HC Deb 22 July 1999 vol 335 cc1316-9
6. Fiona Mactaggart (Slough)

How he will monitor the impact of the working families tax credit on incomes within families. [91097]

7. Mr. Malcolm Savidge (Aberdeen, North)

What progress he has made with the implementation of the working families tax credit. [91099]

The Chancellor of the Exchequer (Mr. Gordon Brown)

Our aim is that every child should have the best possible start in life. The working families tax credit will be implemented in October this year, including the new, generous child care tax credit. It will benefit nearly 1.5 million families, almost twice as many as under the old system of family credit, and about 3 million children. It will provide a minimum guaranteed income for a family with someone in full-time work of £200 a week—£80 more than the family would receive on income support. On average, families will gain £24 a week, and that will make work pay.

Together with the national minimum wage, the largest ever increase in child benefit, and the reform of taxation in national insurance and in income tax, the working families tax credit will lift about 800,000 children out of poverty.

Fiona Mactaggart

I thank my right hon. Friend for all the measures that he has taken to help low-paid workers while they are bringing up their families, including the working families tax credit, which will benefit 150,000 people in my region. As my right hon. Friend pointed out, if the Conservatives got their way, it would mean a £24 a week tax increase for each of those families.

I am concerned that my right hon. Friend should ensure that his generosity does not get stuck in the pockets of fathers, and that it reaches children and their mothers. Will he ensure that there is independent evaluation of the distribution of his generosity within families, so that it gets to children and their mothers?

Mr. Brown

I thank my hon. Friend. We will have a monitoring system to see how the working families tax credit works. If there is a dispute about who should get the credit, it will normally be paid to the main carer. My hon. Friend is right. At the next election the Conservative party will have to defend its proposal for a tax rise of £24 a week for 1.5 million of the poorest people in the country. Even now, the Conservatives should desist from their opposition to a measure that will relieve family poverty, make work pay, increase child care and deal with the poverty traps.

Mr. Savidge

I welcome the extent to which the working families tax credit will help to tackle the appalling legacy of scandalous levels of child poverty that we inherited from the Conservative Government. Will my right hon. Friend join me in condemning the Conservative party not just for that legacy, but for their continuing opposition to the measure?

Mr. Brown

I would have hoped that the measure could be supported by all parties in the House, but it is now clear that not only does the Conservative party oppose the working families tax credit, and the shadow Chancellor say that it means state dependency when it is about the dignity of work and helping children, but the Conservative party now even opposes the advertising campaign which is designed to achieve the take-up of the new benefit that we want to see.

The previous Conservative Government spent £21 million advertising the British Gas sale, £36 million advertising the British Telecom sale and £60 million advertising water and electricity sales, but they cannot bring themselves to support the spending of £12 million to advertise a benefit to 1.5 million of the poorest families in Britain. The country will draw the right conclusions from that.

Mr. David Ruffley (Bury St. Edmunds)

Ministers will be aware that, on 26 January this year, the CBI said that the working families tax credit will be a "new burden" for companies, and that the costs will be significant, especially for small companies. What evidence does the Treasury have for thinking that the CBI is wrong?

Mr. Brown

I have spoken to representatives of all the small business organisations in the past few weeks about the implementation of the working families tax credit, and they have been involved in discussing its implementation. Mr. Stan Menden, of the Forum of Private Business, says: The delivery of tax credits through payroll is clearly more effective than direct state handouts in freeing the labour market and reducing dependency and the cost of welfare. It was a former director general of the CBI who proposed the measure in the first place.

Mr. Malcolm Bruce (Gordon)

Does the Chancellor accept that one way of helping to relieve the problems of the working poor is to raise the level at which people start paying tax, which would remove the necessity for many of them to receive the working families tax credit? Will the right hon. Gentleman give a commitment that he will raise the tax threshold at the earliest opportunity to take minimum wage earners out of tax altogether and, subsequently, bring it up to the levels that applied at the end of the war when one could earn 50 per cent. of the average wage before paying tax rather than the 25 per cent. today?

Mr. Brown

We are in the 1990s, not in 1945, and we must devise a system to make work pay that is relevant to the changes in the 1990s. If I recall correctly, the hon. Gentleman's proposal, designed, no doubt, to solicit votes in the Liberal Democrat leadership election, would cost about £20 billion. Our proposal takes many more people out of poverty, helps to make work pay, deals with the problem of inadequate child care and tackles the poverty trap. I should have thought that it would benefit the hon. Gentleman's campaign to become leader of the Liberal Democrats if he supported our proposal.

Mr. Malcolm Chisholm (Edinburgh, North and Leith)

I congratulate the Chancellor on the historic achievement of the working families tax credit, but he will know that some families will not gain as much as they might because of the steep rates of housing benefit withdrawal as income rises. Will the Chancellor guarantee that, for the Treasury, housing benefit reform should take place as soon as possible, that there should be no losers apart from those who are guilty of fraud and that those moving into work should be substantial gainers, so that the great advances of the working families tax credit are not clawed back by the steep withdrawal of housing benefit?

Mr. Brown

A housing policy review is taking place under my right hon. Friend the Deputy Prime Minister, but my hon. Friend should not go away with the impression that people are losing out as a result of the working families tax credit. Many families will be £50 a week better off as a result of measures that we are introducing. On average, the benefits are £24 a week. That is going to exactly those groups of people whom he would want to see benefit from the measure—mothers who want to work, and people in low-paid families who were deprived under the previous Government not only of the minimum wage but of an adequate system of family credit. My hon. Friend could help us to put the message across throughout the country that this is a benefit that helps exactly those people who were denied help under the previous Government.

Mr. Francis Maude (Horsham)

Does the Chancellor think it matters that he has been condemned by the CBI, by the Institute of Directors and by the Federation of Small Businesses for turning employers into unpaid benefit officers? As the CBI has said, costs are particularly great for small businesses, which are always hardest hit by red tape. Does any of that matter to him or is he going to brush it all aside as he usually does?

Mr. Brown

The right hon. Gentleman was stuck after failing to ask his question about gold, so he has repeated one that I have already answered. The Forum of Private Business has made its views clear and the CBI was originally involved in a proposal that would have led to the introduction of a working families tax credit. The right hon. Gentleman is opposing a proposal that even Ronald Reagan in the United States of America was prepared to support.

Under the previous Conservative Government, whom the right hon. Gentleman supported, the right hon. Member for Sutton Coldfield (Sir N. Fowler), the former Secretary of State for Social Services, wrote in his book "Ministers Decide" that our original proposal was that Family Credit should be paid through the pay-packet. This had a number of advantages. It brought tax and benefit closer together, and putting family credit explicitly on the pay-slip showed total new earnings—demonstrating…the gap between take-home wages and unemployment pay. He wrote that, after right-wing Conservative opposition, with some regret we eventually changed our proposal". There are even members of the right hon. Gentleman's own party who wish that they had done what we are doing.

Mr. Maude

There were a lot of disadvantages to the proposal, which is why the Conservative Government did not introduce it. It is a scandal that the Chancellor is abolishing the system of family credit which the Conservatives introduced. Only this Chancellor could defend as helping the poor a measure that extends social security benefits to top-rate taxpayers.

Is not the working families tax credit yet another burden that has been imposed on business by a Government who claim to be the friend of business? Yet again, they say one thing and do another. On top of £30 billion of extra stealth taxes and £5 billion a year in costs for extra regulations—on the Government's own figures—businesses face a new energy tax and a new attack on information technology and other entrepreneurs. Is it any wonder that Britain has already slipped from fourth to eighth in the world competitiveness league? Is it surprising that the price of all that extra red tape has been calculated as more than 800,000 jobs? As always under Labour, the poor will suffer most.

Mr. Brown

The one group that the right hon. Gentleman did not mention in his diatribe is the working families whom the measure is designed to help. We are cutting the poverty trap that we inherited from the previous Government; we are tackling the problem of child care, which they never even bothered to address; we are dealing with the problem of making work pay; and we are dealing with the problem of child poverty in this country. It is unfortunate that the dividing line between us and the Conservatives is that we support a minimum wage; a working families tax credit; helping people who receive child benefit; helping pensioners through the £100 winter allowance; and allocating £40 billion for health and education—all central measures that will help working families—while the Conservative party is more extreme than ever in its opposition to anything that will help either the working poor or middle-income families in this country.