michael Swinney, John
Mawhinney, Rt Hon Sir Brian Syms, Robert
Tapsell, Sir Peter Welsh, Andrew
Taylor, John M (Solihull) Whittingdale, John
Taylor, Sir Teddy Wilkinson, John
Tredinnick, David Willis, Phil
Trend, Michael Wirrterton, Mrs Ann (Congleton)
Tyler, Paul Winterton, Nicholas (Macclesfield)
Tyrie, Andrew Woodward, Shaun
Viggers, Peter Young, Rt Hon Sir George
Walter, Robert
Wardle, Charles Tellers for the Noes:
Webb, Steve Mr. Nigel Waterson and
Wells, Bowen Sir David Madel.

Question accordingly negatived.

Main Question put forthwith, pursuant to Standing Order No. 62 (Amendment on Second or Third Reading):—

The House divided: Ayes 320, Noes160.

Question accordingly agreed to.

Bill read a Second time, and committed to a Standing Committee, pursuant to Standing Order No. 63 (Committal of Bills).