HC Deb 10 December 2001 vol 376 cc595-683

Order for Second Reading read.

3.33 pm
The Paymaster General (Dawn Primarolo)

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

The Government have made clear their commitment to increasing and improving the support available to families, to making work pay and to tackling poverty. That means providing financial help for all families with children, recognising the costs and responsibilities that come with parenthood, targeting help on those who need it most to help to achieve our long-term goal of halving child poverty by 2010 and eradicating it within a generation, and reforming the tax and benefits system to make sure that work pays.

During the last Parliament, we moved to tackle those problems on a number of fronts, and we worked within the constraints of the system that we inherited, trying to ensure that we maximised benefits to those in greatest need. We introduced the working families tax credit, which currently benefits nearly 1.3 million families, and the children's tax credit, which is a tax cut of up to £520 a year for around 5 million families. The introduction of new tax credits, as our next step, will allow us to make further progress in achieving our aims.

We will rationalise and streamline our systems of support to deliver more effective help to families with children and to working households. The Bill replaces numerous strands of support with two new targeted tax credits: the child tax credit to tackle child poverty and provide targeted support to parents, and the working tax credit to improve work incentives, tackle in-work poverty and remove barriers to work. We are not changing our objectives£they are the right objectives£but we are changing the way in which we deliver them. Our aim is to provide a seamless stream of support to parents, who will be able to apply at one point, the Inland Revenue.

Our reforms so far have been successful, but they do not go far enough. Existing forms of support can be divisive: support for children depends on whether the parents are in work; some people drop through the gaps in support; measures such as the children's tax credit can reach only taxpayers; and support for workers with disabilities focuses on their disability rather than on their working. Existing forms of support are inflexible. The working families tax credit and the disabled person's tax credit, beneficial as they have been, are fixed awards that cannot usually respond to changing circumstances. Existing forms of support overlap and can be an awkward fit with the tax system, increasing the hassle of applying for them and creating confusion for claimants.

We are now introducing a single inclusive credit to support families with children: one framework for income-related support for children that will reduce stigma, smooth the transition into work and broaden the scope of support. We are also introducing an inclusive credit for those in work, with the emphasis on work, so that workers with disabilities and households facing in-work poverty are within the single framework.

The new tax credits will be able to adjust to reflect changes as they happen —for example, when a child is born or when parents start or stop using paid child care. They will be able to respond to changes in family income, so that support is better targeted, providing extra support when it is needed and helping people to stay in work. They will be a better fit with the tax system, improving transparency and fairness and making it easier for people, when they apply for their tax credits, to use the information that they already get for tax. Tax credits will be based on annual income before income tax and national insurance are deducted.

This is a substantial change, and the Government have engaged in detailed and wide-ranging consultation with organisations outside the House that have the expertise to help us to develop and improve the system. The consultation document, published in July, received more than 170 written responses. A series of consultation meetings were held around the United Kingdom to discuss the issues, and many other formal and informal meetings with a range of groups also took place. The consultation has been widely welcomed. For instance, NCH Action for Children said: We would like to thank the Revenue and Treasury for the very genuine efforts you have made to inform and engage organisations like the NCH in this consultation process—not only on paper but also through your programme of events. The Disability Alliance said: We would like to place on record our appreciation of the extent and openness of the consultation.

Mr. David Ruffley (Bury St. Edmunds)

If the consultation was so wonderful, why did the Institute for Fiscal Studies say of the consultation document: Although it invited views on key issues, it provided no quantitative evidence on which one might base a sensible response"? What is the Paymaster General's answer to that?

Dawn Primarolo

The Bill provides a framework for bringing together a range of benefits and support for families. The thresholds and tapers to which the Institute for Fiscal Studies referred will be made clear in the Budget statement by my right hon. Friend the Chancellor. Today, the House is considering the framework for delivering those benefits and whether those payments are clearer, more effective and more helpful for those who will receive them.

Mr. Steve Webb (Northavon)

May I develop that point? Two people in a couple who are both on average earnings would get the full children's tax credit, but under joint assessment they might get nothing, the full amount or something in between. I sense that the Paymaster General's response to them is, "Wait and see". Can she give them any more reassurance today or will they have to wait until next year to find out whether they get all the £500 or nothing?

Dawn Primarolo

I can reassure individuals and families that the Government are committed to continue reforms that will benefit them. Unlike the previous Government, we continue to take serious steps to tackle poverty, particularly children's poverty. As the hon. Gentleman knows, and as my right hon. Friend the Chancellor and I have repeatedly said, thresholds and tapers will be announced in the 2002 Budget. The hon. Gentleman is an acknowledged expert on those matters. I hope that even he would agree that the framework that we are putting in place will be more transparent, easier to understand and more effective in delivering support to families. That is what we are deciding today.

Ms Diane Abbott (Hackney, North and Stoke Newington)

My hon. Friend knows that people who successfully claim those tax credits are extremely grateful. But is she also aware that take-up is significantly lower in London because of housing costs and the way in which the housing benefit system works? Will she look at circumstances in London to ensure that work can be made to pay for single mothers and poor families, via the tax credit system, just as it does in the rest of the country?

Dawn Primarolo

I thank my hon. Friend for her comments. I assure her that we will look closely at take-up by the most vulnerable people in our communities and the crucial interaction between the threshold, tapers and other benefits, such as housing benefit and council tax benefit.

The National Association of Citizens Advice Bureaux, in its submission for today's debate, said that measures that have already been introduced have made a significant impact on the lives of many people, including CAB clients. It said that the working families tax credit has proved extremely popular and that it is readily apparent that large numbers of lone parents, for example, have started working and are receiving it. The arrangements in the Bill seek to build on that success in the course of delivering our objectives.

Mr. David Kidney (Stafford)

This being carers' rights day, may I ask whether, in response to the consultation, carers' representatives have been in touch to find out whether the employment tax credit that benefits disabled workers could also benefit carers?

Dawn Primarolo

Yes, the Carers National Association has participated in the consultation process. Discussion continues between the Inland Revenue and associations representing carers to take forward their objectives, particularly to establish an agreed definition of carers and how that may become part of tax credit payments in the future. I know that the association has been fair and direct in its comments, but achieving such a definition will be difficult. It is important that the definition is correct and allows carers to benefit. The Government have made a commitment to take that forward.

There will be continuing dialogue with interested groups as the Bill goes through the House and supporting legislation is drawn up. Many points raised in the consultation responses will be picked up again during those discussions, the definition of carers being but one.

In the light of the views expressed in the consultation process, we have decided that child maintenance payments will not be treated as income for the purposes of the new tax credit. The disregard of child maintenance has been a successful feature of the working families tax credit and disabled person's tax credit, helping lone parents move into work. We are continuing that approach in the new tax credits—a decision that has been widely welcomed.

Building on reforms in the system must take account of the progress that has already been made. The National Association of Citizens Advice Bureaux has been constructive in its engagement in the process. It stated: We recognise the substantial progress that has been made in the past four years with the introduction of a range of policies aimed at increasing the incomes of people both in and out of work. By the mid-1990s, the United Kingdom had the highest rate of relative poverty in the European Union and the highest proportion of children living in workless households. Personal tax and benefit changes introduced since 1997 have ensured that there are now 1.2 million fewer children in relative poverty than there would otherwise have been. From April 2002, increases in the rate of child benefit, which is vital to families but was frozen by the previous Administration, will be worth £15.75 for the first child, and £10.55 for subsequent children. That represents a 26 per cent. rise in real terms for the first child. Compare that with the actions of the previous Government, who froze child benefit and made sure that it contributed less to households. The children's allowance will be raised in income support and other income-related benefits, and there will be real-terms increases of 80 per cent. for children under 11.

We introduced the working families tax credit and the disabled person's tax credit, which provide more support to families than their predecessors—family credit and disability working allowance—ever did. The working families tax credit helps almost 1.3 million families, who receive an average of £35 a week more than under family credit. The disabled person's tax credit goes to more than 29,000 people—almost 60 per cent. more than the disability working allowance at its peak. In 2001, we introduced the children's tax credit, which is worth up to £10 a week for about 5 million families. From next April, it will be worth an additional £10 a week to families who have a new-born child in that year. However, we have also made sure that work pays.

Mr. David Willetts (Havant)

The Paymaster General said that 1.3 million families were benefiting from the working families tax credit. It is important, of course, to assess the take-up of tax credits against the number of people who are eligible to receive them. How many people are eligible for the working families tax credit and how does its take-up compare with that of other benefits?

Dawn Primarolo

I have indicated the growth in working families tax credit and the number of extra families who are receiving it over and above its predecessor, family credit. The hon. Gentleman is right to raise the impact of the working families tax credit and whether it gets to the families who need it most and addresses the issue raised by my hon. Friend the Member for Hackney, North and Stoke Newington (Ms Abbott). That is precisely why the Government have ensured that we have independent assessment and research on those points. It ill behoves Opposition Members, who presided over record growth in child poverty and unemployment, to try to undermine the take-up of those benefits.

Mr. George Osborne (Tatton)

I want to press the hon. Lady on the issue raised by my hon. Friend the Member for Havant (Mr. Willetts), who asked about take-up of the working families tax credit. How many people are eligible for it and how many claim it?

Dawn Primarolo

Some 800,000 people were claiming family credit and 1.3 million now receive the working families tax credit—a higher number. Opposition Members need to focus on two points: first, the benefit to those 1.3 million families, and, secondly, whether all those who are entitled to receive the credit are receiving it and any barriers to doing so. Precisely the comments that Opposition Members have made about complexity and the problems of applying for this support are addressed in the Bill, to which they should turn their attention.

Mr. Mark Prisk (Hertford and Stortford)

Will the hon. Lady give way?

Dawn Primarolo

No; I want to make some progress.

Mr. Prisk


Dawn Primarolo

Which part of the word "No" is the hon. Gentleman struggling with? I should like to make a little progress, after which I shall give way. I have been very generous in doing so. Indeed, so few Conservative Members are present in the Chamber, I think that I have given way to just about every one of them.

The commitments to supporting families are mirrored by our efforts to ensure that work pays. We have improved work incentives and reduced in-work poverty through targeted tax cuts that allow families to keep more of what they earn. We introduced the working families tax credit, the disabled person's tax credit and the children's tax credit—targeted cuts for families that provide, alongside the national minimum wage, guaranteed levels of income for working families. We included the child care tax credit in the working families tax credit and disabled person's tax credit, removing the barriers to work and helping parents to enter and remain in the workplace. We introduced the 10p starting rate for income tax, which has halved the marginal rates of tax for almost 2 million people on low earnings. We also introduced the national minimum wage to ensure that people receive a fair day's pay for a fair day's work. The national minimum wage tackles the worst excesses of low pay and ensures greater fairness in the workplace. The Low Pay Commission has estimated that between 1.2 million and 1.4 million workers aged 22 or above have benefited from the increase of the national minimum wage to £4.10.

I turn now to the structure of the new tax credits and what they replace. Building on the foundations of universal child benefit, the child tax credit will draw together in a single payable tax credit the child elements of the working families tax credit, the disabled person's tax credit, income support and the income-based jobseeker's allowance, as well as the children's tax credit

. It establishes for the first time a single system of income-related support for families with children, whether they are in or out of work. It bridges the gap between welfare and work and removes the stigma from support for children.

The credit will include a family element available to all families with children that will be higher for families with a child under the age of one. We will also include additional elements to reflect the number of children or young people in the family. That tailors support according to the size of the family. Higher credits will be payable for children or young people with a disability.

The working tax credit replaces the adult elements of the working families tax credit and disabled persons tax credit, as well as the employment credit in the new deal 50-plus. It extends the principle of in-work support, paid through the wage packet to those without children. If based on current support systems, it would benefit an estimated extra 400,000 people without children on low incomes. That benefit will also cover workers with a disability. Disability groups have favoured that approach rather than retaining a separate tax credit such as the disabled person's tax credit.

With the minimum wage, those credits will tackle poverty and improve work incentives by making work pay. The working tax credit will consist of a basic element for all those who are eligible. Additional elements will target support according to household circumstances. For example, there will be an additional element for couples, lone parents and workers who have a disability.

The working tax credit will also include an element for the costs of child care. Unlike the other elements in the credit, it will be paid directly to the main carer alongside child tax credit. It will not be paid through the wage packet. That reflects views expressed in the consultation. The Government remain committed to helping parents to overcome barriers to work. We will therefore build on the success of the child care tax credit in the working families tax credit and the disabled person's tax credit by including a child care component in the working tax credit.

The child care tax credit already helps approximately 145,000 families with their child care costs. That is three times the number who benefited from the child care disregard in family credit. Lone parent employment is at its highest for 20 years. We have listened to the comments of parents and child care providers about the existing arrangements, and we will make improvements to the new system. We plan to pay the child care element only while child care costs are being incurred. That will meet the anxieties of providers about keeping places open for parents who do not use them. It provides flexibility for parents who can get extra help when they need it.

Caroline Flint (Don Valley)

My hon. Friend knows that there is no greater champion than me of the Government's actions on child care. However, during the Bill's passage, I ask the Department to try to tackle the problems that face families whose child care is provided in their homes. For example, child care must be provided in the home for a nurse on shift work or a parent with a disabled child. More than 50 per cent. of child care is in the informal sector.

Dawn Primarolo

I assure my hon. Friend that child care in the home is partly covered by the Bill. However, I know that she is a champion of child care principles, and I emphasise that when we pay for child care, we must ensure that it is safe and of high quality so that the child is protected. She also knows that the Department for Education and Skills regulates child care providers. It will be necessary, especially in the case of disabled children for whom it is more appropriate to provide care in the home, to ensure that there are no barriers to prevent the payment of the tax credit. This issue will also apply, as my hon. Friend rightly suggested, to shift workers, who usually find it more appropriate to provide child care in their own home, depending on their shift.

The payment of the working tax credit through the wage packet will be key in demonstrating the link to work. We also recognise the practical need to provide help with child care costs quickly to the main carer. We shall, therefore, pay the child care element of the working tax credit directly to the main carer alongside the child tax credit.

The Bill also deals with the transfer of child benefit payments to the Inland Revenue.

Mr. Webb

I appreciate that the Minister will not give us specific figures, but may I ask her a question on the principle of the streamlining of support for people both in and out of work? She will be aware that the children of someone in work get slightly more support—through the combination of child benefit and working families tax credit—than the children of someone who is out of work receive through personal allowances on income support. The difference is not large, but it exists. Will she confirm her intention to level up, rather than level down, that difference?

Dawn Primarolo

The hon. Gentleman seeks to draw me into a discussion on rates and tapers in a slightly different way and, as much as I like and respect his work, I cannot be tempted down that route at the Dispatch Box today. He makes an important point, however, that goes to the heart of the tax credit reforms, which will ensure that support given to families specifically for children should not be differentiated according to whether the parents are in or out of work. I am sure that the hon. Gentleman will follow closely when the Chancellor makes his announcements on the rates and tapers in the 2002 Budget, and if the hon. Gentleman serves on the Committee for the Bill, he will no doubt want to pursue the matter further when we discuss the clauses that provide for the regulations on child care.

The Bill provides for the transfer of child benefit to the Inland Revenue, as announced by the Prime Minister in June this year. Child benefit is a key part of the Government's strategy for eradicating child poverty, and it will remain an identifiable stream of income that is universally available. The child tax credit introduced by the Bill will build on the foundations of child benefit. It makes sense to streamline the administration of financial support for parents by transferring child benefit to the Inland Revenue.

Alongside the introduction of the child tax credit, that will enable the Government to deliver a joined-up service to parents, who will need to deal with only one Department to get the support to which they are entitled for their children. The majority of the 7 million families who receive child benefit will also receive help through the child tax credit, so it makes sense for both to be run by a single Department. That will help to reduce the hassle and red tape for those families.

Mr. Prisk

While welcoming the simplification of the various credits that the Minister has mentioned, may I ask her whether she believes that the Bill in any way negates the need for the Carter report, which she and her senior colleague published recently?

Dawn Primarolo

The simple answer to the hon. Gentleman's question is no, if he is referring to the Carter report that deals with the burdens on small and medium enterprises. The Government are currently seeking responses to the suggestions in the report.

As the hon. Gentleman is no doubt aware, small and medium enterprises have made the criticism—unjustly, in my view—that the working families tax credit and the disabled person's tax credit put an unreasonable burden on such companies. While reforming the system, we examined the development of tax credits in the context of reducing the burdens on small and medium enterprises. If he reads the regulatory impact assessment, he will see that the costs are reduced by about £11 million per year, but by bringing tax credits more in line with the tax system we have reduced the number of necessary contacts with the employer. For example, the assessment is annual, so there is no need to stop and start during the year, which happens with the six-monthly working families tax credit allocations, and much of the paperwork necessary because of the six-monthly renewal has disappeared.

I am sure that a few companies still cannot appreciate the benefits of having a stable work force and being able to provide child care, but they will realise that the burdens on them are considerably reduced. Although I do not necessarily agree with all the criticisms made originally, it would be churlish not to seek during the reform further to reduce the pressures and burdens on small and medium enterprises.

If the hon. Gentleman is lucky enough to sit on the Committee, which I hope he is, I shall be more than happy to engage in greater detail on the changes that we have made. Indeed, the Institute of Directors, which is not necessarily noted for its great enthusiasm for the tax credit agenda, has congratulated the Government on the measures and changes that we have introduced

Mr. Kidney

On burdens, the other side of the coin is the ability of Inland Revenue staff to carry out their new duties in addition to their existing ones. Is my hon. Friend happy that they will be able to discharge their duties well? As an indicator of the answer, may I say that I have been extremely impressed with the high-quality service provided by the Inland Revenue in my constituency during delivery of the working families tax credit system?

Dawn Primarolo

I was a little worried as my hon. Friend began in case he was about to point out an error—errors do happen in such a vast system—but I am happy that he has confirmed his experience of how the Inland Revenue conducts its relationships with employers, ensuring that they are properly informed of their obligations and working with those who claim their entitlement through the tax credits. It has worked extremely efficiently.

There are always problems in a vast system, and I cannot put my hand on my heart and say that there will be no errors in future, but the Inland Revenue has shown in the development of the working families tax credit and the disabled person's tax credit and in the Bill that it has the capacity to deliver sensitively, quickly and in a way that people who claim the tax credits understand. The other important point, which my hon. Friend's intervention leads me to, is the tax credits responding to changed family circumstances. We inherited much of the structure for the working families tax credit and the disabled person's tax credit from their predecessors, family credit and the disability working allowance, which included fixed awards. That means that families may have to wait up to six months for their award to be adjusted to their changing circumstances.

We have already made changes to the working families tax credit and the disabled person's tax credit to ensure that families can receive extra help immediately a new child is born, but the introduction of the new tax credits allows us to go much further in developing a responsive, targeted system.

Under the new system, tax credit awards will respond as a family's circumstances change, delivering the right support to families at the right time. For example, whenever the composition of a household changes or a family's child care costs change significantly, tax credit awards will be able to respond to that change straight away. No longer will there be any need for a family to wait six months.

In responses to the consultation, everyone recognised that there was a need to respond to changes in income, both up and down. The proposals in the Bill introduce a more flexible system that can respond to those changes in income, and that has been widely welcomed. All hon. Members will recognise that it is important to strike a balance between making the system responsive to income changes and keeping it straightforward for claimants. There must be certainty in the guaranteed amount of income over a fixed period that the family will receive. That has been vital in working families tax credit and disabled person's tax credit, and in family credit before that. We must provide that certainty, but we must also be able to respond to dramatic falls in income or changes in family circumstances. The Bill allows us to take a flexible approach to income changes.

We need to have further discussion of this issue, which I am sure will occur in Committee, so that we can refine the system in the light of experience once the tax credits have been functioning for some time, and enable it to be changed quickly.

Finally, the problems of compliance and fraud are ever present.

Mr. Willetts


Dawn Primarolo

Does the hon. Gentleman want to intervene before I move on to compliance and fraud? I know that I am going to regret giving way.

Mr. Willetts

I intervene only because the hon. Lady said "finally", and I wanted to clarify a simple point of principle to which she has not yet referred. Will she pledge to the House that no families will lose as a result of the changes in the Bill?

Dawn Primarolo

The hon. Gentleman tries again to introduce the subject of thresholds and tapers. Families are considerably better off than they would have been had we had the misfortune of his party being re-elected.

On compliance and fraud, it is important to ensure that only people who are genuinely entitled to the tax credits receive them. Everyone suffers if money goes to the wrong people, including the people who receive that money and then have to return it. The compliance regime for the new tax credits will be based on two principles: encouraging people to claim everything to which they are entitled, and providing an effective deterrent to the small minority—it is small—who try to cheat the system.

The Bill contains provisions to deal with non-;compliance, including inquiry and information powers to uncover false claims, financial penalties when tax credits are falsely claimed, and powers to investigate and prosecute cases of criminal fraud. The Inland Revenue has a long history of tackling fraud successfully. The compliance strategy for the new tax credits will make full use of the automated systems and data sources available to the Inland Revenue, which will enable it to use systematic risk screening techniques to identify the riskiest cases. It will also be important that such a regime does not deter people who are entitled to the tax credits from claiming them.

The Bill builds on our achievements in the last Parliament, but we need to go further. It is the next step in the programme to tackle child poverty and make work pay. It will produce a more coherent and streamlined system of support, and will extend the coverage of that support.

Child tax credit will provide a secure stream of income for families with children, regardless of whether they are in work. It will bridge the gap between welfare and work more effectively, and reduce stigma. Working tax credit will improve work incentives by making work pay, relieve in-work poverty, and extend the principle of in-work support through the wage packet to those without children.

I urge Members to support the Bill, and ensure that we continue our fight to eradicate poverty in our society.

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

The Paymaster General has presented a "motherhood and apple pie" case for supporting the Bill's objectives rather than appraising whether it can deliver them effectively, and identifying the various problems that the changes raise.

In fact, Parliament is being asked for a blank cheque. We shall not know the amounts or the costs of the proposed benefits until next summer. Many of the important details have been presented sketchily, and await prescription in subsequent regulations. The Law Society fears that many important issues and principles relating to the new tax credits and their administration will not be considered properly by Parliament as a result.

As has already become apparent, we do not know whether a million families in which both parents are working will lose out under the new child tax credit arrangements next summer. Nor, indeed, do we know whether the Chancellor or the Prime Minister has won in the row over tax credits. The Paymaster General noticeably refused to be drawn into answering that question.

The Prime Minister, we understand, believes that the Chancellor's tax credit schemes will be too expensive and too complex to yield a political payback, and wants Government expenditure to be directed more towards clear-cut objectives such as higher health spending. Moreover, the Chancellor confirmed in his pre-Budget report that the forecast for Government expenditure did not take into account the additional costs resulting from the new tax credits, as financial decisions on rates have yet to be made. Under sections 20 and 23(b) of the Government's "Code for Fiscal Stability", the extra expenditure should have been noted as a special fiscal risk in the pre-Budget statement.

What I think we all know is that Britain cannot afford massive extra spending on health, transport and education, as well as very generous tax credits, without major tax increases that could damage the economy in the present uncertain economic climate. Some journalists have suggested that the Chancellor is trying to warm us up for tax increases by focusing on the needs of the national health service, when his real additional spending intentions are more modest. Health expenditure equal to the European Union average of 8 per cent. of gross national product back in 1998, which the permanent secretary described last week as the Government's target, actually represents only 0.2 per cent. more than the Government's existing plans to increase health expenditure to 7.8 per cent. of GNP.

Phil Hope (Corby)

The hon. Gentleman seems to be saying we are spending too much on the health service and on education, and will now be spending too much on what I think he described as "generous" tax credits. Which area of spending would his party cut if it were in government?

Mr. Flight

The hon. Gentleman should not waste the House's time. [Interruption.] It is the Government who are governing. The point that I have made, quite simply, is that as the Government have agendas in all those areas it would be helpful if they told us precisely what they are, and to what extent they will be affordable.

The bill for the Chancellor's tax credits, and including pension credits, is likely to top £10 billion by 2003–04 and to rise substantially thereafter. Has Prudence Brown experienced a major character change? Is he becoming a big spender, or is he up to his old tricks of spinning more than he intends to deliver?

The real issue is: have the Government got the approach right this time? The Chancellor repeatedly trumpeted the working families tax credit as his main flagship of welfare reform. It was described as a once in a lifetime shake-up of the tax and benefit system. The working families tax credit took effect only in 2000 and the children's tax credit only in April this year, but now the Government are ending those and proposing a different, more complex system of credits.

Aside from the substantial work and costs to the Department for Work and Pensions and to the Inland Revenue, the different arrangements will be confusing for beneficiaries, who are only just getting on top of the working families tax credit and children's tax credit systems. Labour Members should take that matter seriously, because one of the problems has been lack of take-up. The Paymaster General was extraordinarily reluctant to comment on what the number eligible for working families tax credit has been, but the Bill effectively admits that the previous measures were not correct, and that the Chancellor did not get it right last time. Many of the Opposition's criticisms of the working families tax credit and the children's tax credit have proven to be correct.

The Government made great play of the 1.5 million eligible for working families tax credit but after two years, less than 1.3 million have claimed it. This very day the Government argued that over-spending on working families tax credit has been the result of the number claiming it being greater than expected. How can that be when the Government said that 1.5 million were eligible and less than 1.3 million have actually claimed it?

It is a serious point that claimants will find the new system very different. The conflicting aims of targeting and, allegedly, simplifying credits have forced a compromise on simplicity and predictability for families whose income and composition may change significantly during the year. The new arrangements will heighten existing complexities. The adjustments required to pay-as-you-earn records are complex and a significant burden for employers, who may not be able to implement changes promptly.

Entitlements to the credits must be based on annual income—either annual income in the previous year or an estimate of annual income for the current year. The arrangements will not be capable of operating in the way that was promised in the Queen's Speech, or of responding more quickly to changes in a family's situation to meet their financial needs effectively. There is no evidence that the Inland Revenue responds more speedily and appropriately than the Department for Work and Pensions and the Department of Social Security have in the past.

Kali Mountford (Colne Valley)

The hon. Gentleman is making a case against the whole principle of tax credits. Does he intend to return to a benefit-based system? If so, what was it about that system that he so loved?

Mr. Flight

I am grateful that the hon. Lady expects us to return to power and to address those issues, but the task of the Opposition is to raise the issues and the problems. As the right hon. Member for Birkenhead (Mr. Field) would say, the issue is whether a tax-based system is indeed capable of dealing more effectively with people's needs, particularly poor members of society, than a Department for Work and Pensions-based system. I did not hear the Paymaster General cite arguments on why greater success is achievable under such a system. I will come to many of the problems and criticisms that have been raised, but may I comment first on the underlying principles?

Hon. Members will recollect that it was the Conservatives who introduced family credit, as the Paymaster General said, from which 817,000 people benefited. We pioneered the case for pricing people into work and making work pay, at a time when for many the welfare system had acted as a disincentive to work. The Chancellor, in his pre-Budget speech, drew particular attention to the failures of the rest of the EU and made the point that if we had the EU system we would have double the level of unemployment—another 1 million people out of work. It was also the Conservatives who, 30 years ago, examined the arguments for a negative income tax, which is largely what is proposed in the Bill, but we concluded that it would be less effective in addressing real needs than the social security system.

John Robertson (Glasgow, Anniesland)

I am confused about what the hon. Gentleman is trying to say. He started by saying that what my hon. Friend the Paymaster General was saying was apple pie and all things nice, but now he is claiming that the previous Conservative Government should take the credit for all the good things that we are doing. If he thought things were so good, what has my hon. Friend said that has really pleased him?

Mr. Flight

I will comment shortly on the aspects of the Bill that we like, but the structure of the Bill raises some problems that have not been addressed and that might prevent it from addressing the issue of real poverty in our community. The easy assumption that moving to a more tax-based system for delivering welfare will solve all the needs of our society is over-optimistic, for the reasons that I am giving.

The Bill raises two crucially important issues. One is the level of balance that needs to be struck in measures to price people into work. Subsidising wages can entail the danger of depressing pay, demotivating skills improvement and personal advancement and depressing productivity growth. Secondly, the crucial issue is whether to use the tax system increasingly for welfare delivery or to continue with a mixture and use the existing Department for Work and Pensions system, which may be more effective at addressing real need.

The Chancellor's pre-Budget report described the objectives of his proposed tax credits as helping to tackle inadequate work incentives and to tackle the unemployment poverty traps. However, the National Association of Citizens Advice Bureaux has pointed out that topping up low earnings is now often serving to entrench low pay.

Caroline Flint

The difference between this Government and previous Governments is that when we had the old family credit system there was no national minimum wage to put a floor under poverty pay. The Government have provided a basis on which pay cannot go below a certain level, and can then be supplemented by in-work benefits

Mr. Flight

I do not agree in principle, but a minimum wage is just a universal minimum for everyone and is not relevant to whether people receive the right rewards for different skill levels. It is merely a floor and we could spend hours debating whether it is sufficient.

The Government's recent report on skill levels has admitted that Britain's skill base lags far behind that of other developed economies. The Government predict that thousands of jobs could be left vacant because of the lack of skills. The report points out that the growth in the proportion of the work force with intermediate vocational skills has been slower than in the rest of the OECD. Many who participate in skills councils have expressed concerns that, increasingly, the right reward signals for the enhancement of skills are not clear. Under the Bill, take-home pay for many will bear little relationship to the market remuneration for their skills. The Chancellor's economic objective is to increase Britain's declining rate of productivity growth under the Labour Government. Has he understood the contradictions between the very worthy social objectives and the very necessary economic ones?

Kali Mountford

Does the hon. Gentleman accept that one of the biggest barriers to attaining skills is an extended period of worklessness? Is it not good to incentivise going to work, so that people are back in the labour market and increasing the skills base?

Mr. Flight

That is why I said a few moments ago that it was the Conservatives who started the principle of pricing people into work. This is an important issue. A delicate balance needs to be struck between pricing people into work and having a system of pay-packet remuneration with signals in terms of people's rewards for enhancing their skills. Getting that balance right is difficult, but crucial. We do not know whether the Bill will get the balance right because we have not been told what the level of credits will be. The House should focus—as should the Chancellor if he wishes productivity growth in this country to recover—on the fact that this is a crucial area to get right. According to the Government, for many, the working families tax credit should increase the incentives to get a job. However, as Donald Hirsch pointed out in the New Statesman, some people—not all—will, as they earn more, lose more than 90 per cent. of the extra income through tax and withdrawal of housing benefits. He said that while Ministers preached about improving individual opportunities and productivity, they risked sending signals that encouraged individuals and companies to go for low-grade, low-paid jobs.

The second major issue of principle is whether it is right to move increasingly towards using the Inland Revenue, as opposed to the Department for Work and Pensions, as the administrator and the payer of such benefits. While there are attractions in using the Inland Revenue—it has people's PAYE records—it being the administrator of welfare benefits runs the risk of leading to even greater bureaucracy and complexity in our tax system and of it failing to be able to deliver to the needy when they are particularly in need of support.

Much additional information beyond PAYE is required to administer benefits appropriately relating to family circumstances, receipt of housing benefit, disability and—for the Bill's particular purposes—average hours worked and child care costs. At the heart of the concerns of the Institute for Fiscal Studies is the need for claimants to monitor annual income, average hours of work and child care costs, which it believes will lead to the risk of considerably greater non-compliance. Pressure may also develop for those and other relevant items of information to be required to be included in citizens' tax returns, increasing the bureaucratic burden on everybody.

The proposals to simplify the administration system for paying tax credits by moving to an annual system based around the tax year—essentially to save administrative costs—runs the risk of the system being unable to respond quickly and specifically enough to people's changed working circumstances. The Paymaster General expressed the view that the Bill would bring about great improvements in that area, but she did not describe precisely how that was to be achieved within the simplified administration. That is one of the areas that awaits the further regulations.

In addition, there is the risk of increasing fraud. The right hon. Member for Birkenhead has pointed out that the less precise administrative arrangements for benefits proposed by the Bill run the risk of resulting in spiralling costs as people learn to play the system. The new arrangements also run the risk of offering large bonuses for dishonesty, inviting employers to connive with employees to the benefit of both parties and pulling employers into a spider's web of potential dishonesty. The right hon. Gentleman points out that as well as rewarding employers to pay low wages, the arrangements also take the pressure off improving productivity.

The former Select Committee on Social Security expressed concerns that the potential for fraud could increase if priority is placed on prompt payment at the expense of rigorous checking of eligibility, but when families face hardship, welfare payments need to be made promptly.

Similar systems overseas have experienced widespread abuse. Fraud became such a major problem with the Canadian working income supplement that Canada has moved back to a benefit system. In America, the earned-income tax credit has met with similar problems.

Under the Bill, in line with the move to encourage electronic application, claimants for the new tax credits, unlike even those claiming the existing working families tax credit and disabled person's tax credit, will not be asked to provide documentary proof of income with their application. Also, despite the known efficiency of the Inland Revenue in tax matters, it is not, in administering the new tax credits, subject to the powers of the new Social Security Fraud Act 2001.

The accounts that are required under the Bill and should be available for full parliamentary scrutiny do not include statistics relating to the number of payments and the location of employers affected, yet those are needed to make a proper assessment of where the greatest impact of the legislation on the community is felt.

In increasing the extent of benefits paid through the pay packet by employers, beneficiaries are also taking on an increased credit risk. An employer could receive funds from the Revenue and become insolvent before those funds had been paid on to the employees. It may sound like a remote risk, but it is very real, particularly for smaller companies in an uncertain economic environment.

The crucial issue is whether the new arrangements will tackle the problems of poverty in our community. The Chancellor has made much of his boast that the Government's measures to date have achieved a major success in reducing child poverty and have taken 1.2 million children out of poverty. However, according to the Department for Work and Pensions statistics, the increased spending on the working families tax credit has not yet reached those in the greatest need and at most risk of suffering the ill effects of low-income deprivation. This has been due in part to ever more complicated means-testing and in part to the fact that the focus overwhelmingly on work does not help families for whom work is not an option for health reasons, because the jobs are simply not there or because of problems with child care or transport.

Between 1994 and 1995, as the Paymaster General cited, and 1999 and 2000, there was little change in the proportion of children below the threshold's contemporary mean income. The Child Poverty Action Group report points out that the published figures for 1999–2000 showed that 34 per cent. of children were still living in income poverty and that one in six families fall into poverty as the result of the birth of a child.

Mr. Kevan Jones (North Durham)

The hon. Gentleman has now been on his feet for 23 minutes, outlining what is wrong with the Bill. When will he give the House his alternatives to the Bill's proposals?

Mr. Flight

In just a minute I will point out what is in the Bill's favour. The job of the Opposition is to offer a critique of legislation, and I am sorry that the hon. Gentleman should have burnt up yet more time.

Martin Barnes, the director of the Child Poverty Action Group, recently pointed out that the figures released by the Department for Work and Pensions cast some doubt on Labour's claim that by the June election it had lifted more than 1 million children out of poverty.

The New Policy Institute and the Joseph Rowntree Foundation have commented that a major change will need to take place for the Chancellor's claim that 1.2 million children have been taken out of poverty to be achieved. The recent Barnardos study affirms that one in six of the poorest children—those in the bottom decile—will be worse off. They are most vulnerable to being pushed deeper into poverty.

The Government's intention towards couples and parents who wish to care for their children at home also needs to be clarified and, possibly, challenged. We all agree with the objective of reducing the number of families with no one in work, but let us be clear that that is not a universal panacea to address the problems of child poverty.

The Government's increasingly tax-based approach to administering welfare will also place an increasing administrative burden on business. For the new credits to work, employers will have to make complex and burdensome adjustments to PAYE records, especially if the new arrangements are to be sufficiently flexible to address changes in people's earnings. The real problem for small businesses, which have been promised some help in the pre-Budget report, is that they need to devote all their limited resources to running their businesses.

Dawn Primarolo

The hon. Gentleman refers to complex calculations involving the employer. He is simply wrong when he refers to the PAYE system. Employers will be told how much to pay during the year and when circumstances alter. The information in the tax system—the P60s and the P45s—will be used to determine a household's total income. Although he might want to make points about whether there should be a working tax credit at all, he is totally wrong to suggest that greater burdens will be put on business by the Bill; it will reduce them. He is completely wrong to suggest that the employer will be involved in any way with the calculation of payments.

Mr. Flight

I thank the Paymaster General for her comments, but I was not suggesting that employers will be responsible for calculating the payments; I was making the point that, if the Inland Revenue is to make the correct adjustments, it will be extremely necessary for employers to be absolutely bang up to date with all current adjustments to their PAYE records.

Dawn Primarolo

All that will be required is for employers to discharge their current and long-standing obligations under the tax system to ensure that their employees are properly informed of how much they have received and how much has been deducted.

Mr. Flight

The Paymaster General is raising an issue that we shall debate at great length in Committee.[Interruption.] No, this issue is very important—it is not funny. The system is based on annual earnings, but we need a system that can address changes in earnings and circumstances speedily and effectively, and which is not open to fraud. The precise mechanisms by which the PAYE system is expected to do all that reliably are not spelled out clearly in the Bill, and that issue awaits further regulation.

Dawn Primarolo

I am grateful to the hon. Gentleman for giving way yet again. I agree with him that having the correct information and being responsive to change in the system are crucial, but his misunderstanding seems to be that somehow employers are involved in those matters through the PAYE system—they are not. The households that apply and the Inland Revenue are directly involved in those matters. With the working tax credit, employers receive notification of how much should be paid. The child tax credit does not go through the employer at all; it goes direct to the claimant.

Mr. Flight

I thank the Paymaster General for that explanation, but all Members are well aware that the child tax credit will go directly to the main carer. That is one of the great benefits of the Bill and one of the key Opposition arguments that the Government have accepted.

I do not wish to prolong discussion on this point any longer, but I did not suggest that the employer would be responsible for calculating the working tax credit. However, for the Revenue to be able to provide the right support at the right time, there needs to be dialogue between the employer and the Revenue to get things right. If there is no dialogue, the risk of wrong payment and fraud will be greater. That point lies at the heart of whether the measures will work.

Mr. Ruffley

I find myself in the dangerous position of agreeing with both the Paymaster General and my hon. Friend. Be that as it may, he makes a genuine point in that, although there is an annual assessment basis to the new regime, the Bill also provides for in-year assessment. Almost by definition, the in-year assessment will involve notification to the employer so that, in year, the employer can adjust the amount of working tax credit. My hon. Friend is right, even though the Paymaster General is correct to say that the employer will not do the calculation.

Mr. Flight

I thank my hon. Friend for encapsulating the point that I was driving at.

Last week, the Paymaster General was asked about the burdens placed on business in administering welfare, and I was somewhat surprised when she argued that business should appreciate the extent to which the Government are subsidising employment. As has already been said, we are in dangerous economic territory and it will do employees no good if the Government see the working tax credit as, essentially, a subsidy to employment.

I note that, although the child care tax credit is to be part of the working tax credit, it will be paid alongside the child tax credit. Will the Paymaster General explain the administrative arrangements that that will involve, as it would seem more logical for the child care tax credit to be part of the child tax credit rather than the working tax credit?

Dawn Primarolo

The child care ta credit and the payment of child care expenses will be attached to the working tax credit because many lone parents have said that they want to return to paid employment. However, by the time they have paid for child care, they are worse off and in an unemployment trap. The child care tax credit will be paid to remove a barrier to work, so one has to be in work and in receipt of the working tax credit. The trigger is the working tax credit but, after consultation, we felt that, as regards a couple, the main carer should receive the child care tax credit as the person likely to be responsible for arranging the child care. However, child care tax credit cannot be accessed unless an individual or household is also in receipt of the working tax credit.

Mr. Flight

I am glad that the Paymaster General has clarified the fact that the carer will receive the credit. I appreciate the point of principle involved, but this is a case in which two neat boxes do not operate as two neat boxes. For the reasons that she gave, someone has to be in work to receive the child care tax credit, but it is administered out of the other box, which will involve the Revenue attempting to operate the two credits together efficiently.

In assessing the case for a further shift towards tax rather than benefit-based welfare, the Government have again employed the stigma argument, but they are wrong. The evidence does not support their claim. Instead, it suggests that payment through the wage packet can stigmatise recipients rather more than benefits do. Many individuals understandably do not want their employers to know of their entitlements and circumstances, or for the employer to use that as a reason for holding down theirremuneration.

It is also likely that workmates will know who is receiving such benefits. As the Institute for Fiscal Studies commented, for some people even the payment of the WFTC through wage packets has been more stigmatising and certainly more hassle than direct payment.

In short, the Paymaster General has not presented convincing arguments on the key issue to support the need to make a further substantial shift to administering welfare payments via the Inland Revenue, and there is a major risk that the administrative costs saved will be more than offset by an increase in fraud.

We accept that the Bill makes some improvements. I am pleased to note that it addresses several of the issues that we raised in relation to the working families tax credit and children's tax credit. Payment of the child tax credit to the main carer is crucial, although the Bill is not clear on how that will work in the case of broken families. However, the point about the main carer is secure.

We welcome the fact that there will be no capital limits. We also welcome the extension of the tax credit to support about 100,000 families who are currently excluded, including students and nurses, and the fact that it will support families with young people who are in full-time education up to the age of 19. We are pleased to note that the child tax credit will end the unfair treatment of single-earner families, although we continue our quest to know whether, in principle, 1 million people will be worse off.

We have reservations about extending in-work support to those without children who are over 25, from which 400,000 are expected to benefit. Some of the poorest families in our society are also those in which the parents are under 25, and they will not benefit from the working tax credit.

On costs, the IFS analysis expects the new tax credits to add £2.8 billion a year, assuming no double-earner families are made worse off, and £2.2 billion extra if 1 million families are disadvantaged. It is clear from page 39 of the explanatory notes that the measures will also transfer a further £4 billion of expenditure that relates to income support and the jobseeker's allowance from welfare expenditure to a netting off of tax receipts, thus effectively concealing that expenditure. Allowing for the £2.8 billion expected additional costs, the total welfare expenditure that is not shown as expenditure but simply netted off tax receipts, will be up to £15 billion per annum. I am sure that that constitutes a major part of the Chancellor's real reasons for the existing and further move to Inland Revenue-administered welfare payments, which has less to do with the fundamental case—the Paymaster General did not argue it—that the Inland Revenue can administer them better

. Welfare expenditure will increase by 36 per cent. from 1996–97 to 2003–04, which is an increase from £92 billion, to £125 billion a year, at a time when unemployment has fallen. That gives the lie to the Prime Minister's pledge to cut social security costs to pay for higher health and tax spending. Is that the outcome that the Government privately expected, or has the Chancellor outwitted the Prime Minister's intentions?

Will the 725,000 people who come from overseas to work in the UK, mostly for a limited period and often taking low-paid jobs, qualify for the working tax credit and, if relevant, the child tax credit, particularly as a result of the central annual income qualification? If so, how much do the Government estimate that will cost?

Having observed for the past four and a half years the way in which the Chancellor's mind works, may I ask whether political objectives are the main reason for the Bill? Has the Chancellor remembered that Herbert Morrison built council houses to secure votes? Could it be that the real objective of paying benefits through the payroll is to try to gain votes, by creating the mentality that it is a Labour Government who are giving out these benefits?

Given the administrative costs and hassles involved, does it seem necessary for 40 per cent. of all families, 30 per cent. of those of working age and 56 per cent. Of those in retirement to be eligible for means-tested benefits? At least 40 per cent. of them will be getting benefits financed by taxes that they themselves have paid. I am well aware that most do not pay significant amounts of income tax, but much of the tax that they pay is extremely regressive.

The Bill creates a mass of income-tested complexity, which many will not understand. It looks likely to provide less, not more, flexibility and looks less able to support those in real need. Apparently, the Chancellor is keen to learn much in other policy areas from the economies of north America, but he appears to be blind to the problems experienced by Canada and the USA with large amounts of income-supplement welfare. We are concerned that, as well as risking an increase in fraud, the measures will increase the burden on businesses, particularly small businesses. There is a risk that small businesses will not always address the requirements made of them. We are concerned also that the measures will fail to help those who are most in need.

We will not vote against the Bill today, substantially because we do not know what it proposes for the value of credits, what they will cost, or how, in practice, the arrangements based on annual income assessment will address needs arising from changed circumstances.

Dawn Primarolo

Does the fact that the official Opposition feel unable to vote against the Bill mean that they will not table amendments in Committee?

Mr. Flight

That is a very strange comment from the Paymaster General, who has always enjoyed discussing the amendments that we table. I assure her that the Opposition will table a substantial number of amendments to tease out the problems presented by the Bill, and the Government are not allowing sufficient time in the allotted Committee sittings for those amendments properly to be discussed.

What the Chancellor has described as a seamless system of income-related support for families with children is in reality a complex extension of his means-testing agenda, which involves considerable dangers, and we are suspicious of the real political motives behind it.

4.59 pm
Mr. Frank Field (Birkenhead)

Nobody outside the House should be unclear about the Government's commitment to tackle poverty and child poverty. The Bill means that, as a party, we forgo a 3p cut in the standard rate of tax. When the whole of the Government's tax credit proposals are unfolded, we forgo something like a 5p cut in the standard rate of tax. So when we go into the next election, we will be setting aside the chance of campaigning on a 17p standard rate of tax and defending our tax credit strategy. I hope that, when they face the electorate, Labour Members will not be under any misapprehension about how costly the anti-poverty programme is or how seriously the Government are attempting to tackle poverty. It is clear that there is a big divide in the House. It is easy to speak about our concern for people on low income and our wish to see them on higher income but, when it comes to action, we have to put taxpayers' money where our mouth is. The Government are doing that handsomely. Later, I shall consider whether it is wise to put so much taxpayers' money in one basket, but no one should be unaware of the seriousness of the Government's attempt to counter the growing poverty that many of our constituents first experienced under the regime that existed when the Opposition were in government.

I compliment the Paymaster General. When Labour Members are in government, I wish that we always heard Ministers who commanded both the respect of the House and their brief as she does. The Opposition deliberately bowled her a number of difficult balls that were not always relevant to the Bill, but she had no problem in hitting them to the boundary. It certainly raises morale on this side of the House to have Ministers with such qualities and expertise.

Of course, it is difficult for a Member of whatever party to speak against a Bill that tries to ensure that poorer people have more money. When I was in opposition, the Conservative Government introduced measures to initiate housing benefit. Who could be against a measure to help poor people pay their rent? I was one of the Members who spoke against the proposal. It was extremely attractive on the surface, but I thought that it would lead to extraordinary problems. I thought that when it came to fruition, it would push rents up so much that most working people would be unable to pay their rent without assistance; far from freeing people from poverty, we would increase significantly the extent of dependency in our society.

My warnings in those debates carried no weight with the House of Commons. Hon. Members thought that I was scaremongering. The Opposition were embarrassed by my warnings and the Government were set on introducing housing benefit. However, rents have been pushed up, an ever-increasing number of people are dependent on housing benefit and fraud is so extensive that it frightens those of us who have glimpsed it. The present Government, like the previous one, do not know how to get off the treadmill of rising welfare bills. As with housing benefit, so with the tax credit proposals. Although I have no doubt that the Paymaster General will have no difficulty in countering arguments that may be made in the years ahead, today she is dealing with the easiest part of the argument. Once the benefits or credits kick in, real life will start to impinge on our image of how they work.

I wish to discuss five bear traps that are already apparent. People around the country have written to me about them, and they will take up more of Parliament's time than they currently do.

The first problem posed by the Government's approach to tackling child poverty is that many employers who employ people on lowish wages cannot make their employees better off by raising their wages, and can only suggest to their employees that they claim the relevant tax credits, while the employers plough back profits that they would have paid in increased pay. I do not criticise employers or employees for working the system in that way. I blame the House if it passes such measures, because we give them no option other than to behave rationally as economic men and women. Already, employers are aware that if they increase pay, that pay increase will be clawed back by the tax credit proposals.

Mr. Ruffley

I have been listening carefully to the right hon. Gentleman, and I want to agree with his analysis, but can he explain how the proposed in-work benefits differ from family credit? Did not the problem that he identifies exist under the family credit regime?

Mr. Field

Of course it did. Both sides are tarnished. The only defence that the Opposition can come up with against my argument is, "Well, guy, we were shopped, but we were not nearly as generous with taxpayers' money, so fewer people were affected." That does not counter my argument.

The second point concerns the exchange between the Front-Bench spokesmen about how the payments would be made. The crucial point is that they are made through the pay office of firms. Although information in pay offices ought to be confidential, and people ought to be discreet in what they say, sometimes, if they see an injustice, they are less discreet than we are with information that might come our way.

People are already noticing what others are taking home in their pay packets, and what that is doing to pay hierarchies within firms. An employer writes to tell me that he is employing someone who has not worked before, and he is very pleased to have that person on the payroll, but after the tax credits are paid, her pay moves from £12,000 to the equivalent of £19,000 a year. There are many people in the firm who earn much less than that who are skilled, have acquired extra qualifications, and feel that that is a huge injustice. The issue will not go away, but become more current in our debates.

The third bear trap is that we will be encouraging our constituents to work the system, like employers. I shall give an example from one of the Revenue offices, where staff failed to get their bosses to act against fraud. They and the staff of other offices have therefore leaked information to me. I hope that the word goes out from our debate tonight that we will be as careful with taxpayers' money as we are with our own.

The example involves someone who is disabled and who pays her daughter £2.50 an hour to look after her. That is well below the minimum wage, as was pointed out by the officer, who was told by the senior officer to agree it. The push is to get claims registered; that is what is required. The officer comments that this example of "taking in washing" would be complete if the grandmother could qualify as a child carer, so that she could be paid to look after her granddaughter while her daughter is paid to look after her, all at the expense of the hard-working constituents whom I and other right hon. and hon. Members try to represent.

Again, that leads to the question of fraud. How keen will the Government be to act when officers raise the issue of fraud but senior officers say that they are anxious to boost claimant numbers to meet targets, rather than ensuring that people are claiming correctly? When inspectors checked up on employers who were likely to be committing fraud in relation to family credit, they often found that employees were paid appallingly low wages and discovered a pattern in which employers regularly withdrew large cash sums from the bank, but could give no account to investigating officers of where that money was going. Obviously, cash deals were being struck between employers and employees, who decided that they should work the system and maximise family credit, as it was then called, while taxpayers picked up the bill for the fraud that both parties were committing.

For 13 weeks, I was Minister of State with responsibility for dealing with such fraud. In that time, I requested that we carry out a benefit review to consider the avenues for fraud in respect of the working families tax credit, but what happened is deeply disturbing. I asked for the review so that the Treasury would have the information when it came to design the working families tax credit so that the opportunities for fraud could be minimised as far as possible, but it was not undertaken and the papers that I signed in relation to that whole period have gone missing. I raise the issue merely as a sign that some people in Whitehall are less keen on countering fraud than hon. Members. When my hon. Friend the Paymaster General said that she gave the matter priority, it was news to our ears and to those of our constituents. I hope that she will equal the effort that she has put into launching the measure in taking the measures needed to counter fraud.

In the longer run, I do not believe that a free society can be run in such a way. We cannot let people buck the system to the extent that about 85 per cent. of working families with children are on means-tested assistance and assume that it will not affect their behaviour one iota.

Mr. Nigel Beard (Bexleyheath and Crayford)

While I recognise my right hon. Friend's distinguished record in fighting child poverty and family poverty, as well as the truth of much of what he is saying, what alternative measures would he suggest to tackle such poverty?

Mr. Field

I shall deal with that matter in a moment. I suggested that forgoing a 3p or 5p cut in the standard rate of tax on every pound that our poorer-paid constituents pay is an opportunity cost that we are taking on ourselves, but an opportunity that they do not have. When we discuss anti-poverty measures, we need to think especially about the tax burden for people on low pay. It is fine for us to discuss whether we should take money out of the pockets and purses of some of our constituents and give it to other constituents, but we should also be aware that income tax is a cause of poverty, as well as of a reduction in living standards, especially for those below the bottom level. One should not lightly forgo substantial income tax cuts merely because one is in favour of paying benefits or awarding tax credits. That is one of the proposals that we need to have in our armoury if we are to counter child poverty effectively and reinforce the natural instinct of families to try to improve their lot by their own efforts.

The real worry that the Bill presents was revealed on the BBC's six o'clock news after the Chancellor's pre-Budget statement. A low-paid worker with children was wheeled out. The spinners must have been delighted with his initial comments because his gratitude to the Government for increasing his family's income to the extent provided by the tax credits knew no bounds. However, instead of putting a full stop there, he used a comma, which must have given the spinners nightmares. He continued, "I now know that I will never be able to improve my family's living standards by my own efforts. It's up to politicians and bureaucrats to decide my take-home pay."

I do not believe that we can run a free society through politicians determining people's living standards and thus negating their natural impulses to want their efforts, length of working week, extra pay, skills and pride in looking after their household and families to count. We should not take over that role and keep it to ourselves.

It is important that we do not simply concentrate on the Government's success with the minimum wage. The Opposition said that there would be mass unemployment even at the level that the Government were setting it. It has been an effective floor for many of my constituents, and I pay tribute to the Government for keeping their nerve and introducing it. I compliment them on increasing child benefit and on the contrast between our record and the poverty of the Opposition's approach when they were in government.

Gareth Thomas (Clwyd, West)

I defer to my right hon. Friend's great experience, but does he accept that his trumpeting of the national minimum wage makes the position that he outlined earlier contradictory? Is not the minimum wage an example of the Government intervening to improve people's conditions?

Mr. Field

Of course it is. We intervene if we increase or decrease taxes. I do not argue that we can wash our hands of and have nothing to do with such matters. The minimum wage is an example of intervention and the Government used their judgment in setting it. They now realise that unemployment did not result from it and that we should be confident about progressively increasing it. I hope that the Paymaster General will take back the message that no credit approval should be given if it is clear that the wage entered on the form is below the minimum wage. There is no point in our passing measures if we do not implement them.

There is a worry that stems from national insurance benefits and child benefits. Today's debate could give the impression that all our tax credit proposals erect a wonderful buttress against existing forms of welfare provision. Alternatively, they may prove to be cuckoos in the nest. I want us to think five years ahead. We shall be told how well the tax credits are working and the argument will change subtly. Is there a need for two welfare states operating next to each other? Given that the tax credit concentrates help on the poorest, should we place the same emphasis on the other welfare state, which comprises national insurance benefits and child benefits?

The Government rightly claim credit for establishing a child tax credit. When it works well, what are the long-term consequences for child benefit? The debate will subtly change; we shall hear talk of the wastefulness of the other benefits and of what the revenue could be spent on. It may then be too late for some people to object to the plan that is unfolding. I believe— as my hon. Friend said in his intervention— that there is a case for placing floors under people and allowing them to grow by their own efforts, and for praising and rewarding them and letting them take pride in their efforts.

Mr. Bill Tynan (Hamilton, South)

I am reluctant to challenge my right hon. Friend, because of his record on welfare benefits, but some employment is very poorly paid, and the employers concerned will not improve wages. What would he say to people working in those conditions, who are in poverty and cannot get out of the mire? Would he tell them that they should not have working families tax credit, or children's tax credit? The crucial issue is how we direct this support and get it to the people who most need it.

Mr. Field

My plea would be that we should not get into that position in the first place. What do my hon. Friends have to say about housing benefit? Not one of our local authorities has a proper report on how we administer it. Every report produced shows the extent of fraud involved.

Siobhain McDonagh (Mitcham and Morden)

Given my right hon. Friend's great knowledge, it is difficult to challenge him, but does he agree that the problem with housing benefit stems not solely from its introduction but also from the deregulation of rents at the same time, which led to the increased housing benefit bill?

Mr. Field

All that I was suggesting was that we are arguing now that we should have these tax credits, but in five years' time, we shall face the same arguments about them that we, as constituency Members, have to face now over housing benefit. Many of our constituents cannot afford to pay their rent, but what are the Government to do with the escalating housing benefit bill? How do we get off that helter-skelter? We are now in the early stages of tax credits; I am merely pointing out the direction in which we are moving, and sounding a note of caution.

Ms Karen Buck (Regent's Park and Kensington, North)

I am sure that the situation in my right hon. Friend's constituency is very different from that in mine. The reason that we have a benefit and rent crisis in London and the south-east is that the shortage of housing supply has pushed rents up. The availability of property to households on housing benefit in London has halved since 1996. The relationship that my right hon. Friend mentioned might well apply in the north of England, but it does not apply in London, and that must call into question the validity of his argument.

Mr. Field

As someone born in London but who does not represent a London constituency, I would say that London is an island unlike other parts of the country. In many areas of Birkenhead, for example, there is a surplus of housing. That does not mean to say that landlords do not try to push rents up or to bleed taxpayers. I hope to introduce a Bill shortly that will allow local authorities not to pay housing benefit to bad landlords who do not look after their properties and care nothing for their tenants or for the hell that can be inflicted on neighbours and the rest of the street. I am sure, from the nodding that I see around me, that I shall gain widespread support for that measure.

On Second Reading of the Bill that introduced housing benefit, I was challenged by other hon. Members. I was asked how foolish I could be, and told that I was trying to prevent their constituents from obtaining help with their rent. No attention was paid to where the benefit would lead us. I merely wish to suggest, by power of analogy, that we need cautiously to attend to the way in which we introduce tax credits.

Kali Mountford

My right hon. Friend's analogy with housing benefit seems flawed. I am sure that many hon. Members want some changes to the housing benefit system, but surely a more relevant analogy would be with the system that the credits will replace— in particular, family credit. His argument is about the effect on the workplace. What does the working families tax credit do worse than family credit did?

Mr. Field

My problem is that, when I sat on the other side of the House, I put those arguments against family credit. The whole Opposition also put those arguments. Thankfully, I now sit on this side of the House, although I continue to apply to tax credits the arguments that I applied to family credit. The measure is more generous, but it does not change the substance of the matter one iota.

In what was intended to be a brief contribution, I have tried to show the extent of the red water, or the third way water, that divides this side of the House from the other. Even though I have criticised the measure, I do not want to conclude without drawing attention to this most fundamental difference: there is no question but that the Government and the Members who support them are as keen to tackle child poverty and other forms of poverty as I sensed, when I sat on the other side of the House, that the previous Government were not.

I wish to underscore that major difference with all the energy in my body, but I am fearful of where the measure will lead us. Although it is about increasing the income of low-income people, that does not mean that it will be satisfactory. To tackle poverty successfully, we must increase the income of the poor and widen their freedom. The measure successfully increases their income, but it limits their freedom.

5.27 pm
Mr. Steve Webb (Northavon)

The right hon. Member for Birkenhead (Mr. Field) raises important concerns about the Bill, but they can be addressed by amending the detail in a manner that I shall explain. In a break with tradition, I can tell the Government that I am minded to encourage my 51 colleagues of this morning and the 52 of this afternoon to support the Bill. More are welcome to join us, and I understand that the Government Whip can advise me on leading my 52nd colleague into the correct Lobby.

I am minded to support the Bill and to encourage my colleagues to do so for three reasons. First, the Government have delivered additional support to families with children. Indeed, I confess that I am struck by the substantial nature of some changes made over the last Parliament, particularly with respect to families with young children, and I welcome the fact that support has been concentrated on those families. It was increasingly becoming apparent that paying them less was a mistake, although that was a long-standing tradition in the benefits system. The evidence is to the contrary— there should at least have been a levelling up— and the Government are to be applauded for what they have done on that front.

To the extent that the Bill levels up support for the children of those in and out of work— I would like to think that it will do so, but I suppose that Ministers will not give me that assurance— I welcome it. Furthermore, previously excluded groups such as students with children and student nurses are included, which is also welcome.

The second reason for welcoming the Bill is the potential for streamlining. The current system is a dog's breakfast; it will be marginally less so after the Bill becomes law. Any streamlining, any continuity between being in and out of work, getting rid of the hours rule on support for children and getting rid of the capital limits are welcome as they make the system somewhat simpler, although it will probably still be more complicated than the one we first thought of four or five years ago. The Bill is a move in the right direction, however, so we welcome it.

The third main reason for that welcome involves our reason for opposing the Tax Credits Act 1999: payment through the pay packet, whose emphasis is diminished. I recall the Paymaster General assuring me that lone parents needed payment through the pay packet, which was a requirement of the existing system, to show them the value of paid work.

I am pleased that the Government have thought again about support for children, and that that support will now go direct to the main carer. I welcome that move. Some current recipients of the working families tax credit who are within the taper will get no in-work payment through the pay packet: support for the children will be paid direct to the carer. That group of people will still understand the benefits of working. I welcome the Government's second thoughts on that issue.

We broadly support the Bill, but I want to raise a number of concerns that we will pursue in more detail in Committee. I hope that the Financial Secretary, when he responds to the debate, will address some of my points, as I am approaching the Bill as a critical friend of the Government's proposals.

The hon. Member for Arundel and South Downs (Mr. Flight) referred to the burden on business. There is an issue to be addressed, but it is not the one he raised. As the Paymaster General said, the burden on business will be reduced with annual assessment and with the streamlining of the process. The regulatory impact assessment puts the figure at £10 million. However, the starting point is the £100 million burden on business: it costs businesses £100 million every year to deliver the working families tax credit. The Bill may reduce that figure to £90 million, but that is still a substantial burden on business, and the House needs to justify that.

I contend that, because of the reforms in the Bill, support for children will be paid outside the pay packet, so what is left does not need to go through the pay packet either. We could take this opportunity to get rid of that £90 million cost on business. I shall set out how that could be done.

Phil Hope

I find it distressing that, although the hon. Gentleman acknowledges the £10 million-worth of benefit to business, he says that it is not enough. Could he not accept that the Bill reduces the burden on businesses and celebrate that fact along with Labour Members?

Mr. Webb

I am not sure that it is my role to celebrate these provisions. The hon. Gentleman should listen to what I am saying. A £10 million reduction in the burden on business is welcome, but there is now an opportunity to get rid of a further £90 million burden, which perhaps he would celebrate.

What is left when support for families in respect of children is removed? There is the adult bit of the old working families tax credit, and there is the new bit for people without children— that is, people working 30 hours a week aged more than 25. Why are we paying these people tax credits rather than giving them support in another way, which I will set out?

The Government have put two arguments. They argue that we should support those people to relieve poverty and to improve incentives. The poor childless people who will be brought into the system do not work more than 30 hours a week and are not likely to be over 25. The poverty rates among childless people are higher for those not working 30 hours— indeed, not working at all— and are higher for those under 25 than for those over 25. If poverty is our concern, we should pay this employment credit to all childless people in low-paid work, not just to those over 25 working 30 hours.

On incentives, I invite the Financial Secretary to come up with one piece of empirical evidence that suggests that the reason why childless people are not working or are not working longer hours is to do with incentives and free choices about jobs that they could take but are declining to take. I accept that there are plenty of jobs that families with children and a mortgage cannot afford to take, because they get plenty of help out of work and not as much in work, or barely more. However, childless people do not get much support when they do not work, so they already have a leg up into work.

Benefit rates for childless people are not very good, and they would not want to live on them for long. Incentives already exist, and there is not much evidence to suggest that those who work 30 hours a week and are aged over 25 need additional labour market incentives. There could be a poverty argument, but the statistics suggest that the scheme is targeting the wrong people.

If there is a case for supporting all low-paid workers— with or without children, single or married— do we need to do so by costing businesses £90 million a year? My argument is that we do not, because we have the personal income tax allowance. If we want to deliver an average of £15 a week— which is the sort of figure we are talking about for the working tax credit— we could do so by raising the income tax allowance.

If that alone were done, every Member of Parliament would benefit as well. For these purposes we would not want to do that, but other adjustments could be made to tax thresholds enabling all the benefit to go to those just inside the income-tax structure, rather than some of it going to those with higher incomes. We could lower the starting level for higher-rate tax and raise the personal tax allowance, which would give Members no net benefit but would target help on all in low-paid work. That could be done through the PAYE code, and would impose no burden on business. Indeed, it would save businesses £90 million a year

Kali Mountford

Is the hon. Gentleman suggesting differential tax thresholds? Is he saying that different tax bands should involve different starting rates?

Mr. Webb

No. I am sorry if what I said was not clear. I am suggesting that the personal tax allowance, which currently applies to all taxpayers, should be raised, and that— so that the hon. Lady cannot benefit— the higher-rate income-tax threshold should fall. That would merely change two of the premises of the existing system. It would prevent Members from benefiting, while enabling those in the basic-rate— lower-rate— zband to do so. It is a fairly straightforward proposition. As I said, it would save businesses £90 million a year in administration, and would deliver to broadly the same groups an anti-poverty benefit of equivalent cash value. It would also deliver a labour-supply benefit: when people took low-paid jobs, the tax burden would be lower.

The detail of what I propose is of course not identical to what the Government propose: there will be slight differences between the position of those who benefit from a tax-allowance rise and that of those who benefit from employment credit. I feel, however, that the onus is on the Government to justify continuing to impose a £90 million burden on business, rather than simply raising tax allowances, in terms of the extra benefit they receive as a result of paying working tax credit. If we are all interested in simplifying and streamlining the existing system, we may conclude that a tax-allowance rise would be better than employment credit.

Intervening on the hon. Member for Arundel and South Downs, the Paymaster General suggested that he might want to question the whole existence of employment credit. That is an important point, but although I support the Bill— principally because of what it will do for families with children, and because of its streamlining effect— I have considerable reservations about working tax credit. I am not sure what it will achieve that a tax allowance could not achieve.

Mr. RuMey

For the record, did I hear the hon. Gentleman say that he wanted to lower the threshold for the top rate of income tax? If so, will he tell us what effect that would have on the average earner of more than £25,000 a year? I am thinking of those whose incomes, in terms of thousands, are in the late 20s and early 30s. Many such people are nurses, sergeants— and police sergeants— and other public sector workers.

Mr. Webb

It would have no effect whatever. Because we would raise the personal income-tax allowance, those people would gain an average of £15 a week— the sort of sum they would receive through working tax credit. I hope that the hon. Gentleman is with me so far: it is a straightforward proposition. When the tax allowance goes up, nurses, doctors and everyone else in that bracket will get £15.

Assuming that we want this to be a targeted measure to support the low-paid, we reduce the starting point for higher-rate income tax by an amount that will take away £15 at that end. The net effect will therefore be nil. In other words, the effect will be neutral for those on higher incomes because they are gaining from the tax-allowance rise and losing from the higher-rate threshold fall. Those who gain will be those receiving working tax credit— the low-paid, whom we are targeting. That, then, would be an alternative way of lifting burdens from business.

There is another problem, which has also been mentioned already. The proposed integrated system adds couples' incomes together. Whereas children's tax credit is currently assessed on the basis of individual incomes, the proposed child tax credit will be assessed on the basis of joint incomes. Let me return to an example given by the hon. Member for Bury St. Edmunds (Mr. Ruffley). At present, a nurse married to a teacher, with children, receives the full children's tax credit because neither earns above the threshold, but, when added together, their incomes will be well above the threshold. Unless the threshold changes, they could lose up to £520. When we raised that with the Paymaster General, her response was essentially, "Wait and see." She said that the thresholds and allowances would not be announced today. I understand that, but this is the position: either the Government must find £600 million to prevent people from losing out, or some families who are receiving the current benefits— they are not necessarily filthy rich; I gave the example of a nurse married to a teacher— could lose significant sums.

That brings me to a key point. Those of us who are potential members of the Committee that will consider the Bill would like to see regulations before we deliberate. We would like to know what we will be talking about. It would be helpful to have some idea of the ball-park figure that the Government are thinking of. I appreciate that we cannot pre-empt the Budget, but is it unreasonable for the House to know whether we are talking about a measure that will take up to £520 off 1.4 million constituents, or one that will cost no one anything? We simply do not know. For the Committee to have an informed discussion on those issues, some idea of how the system will be delivered and of the framework within which the threshold rates will be set would make a big difference.

The right hon. Member for Birkenhead made some points on fraud and how we may respond to it. The nub of the fraud problem is payment through the pay packet. That makes matters so much worse because the money benefits the employer before it is handed on. The fact that the employer has a stake in the process makes collusion potentially much worse.

If the money goes directly to a recipient and the employer is not involved, it is not a problem. That is another compelling reason not to have a working tax credit at all and to put tax allowances up to deliver the money to the low paid. In that way, the employer will not get his grubby hands on the money, the good employer will be happy because he will not have to administer the thing and the bad employer will be denied the opportunity for fraud. Again, that could save the Government money. The scope for fraud could be substantial; it could run into hundreds of millions of pounds.

Kali Mountford

I am at a loss to understand how the hon. Gentleman's proposal would benefit those people whose income keeps them below the tax threshold in any event? How would he get money to them?

Mr. Webb

The vast majority of people whom we are talking about are income tax payers. The working families tax credit is currently paid above certain bands. The children's tax credit goes to people beyond the higher rate threshold.[Interruption.] The hon. Lady makes a fair point. I do not know how many of the people whom we are talking about are not taxpayers. For those with children, there is no problem. We can deliver the credit through other mechanisms.

The childless non-taxpayer earns about £80 a week. As I have said, I am not convinced that there is an incentives issue for the childless non-taxpayer, but the hon. Lady makes a fair point. I do not know how many people we are talking about. My suspicion is that it is very few. I would be interested to know what the figure is. If the Financial Secretary to the Treasury has an idea of the order of magnitude, I will be grateful to hear it.

There are a few other concerns. One aspect of the proposal that has had little attention and debate so far is annual assessment. Trying to line things up with the tax system and reducing the bureaucracy of frequent reassessments is an interesting idea. However, in one respect the system will not line up with the tax system. It will go in the opposite direction: from a single assessment with the children's tax credit to joint assessment for the child tax credit. Therefore, in one important respect, there will be a move away from integration with the income tax system.

If we were not to go for annual assessment, I hope that the Government would not say, "We cannot support that because that is not in line with income tax." In respect of the unit of assessment, the Government have rejected the income tax approach and have gone for a social security approach. Therefore, I hope that they will consider the issue of annual assessment.

If we do not tackle the problem of people in fluctuating circumstances, we will face it in our advice surgeries for years to come. The Institute for Fiscal Studies has examined fluctuations in family circumstances using the labour force survey. It says that 225,000 couples with children break up in a given year and 200,000 lone parents start to co-habit in a given year: nearly 500,000 families with children experience a change that would affect their entitlement. One million families with children change employment status within a given year, so there is an awful lot of change.[Interruption.] Indeed, it was an IFS report I was quoting from, my former employer.

The key question is: how should the system respond to that? Obviously, there is a trade-off. If the system responds to every last little change, it will be all over the place, administrative costs will be enormous and we will gain nothing. If the system is rigid, it will not fit people's individual circumstances.

The problem is asymmetric. In other words, when people's circumstances change to their detriment, we want a substantial response. People should not have to go for prolonged periods without change. For example, if someone loses £10 a week because of a loss of overtime, the system should respond quickly. However, if they gain a tenner a week through doing overtime, it would probably cost the taxpayer an equivalent sum to recalculate the entitlement. For that reason, the taxpayer has no incentive to worry about upward changes, but we would need to worry about equal downward changes.

Contrary to the Government's views in their consultation paper that we must have a symmetric threshold for reporting, we should be more worried about downward than upward shifts. That is not just because the wishy-washy Liberals want to throw money at everything, but because the taxpayer might not gain by trying to spot small upward shifts in people's incomes. Conversely, we would not want to leave people who have experienced a downward shift in the same position for 11 months. I hope that the Government will consider the suggestion that the threshold should be different for those who get worse off compared with people who get better off. I think that the Paymaster General is nodding.

The issue of annual assessment troubles me. I can see what might be attractive about it, but some of the Government's consultation documents suggest that people on low pay might have the option to forecast their income for the coming year. We all know constituents who would find that very difficult, because their lives are chaotic, they are in and out of work and their family circumstances change. If they were to forecast their income, they could be badly wrong. At the end of the year, if the situation had not been re-assessed, they could have been substantially overpaid. Potentially, in extreme cases, they could have to repay thousands of pounds of tax credits. How long would they have to repay the money? Would there be a maximum amount that they would have to repay? I would be very concerned if low-paid households had to repay large overpayments that might have arisen because they had to guess their income.

I hope that we will be able to explore in Committee whether a year is the right timescale. At the moment, the period is six months, but that is a rigid time with no opportunity to re-assess income. If we change to a system of 12 months with scope for re-assessment in that time, I wonder whether we will have missed a step. Perhaps six-monthly assessments could be considered. I appreciate that that would involve twice as many notifications to employers, but given how often people's circumstances change, there will be lots of reassessments anyway. My worry is that some people who need a reassessment might not realise that they could have one and might try to get by with the wrong amount not just for six months, but for a year.

Mr. Ruffley

I agree with almost everything that the hon. Gentleman has just said, but does he know what would trigger an in-year assessment? The Bill does not tell us that.

Mr. Webb

I understand that events such as the birth of a child, marriage, relationship breakdown or changes in employment would do so, but I am concerned about less obvious changes, such as stopping doing overtime or taking a second job. One of the issues is how much the onus is on the claimant to be aware of the effect that such changes will have on their entitlement. Anything that requires folk to understand that complex system, with the possibility that they will be penalised if they fail to report changes that they might not realise are significant, is a possible problem.

I am concerned about take-up. The Paymaster General would not give us a figure for the number of families eligible for WFTC who do not claim it. If the take-up is about 75 per cent.— the sort of figure that is often quoted— it might be as many as 300,000 or 400,000 families. We know that of the 5 million entitled to the children's tax credit, 3.6 million receive it and perhaps another 1 million self-employed parents will get it through their tax returns. It may be that another 300,000 or 400,000 are missing out on that one.

In terms of employment credit for people who have never been in the benefits system before, apart from housing benefit— the childless low-paid— there is an issue of take-up. Studies of various pilot schemes have suggested that take-up is a real problem, but there is not a problem with the take-up of tax allowances; everybody gets the tax allowance. If we deliver support through tax allowances and not through the working credit, we will not have a take-up problem. I am convincing myself more as I go on that tax allowance rises would be better than the employment credit.

The interaction with housing benefit has been mentioned. In terms of the pension credit, the Government have said that they will raise the housing benefit thresholds so that someone getting maximum pension credit will get exactly the same housing benefit as before; the thresholds will go up in line. There is a hint in the Bill that the Government are thinking of putting housing benefit thresholds up so that people who are brought into the tax credit system—the childless in particular— would not find that they were losing 85 per cent. through housing benefit tapers. We seek some reassurance on that. It would be perverse if people were given £20 with one hand and then had 80 per cent. of that taken away by another through the housing benefit system.

The money we are talking about must be paid into an account. For those with a bank account, that is not a problem. For those without, it is. The scheme is to begin in 2003. Previously, the Government said that the universal bank and the card system— the switch to automated credit transfer— would be phased in over 2003 to 2005. However, the Bill requires payment into accounts from April 2003. If the Government are falling behind schedule on the universal bank, that will cause great concern, as these payments need an account. I hope that the Government can reassure us that the universal bank will be in place by April 2003.

Clearly, this is a complex Bill, and the regulations will tell us a great deal. It would inform the Committee's deliberations to have sight even of draft regulations or indicative statements from the Government on the levels of thresholds and their thinking on other points. That would make a huge difference to our judgment of the Bill.

Because the Bill, in principle, moves in the right direction— particularly with regard to families with children— I and my colleagues welcome it. We have considerable misgivings about the working tax credit that we hope to address in Committee but, on balance, we are minded to support the Bill.

5.52 pm
Gareth Thomas (Clwyd, West)

The fact that this debate so far has been couched in technical terms and complex language may lead an outside observer to believe that this is an esoteric matter. It is not. My right hon. Friend the Member for Birkenhead (Mr. Field) did the House a service by bringing this debate to life. He is more sceptical about the Bill's implications than I am, but he was right to say that while the Bill is complex, it affects the lives of many people, as is often the case with social security measures.

The Bill is a substantial step forward in the Government's campaign to end child poverty and to improve the lives of many people who continue to live on low incomes. The debate has brought to light the philosophical and political divide that exists, and my right hon. Friend the Member for Birkenhead was right to refer to that. The Government are proceeding down this course, rather than seeking tax cuts. They are putting their political credibility on the line and seeking to implement measures that are, on any view, seriously redistributive and will mean a real improvement in the lives of many people.

The Bill builds on the Government's work, and there are many tools in the toolkit; it is not just a question of relying upon tax credits. Reference has been made to the need to bring low-income people out of tax liability, but that is already happening. The 10p starting rate for tax has been extended, so that many people are not paying tax at all. The national minimum wage has made a big difference, as has the working families tax credit, the predecessor of the child tax credit and the working tax credit.

The figures from my constituency reflect the degree to which the Bill is of immense practical value. No fewer than 8,111 families in my constituency have benefited in a big way from increases in child benefit. No fewer than 1,840 low and middle-income families are, on average, £30 better off thanks to the working families tax credit. I am pleased that the Bill extends the scope of the tax credit regime to a greater number of people.

Some 1.25 million children already have been lifted out of poverty. I am sure that the Government are under no illusions and are aware that a considerable amount of further work needs to be done. We live in a society in which, due to the legacy of the previous Conservative Government, the divide between rich and poor has widened. I am convinced that the Bill is a big step in the right direction. It is right for us to move away from the culture of welfare dependency to a system in which we promote incentives to work, make work pay and further improve financial support for children.

My right hon. Friend the Member for Birkenhead mentioned elephant traps, but there other traps; the unemployment trap and the poverty trap. I am certain that the regime of tax credits will be one of the most effective ways of bringing an end to the culture of dependency and improving the lives of a considerable number of people.

As a former member of the Social Security Committee, I agree with its findings in the last report that it produced in the previous Parliament. The Committee concluded that tax credits will help to tackle child poverty, increase work incentives and produce a simpler and more coherent system of administration for the benefit of recipients.

The Committee was particularly exercised by the question of what work was being done to ascertain the absolute measure of poverty to which the regime of tapers, rates and thresholds will be addressed. One appreciates that the devil is in the detail, but could the Minister give an indication of the Government's thinking on that matter?

Will the Government respond positively to a briefing that I have received from NACAB, which has expressed concerns about two issues? The first is the number of hours worked. In terms of eligibility, how many hours would people have to work before they can qualify for the working tax credit? It is the view of NACAB— and I suspect many others— that the current figure is rather too high, particularly with regard to disabled groups.

On the vexed question of housing benefit, I wish to refer to paragraph 45 of the Social Security Committee report, concerning the perverse effects of differential tapers. It states: With a taper of 65 per cent. for Housing Benefit and twenty per cent. for Council Tax Benefit, a family currently in receipt of Working Families Tax Credit can find themselves as little as five pence better off for each additional –1 of gross earnings. The Committee went on to suggest that serious consideration should be given to a free-standing housing credit as part of the planned reforms. It concluded that it was pleased that the Government were looking at the interaction of child tax credits and housing benefit but felt that the aim should be to improve marginal deduction rates rather than simply not making them worse than they are at present. As I understand the Government's position, they were, until recently, looking seriously at that issue, because it cuts across the philosophy behind the Bill and the Government's approach, which is to make work pay.

The Bill is a substantial step forward. I am particularly pleased that the Government have accepted the need for child tax credit to be paid to the main carer and that the Bill will disregard child maintenance. I am also pleased that it strikes a balance between predictability and certainty, which is so important for many low-income families, while taking into account the need to respond to changed circumstances. I welcome the Bill, which offers an opportunity to have a more streamlined system of support and makes a reality of the principle that work should pay.

6.1 pm

Mr. David Ruffley (Bury St. Edmunds)

I much enjoyed the speech of the right hon. Member for Birkenhead (Mr. Field). It was hugely important and was listened to with rapt attention and great respect on both sides of the House. I, for one, agreed with almost every word he said. I fear, however, that I will make a slightly more partisan contribution than the right hon. Gentleman.

I have not been a great fan of the Chancellor of the Exchequer's tenure of office. That is partly because some of his alleged achievements are damaging to the economic national interest. I believe that the Bill contains another set of his meddling measures that issue from No. 11, which will not redound to the credit of the tax and benefits system.

Incapability Brown, as I call the Chancellor, has shown himself unable to enhance the landscape of tax and benefits since his first Budget in 1997. In my judgment, the Bill bears five Brownian signature defects. In July, the Chancellor said that he would give us a draft Bill, and give us some detail. We have not had that. He said that the Bill would simplify and streamline the system but, as we have heard, more complexity is being introduced. He said that he would lighten burdens on business, yet we heard of many examples today where the burdens on business will increase. We have heard that the right hon. Gentleman wants an open debate on tax and spend, yet the scoring of tax credits— about which I will speak in a few moments— gives him and Ministers the ability to massage the national tax burden figures downwards by scoring tax credits as negative revenue. Of course, they are nothing of the kind— they are good old-fashioned public spending. Finally, the Chancellor says that under the Bill, working people will be better off. That is hardly the case when we know that hundreds of thousands— perhaps millions—of working couples who receive children's tax credit may, under the joint assessment regime in prospect, lose all, or substantially all, of the £520 a year they receive.

Let me deal first with the Chancellor's unwillingness to publish a draft Bill and much necessary detail to which many Members have referred. It is true that a consultation document with a regulatory impact assessment was published on 19 July. That is fair enough. However, it was such a detail-free zone that the Institute for Fiscal Studies was prompted to say: it provided no quantitative evidence on which one might base a sensible response. We have no idea at what level the credits will be set, what the withdrawal rates will be and at what level they will kick in. Andrew Dilnot of the IFS signally understated the problem of the lack of detail that has been given to us today when he said that it was all "very disappointing indeed".

It is virtually impossible to have a meaningful debate when the Government simply say that we should not worry because it will all be dealt with by regulations under clauses 7, 9 and 11. We should at least have some basic indicative numbers for the thresholds. The Paymaster General said that we were talking about a "framework" today, but such a framework is not meaningful without the detail. I urge those on the Treasury Bench to ensure that draft regulations are presented to the House far in advance of the Bill's Committee stage.

That leads me to my second Brownian defect. The claim is that the Bill will simplify the system. In truth, it will become more complicated because the Government are seeking to introduce means-testing on an annual basis, credit entitlement being based on the previous year's income and fixed for one year in advance. The problem is that families' financial circumstances change greatly within a year, and the Bill pays insufficient attention to that. How will changes be monitored effectively by the Revenue in-year? What will the notification requirements be? How will they be consistently— rather than erratically— enforced? Surely potential underpayments and overpayments, to which the hon. Member for Northavon (Mr. Webb) referred, will be greater under an annual system of assessment than under a six-monthly one undertaken for working families tax credit or, indeed, a weekly one for income support. Those are some of the questions that outside commentators are asking, and it is a great shame that we are not able to discuss them today.

The scale of the problem of having an annual basis for assessment rather than a shorter period is highlighted rather well by the labour force survey. It shows that 360,000 adults and couples with children and 90,000 lone parents change employment within three months in an average year. For those groups in which employment is changed within 12 months, the figures are 840,000 and 180,000 respectively.

An annual basis of assessment can, by definition, achieve greater simplicity only by ignoring, to an extent, changes in financial circumstances within the current year. If those circumstances are not ignored, the Revenue will have the problem that the Benefits Agency has— frequent and complicated in-year reassessments at various intervals. The Bill does not address that point; it simply says that the matter will be settled in regulations, which is regrettable. In particular, how easy will it be for claimants to estimate, with any degree of certitude, how changes in their current year income might relate to their previous year's income? Estimating changes will, in practice, be difficult to do over a year. Clause 7 attempts to provide an answer by stating that the regulations to be laid before the House could give claimants some leeway to ignore any potential change in their current year income as against their previous year's income.

In other words, a threshold will be set in which changes in income— either up or down— will be ignored. The problem is that, if that band is too narrow, the Revenue will have to instigate reassessments. If it is too broad and too much income is disregarded, huge overpayments to certain people whose financial circumstances improve in-year are possible for long periods, as are severe underpayments to those whose circumstances deteriorate in-year. So the setting of the threshold is critically important. The hon. Member for Northavon talked about asymmetry, and the reference to asymmetry applies to the point that I have just made.

For us to form a judgment about the delicate balance that Ministers will have to strike, we need to have at least some indicative numbers before us as soon as possible, so that we can debate this issue, which involves a fine judgment. It is not an easy judgment, but it is one that the House has to make. Regrettably, we do not have that information today.

I have assumed in my speech that claimants will make accurate or reasonably accurate estimates of current year income compared to previous years and faithfully report them. But I know some possible claimants in my constituency who, for whatever reason, will be confused about this issue or are not very good at numbers— a lot of hon. Members are not very good at numbers. So, in reality, it is a bit much to expect all claimants to be particularly adept at estimating current year income.

Although we know that, the Government will ask those people to make notifications of changes in their circumstances during the year. There is a severe risk that they will get that wrong and that they will continue to claim payments to which they are not entitled. They may not be acting fraudulently, but such things may happen by accident or through their incompetence in that regard. They will then be hit with a huge bill from the Inland Revenue for the repayment of overpaid credit at the end of the year, and I can envisage that causing severe problems.

The Revenue simply has not had to bother about those problems before because any errors or overpayments of that kind have been picked up through the payment of income support, because the assessment period is very short, or even by the working families tax credit, which involves a six-month assessment period. So we could be letting ourselves in for a great deal of trouble with our constituents by introducing annual assessments on that basis.

Ministers should tell us their thoughts on another issue— the hours test. I understand that, under the Bill, claimants will have to calculate their own average of hours worked to determine whether they satisfy the eligibility criteria. That is a change from the working families tax credit, under which employers typically carried out that work, and I wonder how the Inland Revenue will monitor it. Of course, in the United States, the earned-income credit regime does not require any proper checks or certification of hours worked to be carried out, and it is a bit of a disaster as a result. The Government are trying to do better than the American system, but how will the hours worked be monitored if not by the employers?

Thirdly, there is in the Bill a typical Brownian trademark measure— more burdens on business. Labour Members refer to reductions in burdens on employers, and there are one or two, but I suggest that there will be net increase in such burdens. I shall refer to my concerns and the concerns of those who are in business in the constituency, but, before I do so, I congratulate the Government on deciding to pay the new child tax credit directly to the carer. That is an important reversal of their policy. We are returning to a wallet-to-purse policy, reversing the purse-to-wallet policy effected by the working families tax credit. However, the payment of working tax credit through the pay packet will only reinforce the enormous payroll burdens that are already placed on too many businesses in this country today.

The Treasury and several hon. Members have argued that payroll payments reduce stigma, but that is not the case, and the right hon. Member for Birkenhead made that point rather well. There is no quantitative evidence to show that such payments reduce stigma, and it would be nice to know the results of the working families tax credit evaluation programme. If that evaluation can show that take-up of the working families tax credit has been increased and improved, fair enough. However, no such evidence exists, and I am rather surprised that the Government continue down that route without providing any evidence to show that the system reduces stigma and improves take-up.

The National Association of Citizens Advice Bureaux suggests that the qualitative evidence shows that payments through the payroll do not stop the stigma, and it gives two examples. First, some employers decide not to take on possible employees because they fear the paperwork. They simply do not take people on if they think that they will be involved in in-work benefit paperwork. Secondly, employers insist that employees work fewer than 16 hours. In fact, they reduce their employees' hours of work the better to ensure that they do not meet the eligibility criteria for the working families tax credit. That qualitative evidence comes not from the Opposition but from NACAB.

It is undoubtedly the case that businesses feel rather put upon. They feel that they are being turned into unpaid tax collectors and benefit administrators for the Department for Work and Pensions and the Inland Revenue. The Chancellor's assertion that burdens will be reduced will comfort them not. Ministers think that the burdens will not increase because of calculations that they have done, probably on the back of an envelope, showing that the number of new childless claimants of working tax credit, who were not eligible for the payroll regime under the working families tax credit, is exactly matched by the number of families that will receive child tax credit not through the payroll but direct from the Revenue.

In other words, those figures balance out. But that depends on the assumptions about eligibility that Ministers are making, so we return to the tapers and the thresholds. Without the evidence, we cannot judge the burdens on business and whether more businesses will have more payroll work. We cannot answer those questions, so it is incumbent on Ministers to undertake today to report back to the House when the system is up and running— if the Bill is passed— to show whether more businesses incur more compliance costs under the new regime compared with the working families tax credit.

If the Minister deigns to answer that question, it would be helpful if he would explain why the Federation of Small Businesses thinks that there is a lot of mileage in moving away from payment through the payroll to the Inland Revenue paying working tax credits direct. That has been done for the child tax credit, so why not for the working tax credit?

Fourthly, depending on how they are scored, the tax credits in the Bill can seriously affect the national tax burden— a politically sensitive subject, as we all know, in some cases to the cost of Ministers. The enthusiasm for tax credits as a general concept is in my view not unrelated to the fact that they afford hyperactive and meddlesome politicians the ability artificially to massage downwards the tax burden figures. The current Chancellor does not appear to like benefits very much, because they count as public spending, so he calls them tax credits and, miraculously, they stop being public spending items and become tax reductions. Put like that, it sounds completely outrageous if not downright absurd, but that is what the Harry Potter of the tax and benefits system is doing in the Bill. He is magicking out of existence public spending and scoring it as a tax reduction.

The Chancellor has done that already with the working families tax credit when he defied international conventions set out under the European system of accounts—ESA 95— which was adopted by our Office for National Statistics. He defied the ruling by counting all the working families tax credit as negative income tax in his preferred measure of the national tax burden.

The problem with such an approach is that it is a breach of international standards, because only 20 per cent. of working families tax credit claims relate to relieving an income tax liability. The other 80 per cent. of claims cannot conceivably be described as negative income tax, because there is no income tax liability to be relieved. I hope that this is parliamentary language, but that is a complete fiddle of the tax burden numbers by the Chancellor. He knows it and we know it, but I fear that such dodgy creative accounting will be perpetrated for another few years if the Bill's tax credit regime is implemented.

Fifthly, another signature Brownian touch is evident in the Bill— our dear old friend the stealth tax. Under the Bill, we face the prospect of a new regime of joint assessment of income. This time the stealth tax could be imposed on middle-income families with children in middle England who currently receive the children's tax credit. When the Chancellor abolished the married couples allowance, he said to couples with children, "Don't worry. You'll be compensated." However, they lost out for a year and they had to wait until the children's tax credit was introduced. As we know, that was worth £520 to those who got the full whack.

If one person in the couple earned more than £33,395 a year but less than £41,735, the couple would receive a proportion of the £520 on a sliding taper. If both members of the couple earned less than £33,395, the family unit received the full whack of £520. That is fine, but if they both earned below the threshold, their gross income could be well over £40,000. It might be nearer £60,000 but the couple would receive the full £520 under the rules that operate now and as we understand them.

However, if joint assessment is introduced, Opposition Members have expressed the fear that people on moderate incomes— for example, a couple earning £25,000 a year each with a gross income of £50,000 a year— would receive absolutely nothing because they jointly earn more than the threshold of £41,735. They would lose the entire £520, and that is the prospect with which the Bill presents us. It is another Brownian stealth tax.

On House of Commons Library figures, 1.4 million couples with children who currently claim the children's tax credit will lose out: 500,000 will lose part of their credit and 900,000 will lose the credit in its entirety because they will receive nothing. Will the Minister allay the concerns of many couples with children in middle England and even of observers in the City? Ann Redston, the senior tax partner of Ernst & Young, observes: The Chancellor was strangely reluctant to give us any idea of how many families will be able to take advantage of the Child Tax Credit. He should show his hand. He certainly should.

The Bill's author is a Chancellor who constantly repackages and chops and changes the tax and benefits system. Too much policy has been made on the hoof since 1997 and I fear that it has been driven by his desire to run other Departments from the Treasury. The result is a lack of true strategic vision in the system and more complexity.

As I have said, the Bill discloses a desire for more stealth taxes, but we have had little debate about the detail of them because the Chancellor wants to leave that to regulations and to consideration in Committee. Incapability Brown has, unfortunately, left too many unanswered questions in the Bill. He is not so much Incapability Brown as Complexity Brown. That is bad news not just for the Departments that will have to try to administer the new system and the businesses that will face more burdens as they try to operate it, but bad news for the men and women who the Bill is most designed to help— those who want genuine incentives to return to work. That is why I am glad that Conservative Members will not vote for the Bill in the Lobby tonight.

6.26 pm
Ms Karen Buck (Regent's Park and Kensington, North)

There is another Government trademark to the Bill, and that is their demonstrable commitment to tackling child poverty. We have heard Labour Members refer to that subject but little about it, I am sad to say, from Conservative Members. The Bill must be considered in the context of what the Government have done over the past four years to tackle child poverty. It demonstrates both the commitment and the path to continuing the challenging task that has been set— of eradicating child poverty within a generation.

The figures speak for themselves. In the journal New Economy, the independent experts David Piachet and Holly Sutherland have concluded that more than 1 million children have been lifted out of poverty since 1997 and that there has been a 7 per cent. increase in the number of lone parents working. The Child Poverty Action Group published the document "An End in Sight" before the general election and I am sorry that my right hon. Friend the Member for Birkenhead (Mr. Field) is not present to hear what it said: In the weeks leading up to the general election in 1970, the Child Poverty Action Group published a pamphlet, co-written by Frank Field, maintaining that poor people had become worse off under Labour … CPAG would not be justified if it were to assert the same … there is no doubt that when the election takes place there will have been a substantial reduction in poverty by any measure you care to use … This reduction in child poverty has been achieved, of course, partly as a result of the buoyant economy and falling unemployment". Unlike Conservative Members, I do not believe that that happened entirely by accident and, as the document makes clear, the reduction in child poverty is mainly the result of redistributive social and fiscal policies.

Independent organisations, and organisations that are rightly not slow to criticise the Government when they think that we are taking action that is not beneficial to the poorest people in the country, have confirmed the success of the policies so far. However, although a great deal has been achieved, there is still a very long way to go.

The hon. Member for Arundel and South Downs (Mr. Flight) was quite dismissive about that objective in his speech. If I heard him correctly, he suggested that we could not afford to take effective action to tackle poverty, even though he confused me by asking for assurances that the Government's policy would not result in any losers.

Mr. Flight

My point was very clear. I simply said that, if we were to have massive increases in expenditure on health, transport, education and tax credits, they would together amount to more than the country could afford. I merely asked which of those areas would be chosen for expenditure.

Ms Buck

I am not sure of the extent to which that illustrates the hon. Gentleman's point. The fact is that child poverty— this applies also to pensioner poverty— is an obscenity in the 21st century, especially in a country with the fourth largest economy in the world. That obscenity was allowed to develop and multiply during the years of Conservative Government.

We cannot afford not to tackle poverty, partly because of the cost of maintaining people in workless households, which make a major contribution to poverty, and partly because of what poverty does to our public services. Poverty and public services are two sides of the same coin and cannot be addressed separately. Children born into poverty carry with them a legacy of disadvantage that they will take literally to their graves. People from poor families are 12 to 20 times more likely to die prematurely, of a range of conditions, than those from wealthier families. Poverty is still, sadly, a key determinant of educational achievement. We know that we cannot improve our public service outputs— a healthier and better educated nation— without tackling poverty.

The Government are right to put poverty at the centre of their social and fiscal policies. Tax credit legislation has been an important tool to achieve that end, together with the action that the Government have taken to help the children of families that are out of work, with an 80 per cent. increase in the child component of income support. That important point has not been made. It relates to the Bill, in that there is an explicit understanding that although work is the best way out of poverty for many families— I am evangelical in my support for that objective— many families cannot work, and many children are trapped in poverty as a consequence. There is a clear link not only between worklessness and poverty, but between social security expenditure and poverty, as the United Nations Children's Fund study of child poverty in industrial nations clearly demonstrates. The Government's twin-track policy of promoting work incentives in tax credit legislation and supporting children who are in families that are out of work has achieved a great deal.

To digress slightly, this morning's media reports referred to the study by the Joseph Rowntree Foundation. Based on figures that were extant as of April 2000, it concludes that progress— albeit relatively modest— has been made on tackling child poverty. Will the Minister talk to his colleagues to ensure that the statistics on which we base our debates on poverty and the progress we are making to tackle it are up to date? It is nonsensical that such an important debate is informed by a media commentary on statistics that are a year and a half out of date.

My hon. Friend the Member for Clwyd, West (Gareth Thomas) talked about the need to develop an objective policy indicator. The Social Security Select Committee reinforced that when it considered integrated child credits. We will always need a twin-track policy to measure poverty. We need to get closer to an objective that applies a constant benchmark for child poverty, and to an indicator that is based on, and related to, average earnings, so that we measure income inequality as well as objective poverty levels. The Government have been so bold as to set themselves the target of halving child poverty by 2010 and then eradicating it entirely. They have also established multiple indicators of proxies for poverty, such as housing conditions and health, in the "Building on Opportunities … for All" document. It is a great shame that they have not taken the further step of commissioning research that will allow us to have that benchmark around which we can conduct the debate.

Tax credits have been successful. Their take-up has been positive, and considerably more people have taken advantage of the WFTC than of the family credit system. In addition to my comments being guided by the statistical evidence, I spent time in the past couple of years sitting in my employment office with personal advisers, listening to people undergoing a better-off assessment and talking about work opportunities. I watched their faces when they were told how much better off they would be if they worked even in relatively low-paid service economy jobs. As a consequence of their housing benefit, school dinners and help with transport costs, they expected to find that there would be almost no difference between benefit entitlements and their take-home pay. They were stunned to discover that they would be £40 a week better off. The small extent to which people know about the benefits that are available to them when they are in work is an important issue.

We know that there are weaknesses in the WFTC. The Select Committee considered the WFTC and, after a heated debate on wallet-to-purse transfers, was fairly relaxed about it. It was always a judgment call as to whether the WFTC would have a detrimental effect on household incomes. On balance, I am pleased to hear that the Government will deal with that.

We also know that the WFTC system is complex. Unlike the hon. Member for Arundel and South Downs. I think that the new system will be simpler. It will not be completely transformed, because anything that does not involve an absolute guarantee of universality and fixed-level payments will never be free of complexity. Although in an ideal world that would be the best way to proceed, unfortunately it is prohibitively expensive. My right hon. Friend the Member for Birkenhead made a powerful case about the dangers of a means-tested system, and I had sympathy with some of his concerns. However, he has to recognise that an alternative would be prohibitively expensive. We have discussed that with him at several Select Committee hearings on the contributory principle and pensioner incomes.

My right hon. Friend referred to the parallel dangers in housing benefit, but as I said in my intervention, that is not a fair comparison. It is possible to argue that the big problem with housing benefit was that it signalled a shift from bricks-and-mortar subsidy for millions of council and housing association tenants to a personal subsidy, which had detrimental side effects. The core problem with housing benefit, however, is rooted in housing issues that are not intrinsic to the housing benefit system. I mean not administration, but entitlement and eligibility. We could have many arguments about the abolition of rent controls, but it clearly contributed to the problem. The collapse of new social housing building in areas of high demand across much of the country also pushed up private sector rents.

The Government can do a great deal about these problems. They can proceed with the licensing of homes in multiple occupation and some private sector tenancies, which they are committed to doing. The work on improving administration of housing benefit will also help. Changes could be made, some of them set out in last year's Select Committee's report on housing benefit, to tackle the structural weaknesses in the housing benefit system. I do not agree that housing benefit was of itself a doomed enterprise. Where would we be without it? London has phenomenally high housing costs and high demand, and the private rented market for low-income claimants collapsed in recent years. I cannot imagine what the system would be like in London without the security of a housing benefit system that most people can rely on to meet all their rental costs. The alternative would make households deeply fearful for their security.

Undoubtedly, there are weaknesses in the system, some of which are unavoidable unless we are to spend billions and billions of pounds on a universal system that is adequate to lift families with children out of poverty, and that is not feasible. The integrated child tax credit will have advantages over the existing system, and it will build on the strengths of that system. Much will depend on the level at which it is set, and I share some of the criticism by hon. Members of the fact that we do not have information about thresholds, which would have enabled us to have an informed debate about what are likely to be the crunch points for individual families.

The introduction to the system of a single children's component that is common to families in work and families out of work enables us to deliver a real, targeted increase in benefit to the poorest children in the country, and that in itself is something to be celebrated. It also, as the National Council for One Parent Families has said, gives us the opportunity to exercise a lighter touch in means-testing, and I shall return to that point. There are advantages to the system being proposed, especially when it is compared with the day-to-day changes in the benefits system which have been fiercely resented by many families as highly complex and intrusive.

The new structure for the child tax credit will also have the positive effect of giving families the security of being able to predict their income. It will be portable between work and unemployment, so families will know that a chunk of their income is untouchable. Anecdotal as well as statistical evidence shows that it will be enormously beneficial and will enhance work incentives.

What, then, are the problems that we need to look out for? As I said, we need to know what level the child tax credit will be set at, and we need to scrutinise that very carefully, particularly to ensure that there will be no losers at the lower end of the income spectrum. The Institute for Fiscal Studies has calculated that if there are to be no losers, families who are currently on income support will need an extra £4.05 a week for the first child, and £3.40 a week for each subsequent child. I certainly hope that such levels are being considered, although I am sure that we will not receive more details from Ministers tonight. Hon. Members have made the point, which I support, that the basic requirement is that there be a levelling up for families on the lowest incomes.

I very much welcome the discounting of child maintenance. Another issue that we will want to scrutinise closely is the passporting of benefits. We have had discussions and disagreements about school dinners, certainly in relation to the working families tax credit. I am familiar with the argument that the school dinners component is factored into the WFTC. It is also possible to argue that parents value the ability to pay for school dinners because it is a symbolic freedom from dependence on benefits. I understand that, but if a parent is paying £13 a week for school dinners for two children out of the working families tax credit at the lower rate, that is a significant chunk out of their income. I would welcome it if the passporting of free school dinners were built into the lower end of the income spectrum for the working tax credit and the child tax credit.

Several hon. Members have referred to the difficulties of an annual assessment. We know that other countries, including Canada, Australia and the USA, have based systems on an annual assessment. The American situation is slightly different, in that there is a cultural difference in the attitude towards annual assessments. The early evidence from Australia, where information is only beginning to feed back, is that, as predicted, the annual assessment has caused hardship for families whose income fluctuations took them over the threshold for the credit, so they found that they were asked to repay significant sums. That is a serious danger. I fear that if we do not consider carefully what can be done to prevent such problems, our surgeries will be full of people who have been asked to repay £1,000 or more out of a relatively low income, something that they were unable to predict. That will cause debt hardship and undermine what is generally an excellent system.

The Select Committee had a few words to say about the annual assessment. Although there is no easy answer, one solution would be to have the widest possible band of income for people on the maximum child tax credit. I sympathise with the points made by hon. Members about having an asymmetric approach to the assessment. We must, at the earliest opportunity, build into the legislation ways of ensuring that if families receive large overpayments, they are not asked to repay a lump sum. Will people in receipt of housing benefit be asked to repay that as well? That problem could quickly become very significant, so I hope that Ministers will take it extremely seriously, because I would not want it to undermine the whole tax credits system.

I turn now to an issue that is dear to my heart— regional variations in entitlement. My hon. Friend the Paymaster General is nodding. I have bent her ear to the point of tedium about this on a number of occasions, and I am afraid that I am about to do so again. I thank the House of Commons Library for its excellent work on this matter. Some 10 per cent. of households with children in London and 22 per cent. of such households in Yorkshire receive the working families tax credit. The variation across London and, to a certain extent, other areas in the south-east, is dramatic.

With all due respect to the hon. Member for Richmond Park (Dr. Tonge), we might expect that area to come at the bottom of the table, alongside Chelsea, because we know that in some areas of London the average income is extremely high, as are property prices. We would not expect many people living there to be in poverty or to be entitled to the working families tax credit. However, in Ealing, Acton and Shepherd's Bush, only 3 per cent. of eligible households receive the WFTC, and in Islington, South and Finsbury and in Hammersmith and Fulham, the figure is only 2 per cent.

My constituency, Regent's Park and Kensington, North, is 472nd in the national league table of 641 constituencies where working families tax credit is received, which means that about 3 per cent. of eligible households are in receipt of it. Yet we have the seventh highest eligibility in the country for free school dinners and the 60th highest level of unemployment. Clearly, something is going badly wrong. In London in particular— I do not doubt that other hon. Members can make a similar case for other parts of the country— there is a mismatch between poverty and unemployment, which are extreme in many areas, and the entitlement to working families tax credit.

There are two possible explanations. The first concerns take-up, and it is probably partly true. When I go to nurseries and elsewhere in my constituency and talk to people, I find that there is a profound ignorance of the working families tax credit. People simply do not know whether they are eligible for it. The quality of advice given in employment offices is variable, and not many people get to the Employment Service or other agencies to receive better assessments, so they do not have the figures to show them whether they will be better off with the WFTC.

Secondly, there is an obvious correlation between ethnicity and take-up. When 130 languages are spoken in an area, as in Greater London, it is much more difficult to explain entitlements to all the different communities. It is not just about take-up, however. We must also address structural problems involving entitlement. We know among other things that entry-level wages are slightly higher in London, so the added value of the working families tax credit is not as great there. Housing costs are significant and child care costs have to be taken into account. I have talked about housing benefit, and shall not overstate the point. However, rents in London are obviously higher; 50,000 families are in temporary accommodation, which means that ridiculous sums of money are paid in housing benefit— so almost certainly, those people are never freed up to be able to work. A group of clients with a particular problem are families on income support receiving mortgage assistance. In 1996 which, I think, is the last year for which research information is available, 41 per cent. of mortgage holders on income support told the former Department of Social Security that the prospect of losing help with their housing costs was a disincentive to leaving benefit. If that applies to the country as a whole, it is particularly true of London, where the higher cost of mortgages means that the value of the assistance that will be lost is much greater. That is a genuine problem; if we are going to try to get the significant cohort of unemployed households in London off benefit and into work we have to tackle the housing costs both of tenants and of people with mortgages.

The issue of child care costs is dear to my heart. I welcome the fact that the child care component of the working families tax credit was increased significantly last year. However, London child care costs are on average the equivalent of the working families tax credit maximum, and higher earnings in London mean that the credit tapers away much more quickly. In central London, people routinely pay £300 a week for a full-time nursery place. Unfortunately, child minding places are impossible to come by. My early years development partnership is losing child minders faster than it can recruit them. For all the excellent work done by such partnerships, the neighbourhood nurseries initiative and the national child care strategy, in London we are not keeping pace with the demand for child care and certainly not with the demand for affordable child care. That is exacerbated by the fact that, in London, the proportion of households able to call upon family members to provide their child care is about a third lower than in the country as a whole. In many parts of the country, people can call on grandparents and others to help with child care, but that is much less likely in London because of the high social mobility which brings people into the city.

We need more child care, whereas in fact there is less. Establishing it is capital-intensive; recruitment and retention difficulties mean child care workers are at a premium, and we cannot recruit child minders. Taken together, that means that it is genuinely difficult to attract parents with children into the workplace, safe in the knowledge that child care will be available. I am therefore slightly anxious about the child care component of the working tax credit. I fear from what we know about the system that it will not make the situation better; I want to look closely at the tapering to make sure that it will not make matters worse. Unless we use this opportunity to refund people's child care costs virtually in full, in high value areas like London— and, presumably, across the rest of the country— we will simply not overcome that barrier to work.

In summary, we must build on tax credit legislation, which is excellent and has achieved a great deal. The Chancellor and his team are to be congratulated on all that they have done to tackle child poverty. The Bill will advance that effort, but we have a great deal to do on take-up and tackling the problems of housing benefit, thresholds, and/or a significant increase in the earnings disregard. We should tackle the issues of school dinners and of child care; more child care help is needed in London, and we should consider an increase in the percentage reimbursed by the child tax credit, to ensure that families paying London child care costs can draw down the assistance that they need.

If all this comes together, we will find, depending on the level of credit and trusting that targeting will be generous, that tax credits will do what they were intended to do: they will continue to tackle child poverty, but they will also give us a leg-up in the process of getting another cohort of families, especially lone parents, into the workplace. Without such assistance, the Bill may be valuable, but an opportunity may be lost to enhance work incentives, especially in high-cost areas like London.

6.55 pm
Mr. Mark Hoban (Fareham)

This Bill was represented earlier as a simplifying measure that would make life easier for businesses, claimants and other people. Clause 1 refers to a tax credit to be known as child tax credit and a tax credit to be known as working tax credit. That sounds straightforward. The clause goes on to list the existing benefits that will be abolished by the Bill, including the children's tax credit, the working families tax credit and the disabled person's tax credit. It will also abolish the family premium in respect of income support and income-based jobseeker's allowance and increases in benefits in respect of children under sections 80 and 90 of the Social Security Contributions and Benefits Act 1992". It will abolish the relevant sections of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 and the employment credit for older people known as new deal 50-plus. It sounds like a great simplifying measure yet, as with a number of such measures, simplicity is an illusion. In the clauses on child tax credit and the working tax credit, there are 14 different elements or calculations, which specify that entitlement is dependent on the age of children, the number of children in the family, whether someone is disabled or severely disabled, whether they are above a certain age and the number of hours that they work.

Regrettably, therefore, the Bill is not the simplifying measure that it was described to us as, and still includes many aspects of the previous benefits regime, which will cause much dissatisfaction among my constituents, whose biggest complaint about navigating the benefits system is its complexity. They feel that they cannot be certain how benefits have been, are being or will be calculated. Indeed, one of the biggest items on benefits in my postbag is what happens when benefits change, which causes many problems for my constituents. They would welcome a simplifying Bill because it is hard for them to predict what will happen if their circumstances change. In that respect, the Bill is disappointing.

The Bill is also disappointing because it does not include the detail that we need to scrutinise it effectively in the House and in Committee. The lack of detail affects three important areas: the cost to the Exchequer, the people who will benefit, and businesses. Regrettably, in the pre-Budget report, the Chancellor did not see fit to comply with the provisions of the Finance Act 1998, which requires Ministers to adhere to the code of fiscal stability. The code requires the Government to assess the fiscal impact of policy changes and disclose that in a note in the pre-Budget report. It is disappointing that the Government have not done so because it is difficult to discuss the Bill without knowing how much they intend to spend on tax credits as a consequence of introducing it.

The reason why the Government have not done that may lie in the continuing disputes between the Prime Minister and the Chancellor about how much money should be spent and where. Should money be spent on education or the health service, or should more be spent on tax credits? When we get the answer to those questions, we will be able to engage in a necessary debate in the House to discuss how the Bill will affect my constituency and constituencies throughout the country.

We need to know the rates of the tax credits, the tapers and the thresholds, for without that, how are we to judge whether the framework Bill will help those who need help most? The Bill is vague and unsatisfactory in that respect. It is not surprising that external commentators such as the Institute for Fiscal Studies have been forced to rely on sophisticated guesswork as the basis for the assumptions that they use to model the impact on ordinary families of the changes that will be brought about by the Bill. That will minimise the scrutiny that the Bill will receive in this place.

The lack of detail in the Bill will affect the assessment of its impact on businesses. The Paymaster General was upbeat about the regulatory impact assessment and spoke about a £10 million reduction in the costs that businesses face, but until we know how many people will benefit and how many will lose from the Bill, it is difficult to assess the benefit to business, if indeed there is one. The Government trumpet the virtues of the annual assessment, but the obligation to look at the change in circumstances of people who benefit from the Bill will lead to a great number of changes in the money that people receive, either directly from the Inland Revenue or through their pay packet, and each of those changes will have an impact on business. Until the Government produce the detailed figures, we will not know what the impact on British business will be.

Phil Hope

The hon. Gentleman may not have seen the research paper produced by the House of Commons Library on the Bill. On page 42 there is an excellent breakdown of the Bill's impact on businesses. I will not bore him by reading it out— you would not let me, Madam Deputy Speaker— but suffice it to say that the reduced burden on businesses is estimated to be £10 million a year. That directly contradicts almost everything that he said.

Mr. Hoban

No, it does not. I said that the Minister identified a £10 million saving, but because the Bill does not deal with the number of people who will claim benefit and at what rate, we cannot be certain how many people will be covered by the Bill. We do not know.

Phil Hope

I shall not quote it at length, but the Library research paper states that the regulatory impact assessment estimates that the total number of employers paying tax credits will remain unchanged at around 300,000 during any one year. Again, the hon. Gentleman is wrong on that point.

Mr. Hoban

I am not wrong. Until the Government publish the details of who will qualify for the tax credits, it is impossible to determine how many people will benefit from them. The Government have made some assumptions that handily cancel each other out, but until we have the full details— the regulatory impact assessment does not take into account the extent of the Government's changes, and we have not been told what the impact of those changes will be— we do not know how many people will receive the tax credits. The Government have not told us. Any assessment of the regulatory impact is based on assumptions that will be proved valid only when the rates and the tapers are announced by the Chancellor in the Budget. The estimates to date are based on assumptions, not reality.

We know from what the Minister said earlier that at the time of the changeover there will be winners and losers from the reforms, and a great deal of disruption to business. The Government have rightly recognised that there is a risk of people not being paid their benefit during that period. That is why I welcome the Government's suggestion that in the run-up to the changeover, the payment of working families tax credit and other tax credits should be made directly by the Government and not by employers.

The lack of detail in the Bill masks its likely effects on the Exchequer, on people who receive the benefits and, in spite of the comments of the hon. Member for Corby (Phil Hope), on business.

Specific aspects of the Bill cause me concern. Historically, benefits have been calculated on the basis of people's needs at that time. The Bill moves away from that to an annual assessment, taking account of changes in their circumstances over the course of the year. I am not clear what parameters will be used to assess whether a claim should be submitted for reassessment.

In some circumstances, that is clearly necessary— for example, if a child is born, if a couple breaks up or if a couple gets married— but what happens to someone who works more than 30 hours a week, and receives an additional credit, as at present? At what point will he have to register a reassessment of his tax credit if he works fewer hours? Will a reassessment be necessary if he works 29 hours, 29 hours 55 minutes or 28 hours a week?

We need to know such details. We are asking people to keep a record of their hours and make an assessment of future hours. I hope that in Committee the Minister will present the draft regulations, so that we can see what parameters will be used in such situations. We must reduce the burden of keeping detailed records for people, while recognising that we need to target help where it is most needed. By disregarding a change in hours, we may be giving help to people who do not require it.

Hywel Williams (Caernarfon)

Does the hon. Gentleman recognise that that is a particular problem in seasonal employment such as tourism, which is a major employer in my constituency? The problems may not be lessened by the Government's proposals.

Mr. Hoban

The hon. Gentleman makes a valid point about people who do seasonal work or whose hours vary significantly, depending on other factors. I am worried that we are placing a great burden on those who need help most and who may have difficulty in predicting the number of hours that they will work in the course of the year. We need to think carefully about the people who are subject to the regulations and claim credits for certain aspects of their work or their family life.

We should be equally mindful of the fact that when people's circumstances change, it can have a significant impact on the benefit that they receive. It may not be clear to people that they need to apply for reassessment. They may forget that a change in their circumstances leads to a change in their assessment for tax credits. I recently dealt with a case in my constituency in which a constituent was landed with a large bill as a consequence of a change in circumstances that she had not realised would lead to a change in the assessment of her benefit.

The Bill sets out penalties where information is supplied to the Inland Revenue fraudulently or negligently. Some people may supply information incorrectly, through no fault of their own. I hope that the provision will not apply to them and that they will not receive fines.

A further aspect of the Bill that concerns me is the treatment of children. My hon. Friend the Member for Bury St. Edmunds (Mr. Ruffley) and the hon. Member for Northavon (Mr. Webb) raised the treatment of child tax credit in two-earner and single-earner families. I shall not go down that route, but another concern is the child care tax credit. It is important to encourage parents to decide how best their children should be cared for. The Bill perpetuates the mistake that was made in the previous legislation on child care tax credits by placing financial value only on formal child care. Many parents would prefer sisters, aunts, mothers, fathers or grandparents to look after their children, rather than sending their children to a nursery or a child minder. Of course, they will not receive tax credit in respect of child care because informal child care arrangements are not covered by the Bill. Baby-sitters who are required to come into the home to look after children while parents are working on a night shift are not covered either. I ask the Paymaster General to reconsider the issue, because I believe that we need to recognise the value of child care even if we are not required to pay for it.

Dawn Primarolo

First, does the hon. Gentleman recognise that where the taxpayer pays for child care, our preoccupation should be the quality of care and the safety of the child, which must be paramount before we agree to pay for the care? Secondly, does he accept that the whole point of the child care payment is to remove a barrier for parents to whom no form of support is available, which means that they cannot return to work? That proposition is quite different from his suggestion that we should pay relatives to care for their nieces, nephews or grandchildren.

Mr. Hoban

On the first point, the reason why many parents place their children in the care of mothers, grandmothers or grandfathers is that they believe that they will provide the best and most appropriate care for their children. That is the choice that they make and we should respect it. Of course, they will have considered the options that are available. One reason why informal child care is used is that parents cannot afford other child care even with the help that the Government have offered. The hon. Member for Regent's Park and Kensington, North (Ms Buck) referred to the problem in her constituency, where child care costs are very high and cannot be met by the child care tax credit as it stands. In such a situation, parents may want their children to be cared for in a formal setting, but cannot afford to pay for such care because the credit is insufficiently generous.

Phil Hope

The hon. Gentleman suggests that the child care tax credit may not be generous enough, but the hon. Member for Arundel and South Downs (Mr. Flight) said that it was too generous and that we should cut some of these benefits. Does he stand by his remarks or those of his Front-Bench colleague?

Mr. Hoban

I was not disagreeing with my hon. Friend the Member for Arundel and South Downs (Mr. Flight) or saying that the rate was too high or low, but trying to respond to the Paymaster General's intervention and to set out the reasons why people may decide to place their children with parents and grandparents rather than in formal child care arrangements for which they will receive the benefit provided by the tax credit. That was the point that I wanted to make; I was not arguing about whether the rate should be higher or lower. Of course, we will know about the rate only when the Chancellor deigns to inform us of it in March in the Budget.

The second point of detail that I want to raise relates to qualifying hours. I think that clause 11 ensures that couples' working hours will be aggregated to achieve the current 30-hour limit in respect of receiving additional tax credit. The couple can decide how to work those hours. For example, the husband could work 10 hours and the wife 20, and they would get additional credit for working 30 hours. They could, therefore, sort out their domestic child care arrangements to suit their working pattern. However, the problem for single parents is that the 30-hour limit remains and they will be forced to find alternative child care arrangements. I hope that hon. Members will have the opportunity to explore in Committee whether it would be appropriate to prorate the 30 hours for single parent families, to ensure that they are not put at a disadvantage in comparison with married or cohabiting couples. Of course, that debate should not take place without some consideration of clause 39, which relates to polygamous marriages. I wonder how the 30-hour limit will interact with such marriages. Perhaps the Paymaster General wants to intervene now to expand on that point.

The Bill tries to address two worthwhile objectives. They are goals that we all share: the alleviation of poverty and the encouragement of people to move from welfare to work. Few would criticise those aims. I am concerned, however, that the Bill lacks the definition that we would like. Some 16 regulations have yet to be laid before us and we have not seen the rate or taper in relation to the 14 elements of the two tax credits. We do not know how many winners and losers there will be as a consequence of the Bill. Thus, notwithstanding our earlier discussion, we do not know what the full burden on business will be. The goals of the Bill are generous, but the generosity of the Government in providing information to us has been very limited on this occasion. I regret that we have not had the opportunity to discuss the Bill in more detail on the Floor of the House. Before supporting it, we need to know a great deal more about the details in terms of the rates and tapers, the winners and losers and the people who will benefit from it.

7.16 pm
Mr. Colin Challen (Morley and Rothwell)

This has been a very complex debate on a very complex subject. I am trying desperately to keep up with some of the technical detail, on which, I must admit, I am not an expert. So far, it has struck me that some of that complexity seems to be adding to confusion on the Opposition Benches. We began by hearing about the Opposition's view that the legislation would be an open cheque book and would lead to a rise in public expenditure comparable to the acknowledged increase in respect of health and all the other Government programmes. Later on, however, we heard about the idea that it would impose a Brownian stealth tax, which seemed to suggest that they held the opposite view. So, while the debate might be complex, I cannot say that I am very much wiser about some of the aspects on which the Opposition have chosen to focus. In general, I can see that their approach would be to salami-slice away all the complexity until there was no Bill left. Where would we be then in terms of our stated aim of trying further to tackle the poverty trap?

I welcome the changes to the tax credit system that the Government are making in the Bill. They will build on the successes of the children's tax credit and the working families tax credit in tackling child poverty, ensuring that the transition from welfare to work is easier. I think that that is what the Bill is all about. The simplicity should lie in making it easier to climb out of the poverty trap. One matter that has not been discussed at any length is the Bill's extension of the system of tax credits to people without children, which is wholly correct. It will also make the whole tax credits procedure simpler, which has been a focus of the debate.

I believe that the Bill will lead to greater simplicity in general. Simplification may not be its overarching aim, but it is a very important part of it. I speak as somebody who ran small businesses for about 15 years, mostly under the aegis of a Conservative Government, and operated PAYE— a rather unenviable task. Trying to understand the tax system and at the same time to run a small business with only a handful of employees is not easy. Every March, the nightmare package would arrive from the Inland Revenue, filled with the extensive information that all employers need in order to pay their staff. Sometimes, that information felt like a job lot of European treaties— essential reading, no doubt, but not many people's cup of tea. In the end, I would carefully file the information away— I imagine that many small employers would do the same— hoping never to have to read all of it. I was, therefore, very pleased to hear my hon. Friend the Paymaster General make it clear that employers will not have to face extra costs in calculating payments. There seems to be cross-party agreement that £10 million will be saved to employers and that perhaps the savings will be even greater.

Employers may take a dangerous attitude when they have to cope with all the information. That was shown by one of the first cases that I tackled after my election. A constituent was told by her employer that if she took time off sick and thereby reduced her hours in any week to less than 16— the qualifying number for working families tax credit— she would lose her entitlement and have to reapply. That information was clearly wrong but it shows that when the details of a scheme are examined, complexity creeps in, if only in the minds of the army of people who are asked to implement it.

Given the increase in the number of small businesses, I hope that the Government are alert to the problem; I believe that they are. Before the Bill is enacted, I hope that there will be a review of the means whereby employers and employees can gain easy—I emphasise "easy"—access to accurate information about tax credits. Employers sometimes have to ring round and speak to different people; employees have the same problem. That needs attention.

Another WFTC case that arose last week illustrates the difficulty. A single mother of four young children had waited 12 weeks for a decision about her WFTC. That is three months—far too long. She works part-time and had previously received the tax credit for 18 months. She was told that her renewal claim was caught in a backlog and that her employer had filled in the form incorrectly. Her employer does not know what extra information is required. She has telephoned daily those responsible for her employment and for the WFTC. Every time she phones, she speaks to a different person. She now faces financial difficulties and is consequently clearly suffering considerable stress.

People trapped in such circumstances must feel as if they are undergoing a Kafkaesque trial. Someone who is merely trying to speed up the system ends up feeling treated like a nuisance. When dealing with such cases on behalf of my constituents, it would be useful as a Member of Parliament to have a dedicated number to ring. I have been told that there is currently no such number, but perhaps I am wrong about that.

The Bill will help to alleviate the difficulties that I described by lengthening the period between applications from six months to one year. That will be a relief to thousands of people, perhaps the majority. It certainly applies to the hundreds or thousands of people in my constituency who currently benefit from the WFTC without problems. It may not be the Bill's overarching aim, but we cannot overestimate the significance of simplification to anyone who has to claim. I hope that simplification will ensue.

In moving towards more flexibility whereby a family's tax credits can be reviewed as and when their circumstances change significantly, we need to be sure that we will be geared up to providing a service that can cope with the changes. If it does not already exist, a telephone hotline should be available for claimants out of normal working hours at weekends and on week nights as well as week days. We must acknowledge that people's working hours are far more varied nowadays.

It could be argued that the best way to simplify the system would be to revert to the days when as many payments as possible were paid universally. The TUC, which is a critical friend of the Government's, was one of the respondents to the Inland Revenue's consultation on tax credits. It has voiced its anxieties about the increase in the means-testing that the Bill proposes especially for child dependency awards. I share those worries, although my anxiety is mitigated by the simple fact that, since coming to office in 1997, the Government have placed more money in the hands of poorer families than any Government for at least a generation.

The Library's research paper stated: Between April 1998 and April 2000, personal allowances for children aged under 11 grew by 73 per cent. in real terms, while those for children aged 11 to 15 grew by 18 per cent. in real terms. At 2001–02 prices, this latter measure is estimated to have cost around £2.5 billion over the lifetime of the last parliament. The inevitable delay in compiling research on those measures means that some newspaper headlines in the past 12 months or so have proclaimed that Labour has not reduced child poverty.

Only this morning, The Guardian included an article entitled "Research throws doubt on child poverty claim". It claimed that in 2000 only 300,000 fewer children were classed as being below the poverty line than in 1997. The article was based on research by the Joseph Rowntree Foundation. It states that the foundation found that there were more than 4 million children living below the poverty line in the year to April 2000. That shows the scale of the problem that we inherited. Is it possible even to imagine how we could overcome the problem of 4 million children in poverty in only a handful of years? At least we have set a target of halving child poverty by 2010. Previous Conservative Governments did not make the same commitment.

We must sometimes read behind the headlines. Research is crucial, and we should consider the research that is carried out when the measures are in place and the WFTC has had time to take effect. Those who oppose our anti-child poverty strategy—they do not oppose our objective openly, but vote against the means of achieving it—will have to wear their Scrooge-like smiles elsewhere on their anatomy in the not-too-distant future.

The TUC is not among the churlish, carping Government critics. Its overall assessment is that tax credits have been one of the government's successes. That is an objective view with which I agree. If the price that we have to pay for losing some element of the principle of universality is the Government spending more on ending child poverty, I shall sign up to it.

Child benefit continues to be a universal benefit and the increases in it have been staggering. It has risen from £11.05 for the first child in April 1997 to £15.50 in April this year.

Dr. Nick Palmer (Broxtowe)

Does my hon. Friend agree that, as in the case of pensions, a mixed strategy is beneficial so that some benefits are payable to everyone, thus enabling everyone to feel involved in the benefits system, and others are targeted at those who are most in need?

Mr. Challen

That is an important point. The Government are committed to that strategy for pensions. We have defended the basic state pension, which we will maintain in line with rises in prices. That is contrary to policies that Conservative Members have proposed in recent election campaigns. The Conservative Government froze child benefit for several years. They obviously intended that benefit to wither on the vine.

No one can accuse the Government of trying to prevent the redistribution of wealth to those who most need it. More people are receiving WFTC—500,000 more than received family credit. On average, families with children are £1,000 a year better off than in 1997. The bottom one in five families are £1,700 better off.

Another welcome reform proposed in the Bill will ensure that the gender bias in the working families tax credit distribution can be tackled, by ensuring that moneys are paid to the main carer in families and not necessarily through the wage packet, as now. Three quarters of those wage packets went to men, so there was a massive switch away from women being paid directly. Now it is proposed that couples will have a choice as to which partner receives the payment. This is a welcome step, but I envisage problems arising through a third party sometimes having to decide who the main carer is—that is, the person who will be designated as the recipient of the tax credit. I hope that clear guidance will be available.

These are, in the main, matters of detail that do not impinge on the principle, now firmly established, that, through tax credits, we are able to target poverty and build pathways out of it. The poverty trap of previous decades is being eradicated and, combined with measures such as the national minimum wage, it is now possible to see real progress in improving people's living standards, based on the idea that work pays. The only danger with this strategy—and it is a big danger—is that wage levels will be kept too low, and that the excessive growth in part-time working will continue apace. Let us be clear that well-paid work is the ultimate pathway out of poverty, and we must be on our guard against accepting as a substitute anything that falls short of that. We do not want to see a growth in the payments of tax credits because employers start paying less; nor should we seek to build a full-employment economy predicated on the idea that low wages will sustain it.

However, that argument is clearly weaker when more people are in work, as they have been since this Government came into office. Under the previous Conservative Government, we had a Dutch auction in which unemployment could be used as a tool to force wages down and to force people out of work. Who could forget the sentiments of "Je ne regrette rien" and "If it ain't hurting, it ain't working"? Nevertheless, I hope that the Government will continue to monitor the impact of the new tax credits closely, so that we can fine-tune the system—as we are doing today—to make it even more responsive and able to deliver our strategy of getting people out of poverty.

7.32 pm
Siobhain McDonagh (Mitcham and Morden)

I am pleased to be able to speak in this debate because I believe that the working families tax credit, the child care tax credit and the minimum wage are the pinnacles of achievement by the Labour Government. They introduce a range of benefits that manifest a principle that we all believe in, and that the Chancellor has frequently repeated, which is that if you can work, you should work. That will not seem like a revolutionary concept to hon. Members, but it is to many people in my constituency, because they have lost the notion of the obligation to work. That has happened for a number of reasons—perhaps because the work was not there, or because they had not seen members of their families working, or because simply getting out and doing it was so hard.

While the Government try—as any Government will—to enforce the values and morals to which they adhere, there must also be physical laws that will allow that to happen. The working families tax credit has done that. For me, this is a question of morality. I have no problem in believing that receiving one's benefit through one's pay packet while in work is far better than receiving it through an order book or by having to claim it from a benefits agency. Most of my working life before entering the House was spent working as a receptionist in a large south London benefit office, in a housing benefit office and in the reception of a homeless families unit. Enforcing the idea that to go out to work and to receive a pay packet is fundamentally important will provide a legacy that will last long after we have achieved many other things.

The child care tax credit allows people to consider going out to work. It is easy to give anecdotal evidence of this. In my own circle, my best friend at school trained to be an occupational therapist, and she loved her job. She had two pre-school aged children and, unfortunately, two and a half years ago, her husband died. He had stayed at home looking after the children until his death. All of a sudden, Bernadette had lost not only her husband but the person who had cared for her children, and she was about to lose her ability to return to the work that she loved because she could not pay for the child care that would allow her to go to work.

Because Bernadette was entitled to 50p working families tax credit, she made her way in to the child care tax credit and received £74 a week. That allowed her to continue in a job for which the NHS had trained her—and everyone knows how short we are of occupational therapists. We must all be delighted to have played a part in creating a provision that can do something for people in those circumstances, because this is about helping those who are desperately trying to help themselves.

I welcome the decision to pay the child care element of the working tax credit to the main carer, usually the mother, which will mean that the money will find its way directly to the children. I also welcome the decision to continue to ignore the income from child maintenance, which will continue the considerable financial incentive to work for lone parents receiving child support. I hope that this will also continue to give people confidence in the means of obtaining child support, mainly from absent fathers.

I also welcome the decision to align tax credit rules with the improved rules for carer's allowance, by continuing the entitlement to child tax credit for eight weeks after a child's death, or while a child is in hospital—both very difficult times for families. Given the Government's commitment to encouraging more young people to make the most of their potential in education, I welcome the aim to pay the child tax credit until the September after a child reaches the age of 16, or 19 if they are in full-time education.

As a London Member, however, I have some concerns about the working tax credit. My hon. Friend the Member for Regent's Park and Kensington, North (Ms Buck) expressed them much better than I am about to do, and I am very glad that there has been such a gap between her contribution and mine. As a London Member, I regularly see people at my weekly surgery whose housing costs are incredibly high. The way the benefit is structured at the moment, the more housing benefit a person receives, the more they lose as the working families tax credit comes into play, because the working families tax credit is taken into account as part of their income for housing benefit purposes. About 35 per cent. of the people who receive the working families tax credit in London are also on housing benefit, which means that tens of thousands of people are not getting all the benefit that they should from working and from the working families tax credit, compared with people in other parts of the country where housing costs are lower.

This disincentive works also in terms of child care costs, which are about one fifth higher in London than in most other parts of the country. That means that a single mum on £200 a week is £6 or £7 a week worse off than her equivalent in other parts of the country, because she is paying that much more for child care, and has to find that 30 per cent. differential. I realise that it is difficult to compare regional variations—we were reminded by my right hon. Friend the Member for Birkenhead (Mr. Field) that London's housing costs are pretty spectacular in comparison with much of the rest of the country—but I hope that we can consider this issue. London has the highest proportion of single parents not in work, and they and their children would benefit from any changes that the Government might consider.

A number of hon. Members have mentioned the fact that only registered child minders are taken into account for the purposes of the child care tax credit. I would have a problem with the Government paying for informal arrangements, and I completely understand their reluctance to do so. However, I have a problem when child care is available in the home from a well trained person, but benefit cannot be claimed for that.

May I cite an example similar to one used frequently by my hon. Friend the Member for Don Valley (Caroline Flint)? A lady in my constituency was a nurse at St. George's hospital. She owned her own home, but her partner left her with two children. To carry on her job, which involved a rota of nights, earlies and lates, she employed a National Nursery Examination Board-qualified nanny in her own home. Although she was financially entitled to benefit, she could not get it because that person was not a registered child minder.

The NNEB-qualified nanny must, by all accounts, be a better qualified person—should I say, a more qualified person—than a number of child minders, but the result of that lady's dilemma was that she sold her highly priced house and moved to Birmingham to work as a nurse. Another key worker has moved out of the capital, where we desperately need them, so I hope that we can consider the form of child care. I appreciate that that is a matter for the Department for Education and Skills, but we desperately need redress.

I have raised points that concern people in my constituency and similar London constituencies, but I must emphasise that the working families tax credit and its basis helped to get me involved in politics. I am here to help people to help themselves. I believe in a hand up rather than a handout, and the working families tax credit is the best example of that.

7.41 pm
Kali Mountford (Colne Valley)

We have heard some extraordinary contributions from Members who are obviously gifted not only as speakers in the House, but particularly in their knowledge of and expertise in such legislation. I feel somewhat inadequate, but perhaps more adequate than some Conservative Members, not because I denigrate their speeches, but because it is a sad fact that too few are taking part in the debate. However inadequate my contribution, it must be better than no contribution at all, or at least I hope so.

Some speeches have shown the consensus across the House on the principle behind the Bill. To an extent, that surprises me. Some reminded me of speeches made in Committee, so detailed was their content, but I shall not go into such detail. I prefer to consider the broader points, especially those involving the principle of tax credits, what got us to this debate and where we are going in terms of the relationship between people in and out of work and the benefits that we can accrue to support them.

I must do that because it has been suggested today that we are limiting people's scope and disabling their progress through their working lives. I fundamentally disagree with that argument, even though it was proposed by a most well regarded Member, my right hon. Friend the Member for Birkenhead (Mr. Field).

Phil Hope

My hon. Friend wondered whether her contribution would be better than those of Conservative Members. Has she realised that no Conservative Back Benchers are present?

Kali Mountford

I am glad that my hon. Friend recognises that, whatever humble words I say to the House, they are better than none, although I am not sure whether he is damning me with faint praise. Thanks anyway.

I have a problem with the assertion that giving in-work benefits of any kind limits people's prospects. We are acting as though the debate is taking place in a vacuum, but we are in an extremely stressed world economic market. I cannot remember a time in the past 20 to 25 years when we could say that we could do nothing to benefit the low paid. Often the battle-cry was, "A fair day's work for a fair day's pay." People also said, "I want enough pay for a working family to live on." That presents another problem.

Employers may say, "My business can support only so much, those skills attract only so much pay and the economic situation allows my business to develop only at a certain rate in this market." To follow the argument through to its logical conclusion, we could say, "Pay a higher rate for the job—not the market rate—and skew the market so that people are paid according to what they need rather than what the market demands." Then we would be in a completely different situation. We would be telling employers, "You must pay what your business cannot afford." That begs a question about the minimum wage.

It now seems to be accepted across the House that a minimum wage underpins the labour market and provides a base below which people cannot fall. That wage in itself is an interference in the marketplace, but it is minimal and we are telling employers, "There are standards that we expect you to keep." We are right to do so, but are we also saying that they should never employ people with several children, many obligations or high housing costs, because their businesses could not afford them on such a basis? That cannot be right.

Dr. Palmer

Does my hon. Friend agree that the minimum wage and the working families tax credit are two sides of the same coin? If we had the working families tax credit without the minimum wage, we would subsidise people paying low wages.

Kali Mountford

My hon. Friend shows his wisdom in anticipating my next point. I would go further and say that family credit acted as a dynamic. It was argued often and rightly that family credit interfered in the marketplace. Tonight, however, we must consider not only the new tax credits that we are putting in place, but what the working families tax credit achieved and what happened previously. There was a difficult dynamic acting between people who were in work and out of work, and the tax regime.

My meagre thinking on the subject before 1997 took in examples such as benefit tapering rules to get round the problems of a lumpy system that dealt with problems in a lumpy way. I cannot think of a better word for it than "lumpy", as people got benefits in lumps, their assessment was done in lumps and the system was a lumpy instrument for dealing with what was, for people whose circumstances changed routinely and regularly, a complex and difficult problem.

I did not have the imagination to consider the tax system instead, but I am glad that someone did, because we are moving to a more flexible system that will change the relationship between people in work, taxation, benefits and their ability to pay their own way. My right hon. Friend the Member for Birkenhead pursued the argument that we will damp down wages by interfering in the marketplace and that we are preventing people from aspiring to break out of the cycle. I would argue that that was true under the benefits system and that the flexibility in the tax credits system allows people to develop their skills.

The hon. Member for Arundel and South Downs (Mr. Flight) advanced the argument that the skills base would be damped down completely by the introduction of tax credits, but both he and my right hon. Friend are completely wrong. People excluded from the marketplace who cannot get into the world of work have no opportunity to extend their skills. If people have no opportunity to extend their skills, they have no opportunity to develop in the workplace, get better pay and break out of the downward spiral of decline that comes with the poverty of worklessness.

Phil Hope

My hon. Friend has shown by her eloquence that she knows a lot more about this subject than she has let on. I agree with her that low wages and low skills hold people back, and are a problem for people on low incomes living in deprived areas. The tax credit system provides the trampoline for them to get into work, which is essential if they are to develop skills and go beyond the minimum wage.

Kali Mountford

I refer my hon. Friend to the contribution of our hon. Friend the Member for Regent's Park and Kensington, North (Ms Buck). In her eloquent and detailed speech she explained how people are affected by lengthy periods of worklessness. No one in the House should suggest that the tax credit system is a panacea for all ills, because there will always be people who, for a variety of reasons, are not able temporarily or permanently to enter the world of work. However, for those who can—I am not sure whether we can put it as strongly as an obligation or even a right—there is an opportunity to do so. We should encourage people to understand the effect on their lives of lengthy periods of worklessness, and its effect on generations.

Before I came to the House, I lived in Firth Park in Sheffield, which is one of the poorest areas in the country. There was great deprivation after the closure of the steel mills. Generations of families were out of work, and great social change resulted from that. It was burdensome for individuals, because their working lives, their relationships with colleagues and their sense of self-worth were altered, and their children did not grow up in an atmosphere in which people expected to go to work and look after themselves throughout their lives. There was also a cost to us all socially and economically. There is a cost to us if we do not have a full employment strategy. Recognition of that lies at the core of the tax credit system.

My hon. Friend the Member for Mitcham and Morden (Siobhain McDonagh), who is on my left—politically or literally—rightly referred to the relationship people have with work in her very good speech. We must recognise the intrinsic nature of that relationship: it is how people identify themselves and how they move forward in their lives.

Both those contributions from my hon. Friends were telling. I was disappointed in the contributions of Conservative Members—if I can be even more disappointed in them than I was by the absence of those Members—because they rarely touched on poverty and how people get themselves out of economic poverty and poverty of expectation. Values and aspirations come from the world of work, and although the tax credit system is not a panacea, because some people will be excluded from the world of work for a variety of other reasons, there are measures to encourage and give people hope when, through disability or illness or other circumstances, they have been unable to work. Under the tax credit system they may be able to change those circumstances some time in the future.

We can at least give support to people who are currently able to work, so that they can move into the world of work and it can make some sense to them. What I value about the system is that it gives people advice before they take final decisions about what job to take and what job they can afford to take. The in-work benefit advice is crucial and has made a significant change.

When we try to combat fraud in the system, we should consider the main motivations for fraud. It is easy to get into a major argument about organised crime—I put it no less than that—in the benefits system. It has been suggested that we cannot handle fraud in the tax system. If anyone has ever made a mistake on their tax form, they will know only too well how responsive the tax system can be when people make mistakes—honest mistakes by some of us, but less so in other cases. The tax system has proved itself well able to deal with fraud. To compare the ability of the tax system and the benefit system to deal with fraud is to underestimate why people get themselves in a pickle. In the benefits system, it often arose out of ignorance.

Some useful suggestions were offered about how we deal with such ignorance. Ignorance in the benefits system often stemmed from people's belief that if they moved into the world of work they would be worse off, not only because of the loss of passported benefits, but because the work they would get would not pay enough to cover their rent or mortgage and their bills. I have frequently come across people who make a false judgment that if they take a particular job they will be worse off, so they take work on the black market. They put themselves at risk, as well as the whole economic structure, because the black market does nothing for any of us. Giving them advice beforehand prevents that problem and by moving people into a world of work where they are given the correct advice about how their employment can affect them, we are helping them to help themselves and to help their families into a world of aspiration, which they have so far been denied.

Other criticisms have been made about means-testing. I have discussed that issue in the House on many occasions. Some call it means-testing, but I prefer to call it targeting because that makes me feel so much better about myself. The hon. Member for Northavon (Mr. Webb) referred to the subject. I was concerned about how we think about targeting and how we help people through targeting—the hon. Gentleman may want to call it means-testing. There is a growing acceptance that we cannot afford everything all the time. Even the Liberal Democrats realise that we cannot afford everything we would like to deliver. I accept that there is a place for universal benefits in some circumstances, but our money is sometimes better spent by focusing it on the people who need it most.

I was intrigued by the hon. Gentleman's seemingly simple and attractive notion that by changing the threshold for income tax we would offer a quid pro quo for people like us and those worst off would gain a great deal, and that it would cost us little compared with a tax credit system. On the face of it, that sounded like a clever idea and I wanted to applaud the hon. Gentleman, until I gave a little moment's thought to the objective of the tax credit, which is to help the poorest. I understand his argument that those of us who are better off would pay more tax—we could talk about other ways of doing that, such as considering the starting and the top rate of tax—but we would not necessarily help those who need it most.

The hon. Gentleman says that he does not know of many people who earn so little that they are below the tax threshold. Unfortunately, I do know some people in that situation who are outside that threshold. I suggest to him that tax thresholds change for other reasons, not least if a person has paid too little or too much tax in the previous year. It is a mechanism used by the tax office to amend someone's tax for the following year, so it is not quite the tool that it seemed when the hon. Gentleman set out his proposals.

Mr. Webb


Kali Mountford

I am not surprised that the hon. Gentleman wants to intervene. I shall give way to him.

Mr. Webb

I shall resist the temptation to go into detail, because these are detailed matters. I did not say that I do not know anyone who earns too little to pay tax. I said that I suspect that there are relatively few people who earn too little to pay tax and who would be entitled to the employment credit for which they have to work 16 hours a week. Sixteen hours a week at the minimum wage does not quite get them to the tax threshold, but it is not far off. I suspect that that is less of an issue.

On the issue of raising tax allowances and not helping the rich, that could also be done by starting the basic rate band lower down, so all the increase in the tax allowance would benefit the poorest taxpayers. There are various permutations. It is the principle that is important. It does not have to be done through an in-work benefit: it could be done through the tax system as I suggested.

Kali Mountford

I asked similar questions recently during a Select Committee meeting. I asked whether we should simply change the starting rate. I see the simplicity of the proposal and understand why the hon. Gentleman finds it attractive, but it does not solve the problem of ensuring that those who are not in a position to pay tax will gain some benefit.

Conservative Members, who are not here now, said that no stigma was involved in claiming benefits, and that they saw no difference between benefits and tax credits in that regard. I think there is a difference between receiving benefit through a pay packet and receiving it by means of an order book. I can only say that anyone who has ever had the misfortune to stand in a queue at a post office with an order book and who says no stigma is attached to that cannot have had the experience for long. In areas like my constituency, which is made up of many villages, everyone knows who is receiving benefit and who is not.

My right hon. Friend the Member for Birkenhead said that some pay clerks got to know how much was in wage packets, and that that led to jealousy in the work force. I think that much more stigma is attached to the use of an order book. For some it means a huge disadvantage, especially when it is used to claim in-work benefit. The prospect of collecting such benefit in that way is not attractive. We are moving towards a system in which more people will receive benefits or tax credits through bank accounts, but, as the hon. Member for Northavon pointed out, we do not yet have a universal bank.

I think that receiving benefit through the pay packet is a benefit in itself, in that the benefit of being in work can be easily recognised. A social structure is involved, which makes sense to me—although other Labour Members have criticised the arrangement, for a party political reason that I abhor. They suggest that a benefit book makes it clear immediately that the Government have provided the money, whereas a tax credit makes the connection between the Government's generosity and the receipt of money less clear. I think it good for people to see the tax credit not as some act of generosity by the Government, but as something they have earned through their own efforts. That, I think, deals with the point raised by my right hon. Friend the Member for Birkenhead.

I did not set out to issue a critique of my right hon. Friend's work, because I admire him greatly. Today, however, flags have been flown bearing words writ large, as though they were true and unchallengeable. I felt strongly that I should take the flags down and have a closer look. Having done so, I do not think that they deserve to be flown.

Before I begin to sound like someone from a naval outfit—such a person might, in fact, address the House by means of semaphore, but I have no gift for that—let me say this: no matter how learned or respectable Members may be, I think we should give detailed consideration to every suggestion that is made here. Today we have been presented with a direct challenge to the system that we propose. I am not talking about the points made by many Members about how we could tinker with the system and make it more workable, or about reasonable criticisms that might enable us to improve it in Committee. I am talking about what I consider to be a direct assault on a principle relating to whether tax credits can work. One or two Opposition Members made particularly challenging points. I think it worth spending a little time considering the principle of tax credits, and asking whether the flexibility gained from them is worthwhile.

My hon. Friend the Member for Regent's Park and Kensington, North cited the example of Australia, and asked whether a system involving a yearly check was fair and proper. I think she was right to ask that, and to ask whether it would lead to greater poverty and hardship. I ask her, however, to look at the Bill more closely, as I did when she made her suggestions. The Bill makes it clear that under this system—though not under the Australian system—people can present new evidence during the year. They can tell the Inland Revenue that their circumstances have changed substantially, and their tax credits can be altered as the year goes on.

To my great disappointment, Members continually spoke of anticipation of the following year's income. The Bill, however, does the reverse, in that it asks us to consider the previous year's work, hours and income. That is not an impossible request. Under the previous "lump" system, there was an absolute requirement for the slightest change relating to those on any kind of benefit to be presented on the day; otherwise benefits would not be paid for that fortnight, for that month or, in the case of family credit, for the six months involved.

In all cases, there will be winners and losers. One factor must always be balanced against another. From time to time, we incurred substantial losses through the system of family credit operating for six months in advance, because people's circumstances changed during that time. Sometimes we made substantial gains, however, so the factors would balance out—although whether they balanced out fairly is another question.

Dr. Palmer

I thank my hon. Friend for giving way to me again.

Do not all these systems involve a specific problem for those whose incomes fluctuate wildly during the year? I am thinking of people doing casual work or working on commission—people who cannot, in all honesty, predict whether their income in a few months' time will be much higher or much lower than it is now. Does not the tax credit represent a more flexible approach than the old benefits system, with its brutal cut-off points? I think that is probably what my hon. Friend is saying.

Kali Mountford

My hon. Friend has characteristically answered his own question. He is a thoughtful person, and he is absolutely right. Whenever we look at legislation, we are balancing one factor against another. We must ask whether we are balancing some crude implement against flexibility, or whether we are balancing cost with effectiveness. What are we achieving, and what is the main objective? At some points, the House has seemed unclear about the Bill's main objective.

Siobhain McDonagh

Is it not particularly important to consider the continuing need for child care support during the period of benefit entitlement? A group of child minders from Pollards Hill in my constituency wrote to me saying that under the current system people were asking them to sign their forms for child care tax credit, and then, after a week or two, leaving them to some informal system. They felt that they would be penalised by the Inland Revenue, which would assume that they had received payment that they had not received. They were also concerned, as taxpayers, that people were walking away with benefits to which they were not entitled.

Kali Mountford

My hon. Friend is right. I have encountered similar situations. I would not expect the House to devise a foolproof system—all the systems we have devised in the past have been open to some form of fraud or abuse—but I think it imperative for us to seek at least a minimisation of abuse.

My hon. Friend used the phrase "child minder". I am glad that someone in the House is using that phrase. Hon. Members have talked about the informal child care market, with relatives taking care of children. I have no objection to parents choosing their own parents to look after their children. That is the matter for them, but the child minding system is an extremely valued and valuable way of providing child care. My hon. Friend the Paymaster General made the point that child care should be regulated and be of a high standard. That fits with the point that was made by my hon. Friend the Member for Mitcham and Morden about standards and who should qualify. It should be about standards.

People forget that those who want to enter some informal arrangement can register as child minders. It is a great pity that in some of the debate it has been forgotten that the child minder system regulated by the local authority has a useful part to play.

Hywel Williams

Will the hon. Lady give way?

Kali Mountford

I will, although I have not quite finished answering my hon. Friend the Member for Mitcham and Morden.

Hywel Williams

On that point, does the hon. Lady accept that in some parts of the country, particularly in rural areas, there is an absolute lack of child minders? In my constituency recently, the only child minding available was in large towns—when I say large towns, I mean towns of about 3,000 people. In large tracts of the country, whatever sort of child minding one wanted was not available, despite the best efforts of the national child care strategy and the National Assembly for Wales.

Kali Mountford

I have come across areas where child care availability is limited. This Bill does not seek to improve the number of child care places, although there are measures in place to attempt to do that. Introducing some cash into the system changes the marketplace for child care. The attraction of being paid for work that was previously unpaid may entice more people into child minding than were attracted previously.

The role of child minders has been undervalued. The formal system of nursery care, creches and child care provision out of school hours is valuable, but the child minder also has an important role to play. Local authorities would do well to look at their home assessments of prospective child minders and encourage more people to be child minders. They play a valuable role not only for the family who need child care, but for all of us economically.

I do not know about availability in the hon. Gentleman's constituency, but there has generally been a rundown in the child care system. We are in the process of improving the position. I hope that in similar debates in years to come in the House about how to get people out of poverty, the hon. Gentleman will not describe the same problem.

David Cairns (Greenock and Inverclyde)

My hon. Friend makes a strong case for not treating tax credits in isolation and for looking at things that link. I am fortunate enough to have a Jobcentre Plus pilot office in my constituency—on those days when there is no industrial action at that office—and the joined-up approach is exactly the strategy being adopted there. When jobseekers go into the Jobcentre Plus to discuss a particular job, they are given not only an instant assessment of what their working families tax credit and all the various components will be—we have talked about the necessity of giving people confidence to go back into the labour market—but advice on issues such as child care, which is bound to have a beneficial impact. Does she agree that more remains to be done and that there is a role for local authorities, along with the Inland Revenue and the Employment Service? They must continue to work closely together to ensure that the joined-up approach is cemented.

Kali Mountford

I go one step further and point my hon. Friend to the ONE project, a pilot of which was run in my constituency, where the local authority, the Inland Revenue, the Benefits Agency and the Employment Service were all part of one system. The great thing is that people only have one place to go to get advice.[Interruption.] I can see the hon. Member for Northavon laughing, but the name "ONE" is absolutely suitable in that particular circumstance. Those people have one place to go where advice is streamlined, comprehensive and right for the individual. It has changed the relationship between people working in the system and the recipient of the service.

One person said to me when I visited our local pilot project, "I bet you wish you were still in the system now." I would rather keep the job I have, but I could see what civil servants were saying to me. By changing the dynamic between the people giving a service and those receiving a service, we change the quality of the service. I hope to see more of that. Although not perhaps directly related to this Bill, such an approach plays a part in the general relationship between the world of benefit, the world of work and the world of paying tax. If we can go one further and say, "in the world of getting a tax credit", we will all benefit from that.

8.16 pm
Phil Hope (Corby)

My hon. Friend the Member for Colne Valley (Kali Mountford) has been passionate, enlightening and persuasive. I feel educated as a result of her contribution. For all hon. Members, having these debates is an opportunity to discover more not only about others' constituencies, but about the expertise that Members bring to the debates. Her contribution was truly excellent, unlike the contributions from Conservative Members.

We started the debate at around 3.30, when five Conservative Members were in the Chamber. Most of the time, however, there were two. Then it went down to one, and in the past hour or so not a single Conservative Back-Bench Member has bothered to appear in the debate. If it were a debate on inheritance tax, it would be packed out. The fact that it is about poverty and dealing with the issues that concern our constituents clearly illustrates the priorities of the Conservative party.

In pressing some Conservative Members for their views on the Bill, I found myself slightly confused. When asked what the Conservatives would do, we were told that they did not know. They will not vote on the Bill because they have not made their minds up yet. That does not tell us much about their priorities or concern for tackling the issue of poverty.

We heard the hon. Member for Arundel and South Downs (Mr. Flight) say that the Labour Government are promising more on health, on education and on all these extra tax credits, but when pressed on what he would cut, he would not say. Clearly, he regards these as generous commitments to the poor, but by not voting for them we know where the Conservative party stands. He was then contradicted by the hon. Member for Fareham (Mr. Hoban), who said that the child tax credit was not generous enough because people could not afford to pay for the child care that was required. So we heard one Conservative Member complaining that it was too generous and another saying that it was not generous enough.

I would like to know what the Conservatives think about tackling poverty. In fact, I would like to hear—it would be very rare—an apology for the fact that, in 1997, when the Labour Government came to power, one in three children were living below the poverty line, and one in five households with children were workless. That was the poverty that we inherited. Instead of packing out the Opposition Benches this evening to try to discover what they did wrong, apologising for it and learning how to get it right, Conservative Members have absented themselves from the debate.

Vera Baird (Redcar)

I do not want to give my hon. Friend too difficult a task at this late stage in the evening, but having made the comments that he has, can he help me by listing any attempt to alleviate poverty that has ever come from the Conservative Benches?

Phil Hope

I thank my hon. Friend for that comment. I will have to disappoint her because, as a result of the policies of the Conservative party, 4 million people were unemployed.[Interruption.] I can hear the hon. Member for North-East Bedfordshire (Alistair Burt) from a sedentary position—[Interruption.]

Mr. Deputy Speaker (Sir Michael Lord)

Order. We cannot have interventions from a sedentary position, and I hope that the hon. Member for Corby will soon turn to the Bill before the House.

Phil Hope

We hear from Conservative Members the cry, "Has the gap between rich and poor widened or narrowed?" If benefit after benefit is cut, as they were when the Conservative party was in government, the poor will get poorer. If child benefit, which is a universal benefit, is frozen, the poor will get poorer. If 4 million people are thrown out of work, the poor will inevitably get poorer. The point is that the Conservatives do not care, and they have not come here tonight to see how we might put things right.

Kali Mountford

Does my hon. Friend think it better to try to lift families, especially those with children, out of poverty or to concentrate on limiting the resources of the very wealthy?

Phil Hope

The crucial thing is to lift the floor and raise the level for everyone—like boats on the sea—to give all an opportunity, as opposed to abandoning them on run-down estates in constituencies that the Conservatives failed to represent adequately.

The Bill builds on the last four years of successful intervention in meeting the needs of the poor. The national minimum wage was introduced by the Labour Government, and the tax credit will be a vital addition to that. I remember an all-night debate in the last Parliament during which the Conservatives made every effort to oppose the introduction of the national minimum wage. The general election saw a huge U-turn by the then shadow Chancellor, but he is no longer a member of their Front-Bench team. What is the Tories' real position now on the national minimum wage? If they got back into power, would we see 2 million people thrown back into the poverty pay that they had to live on under the Conservatives?

The Conservatives opposed the WFTC, the child care tax credit, the 10p starting rate of income tax and the increases in child benefit. The fact that they are abstaining this evening tells us that they may be wondering whether they got it wrong. They may be asking themselves whether it was wrong to keep cutting people's incomes. They may be having second thoughts. Unfortunately, I doubt it. They do not want to vote tonight, because they do not know what to do. They do not understand the people who live in poverty.

Mr. Kevan Jones

The Conservatives may be abstaining tonight because the measures in the Bill are popular with the public and they do not want to admit that a Labour Government have brought in policies that are popular with the public. Those policies are why the Labour Government were returned in June.

Phil Hope

That is an excellent point. We are doing the right thing in the Bill by seeking to meet the needs of people in most need. It will provide not a handout, but a hand-up. These measures will provide people with the building blocks to move themselves out of the poverty into which the Conservatives seemed so casually to throw them.

The impact of measures that we have already taken has been significant. Lone parents have come up to me as I have been walking through the town centre just to say, "Thank you." They are doing their shopping with their kids in the buggy and they come over and say, "Mr. Hope, I just want to say that, for the first time, I have got a job." That actually happens.

The Financial Secretary to the Treasury (Mr. Paul Boateng)

indicated assent.

Phil Hope

My right hon. Friend was with me when that happened and thought that I had set it up for his visit, but it was spontaneous. People are now, for the first time, on the ladder of opportunity that we have provided. That is especially true for young women who left school early and had their babies early. For the first time, they have access to child care and financial support, and that has helped them to start to reconnect to their communities and develop relationships with friends and colleagues who can help them out. Community regeneration starts in that way, and that shows that the Bill is not just about money. It is about bringing people together and finding ways to lift them out of poverty.

Tony Cunningham (Workington)

In my constituency, generations of people have not only not worked but have had no opportunity of, or aspiration towards, further or higher education. It is not just work that is important. The Bill will give people the opportunity to take a job and obtain training and education themselves, and their children will see how important it is to have a job and to go on to further education. I taught in my constituency for many years and many young people did GCSEs but never went any further. They never thought of further education or university as being for them. The Bill will change that for many children, and that is just as important as its other proposals.

Phil Hope

My hon. Friend is right, and the passion with which he speaks illustrates all too well why Labour Members are here debating this issue and why Tory Members are all too obviously absent. The people we represent find that these measures lift their hearts, aspirations and expectations. We talked in the general election about supporting the many and not the few. These measures are for the few among the many who so often get overlooked. They are the bottom 10 per cent. to 15 per cent. who live in difficult circumstances and who have not had a decent education. They and their children live in disadvantaged areas, but if we can bring together the support contained in the sure start programme, the education action zones, the neighbourhood renewal funds and the new deal for communities—

Mr. Deputy Speaker

Order. I remind the hon. Gentleman that we are debating the Tax Credits Bill. I have brought that to the hon. Gentleman's attention before and he should now address his remarks to that subject.

Phil Hope

As I was about to say, poverty is not just about money. It is about the lack of all the other opportunities. However, money is crucial, and the Bill will give families the cash they need. It will provide the means to get the resources to those who do not have them.

The new child tax credit is important, because it contains extra elements for particular children. For example, it has a higher element for children under one year of age. I know that the most painful time financially for parents is the first 12 months of a child's life. The mother has not gone back to work and the family does not have everything it needs, be it a pram or the other necessities for bringing up a baby. The extra amount for that first year will be vital. As other hon. Members have pointed out, the fact that it will be paid to the carer is a vital factor in the successful targeting of the measure. The regulatory impact assessment suggests that 5 million families will benefit from the measure. We are removing the stigma from obtaining benefits for a low-income family, and that is vital in regenerating individuals, families and communities. We do not want the negative stereotyping and stigmatising of lone parents; we want people to have the money they need to bring up their children.

The working tax credit is important, because it extends support from those with children who work to those at work without children. The regulatory impact assessment suggests that 400,000 individuals will benefit. That is vital, because we want to help people out of the unemployment trap. Someone who is unemployed and has no children should have an incentive to get back into work and get on the ladder of opportunity.

I note that the extra cash will go to workers in low-income households who are aged 25 or over, and the hon. Member for Northavon (Mr. Webb) wondered whether that was targeted correctly. My understanding is that it is targeted on the older age group because they find it hardest to get back into work. I have campaigned heavily on youth issues in this Parliament, and I know that young people under 25 do not stay on low incomes for long. None the less, I am nervous about creating another age break in a system where someone who is 18 is considered an adult. I have argued this point also in relation to the national minimum wage and the right to vote.

Education maintenance allowances are not affected directly by the Bill, but there is a link. Where 16 to 18-years-olds in pilot areas have received the allowances, they have stayed on in education a lot longer. I would like that scheme to be extended to Corby, if I may put down a marker for Ministers. If we can encourage young people to stay on in school, they can get a higher-paid job and can start to benefit from the working tax credit.

I wish to refer to fraud. I am a former member of the Public Accounts Committee, which had an annual ritual in which representatives of the Benefits Agency would be slapped round the ears and sent on their way for failing to make the system work well. I hope that under the system of tax credits, using the Inland Revenue, we may see a reduction in the error and fraud that have bedevilled the system under Administrations of both parties.

Child care is a barrier in terms of parents getting to work, and reference has been made to the problems of child care in rural areas. My constituency contains the town of Corby, as well as a rural area of 60 villages. They have established a system of co-operation between very small playgroups in small villages, through which they pass on items of equipment and joint training takes place. This indicates that the child care tax credit can help to provide new services for such groups. That can reduce the isolation felt by many young parents who are bringing up a child on their own in a small village.

On passporting benefits, it is important that people receiving a means-tested benefit under the old system which then entitled them to another benefit should not lose these benefits. The new system must protect people's passports to those additional benefits. One example is the sure start maternity grant. I have a sure start programme in my constituency, and it is astonishingly successful at supporting parents in the poorest areas. Those individuals can now claim the grant, and I hope the new system will protect the benefit.

I have mentioned a panoply of measures in which the Bill plays a part, but what counts when one is poor is cash. We know the impact of taking money away from people; we saw that under the long, bleak, 18 years of Conservative rule. We are now seeing a new commitment to people in our constituencies.

David Taylor (North-West Leicestershire)

I have been fascinated by the strong and sound case that my hon. Friend is making. However, has he had contact with the small employers in his constituency on whom falls a disproportionate burden in relation to the operation of the tax credit system in all its glory? There is a problem, and I would appreciate my hon. Friend giving some thought to it before he concludes.

Phil Hope

I know of the support that my hon. Friend gives to small businesses in his constituency, which provide a vital source of employment for so many people. I can reassure him that the regulatory impact assessment on the Bill shows that the new scheme will cost employers £10 million less than the current arrangements. Going over to an annual cycle will reduce the cost by some £9.5 million; not having to issue a certificate of payment will save some £400,000; and not having to issue an earnings inquiry form will save £1.1 million. If my mathematics serves me right, that comes to savings of about £11 million, rather than £10 million.[Interruption.] I picked that figure up from the hon. Member for Northavon, and now I remember the old adage—in Corby, anyway—about never trusting a Liberal Democrat's figures.

In conclusion, some impassioned speeches and important interventions have been made today. We are committed to tackling poverty in this party and in government. We have already made a substantial change to people's lives. The Bill is another major step along the historic route to halving and eventually eliminating poverty in the United Kingdom.

8.36 pm
Mr. Kevan Jones (North Durham)

I welcome the Bill, which is also warmly welcomed in my constituency, certainly among the poorest members of the community. It builds on the work done since 1997 and underlines the key themes of our Government: to support families, to make work pay and get people into work and, vitally for communities such as mine, to tackle the scourge of child poverty.

The Bill builds on measures that have already been outlined at length by my hon. Friend the Member for Corby (Phil Hope). It includes measures that were opposed by the Conservative party and will bring in measures that will be welcome to many in my constituency. I refer to the children's tax credit, which we introduced in April this year, and the higher baby tax credit, which will be introduced in April 2002. I am sure that my right hon. Friend the Chancellor is looking forward to receiving the benefits of that particular credit.

The Bill builds on measures that have been put in place by the Government since 1997. I know that they are making a real difference because people come up and say that they have more money in their pockets. This June, the people of North Durham realised the benefits of having had a Labour Government since 1997, and, with good and wise counsel, elected me as their Member of Parliament. More than 11,000 families in my constituency have been helped by the working families tax credit, the children's tax credit and the record rises in child benefit since 1997.

Constituencies such as mine went through very rough times in the 1980s and 1990s as the local pits, steel works and factories were closed. The despair of unemployment in those communities was real, and the hardest part was the scourge of child poverty in many of the former pit villages in North Durham. Unemployment has put serious pressure on those communities, and the pit villages in my constituency have been resourceful and resilient in resisting those pressures.

Tackling unemployment and aiming to benefit the poorest in our community has to be the right approach. Those in South Stanley and Pelton in my constituency will welcome the Bill; it will provide the support that those communities need, and help them in their regeneration. The Bill is all about helping to regenerate communities and, as my hon. Friend the Member for Corby said, helping people to get on the ladder of opportunity.

My hon. Friend the Member for Colne Valley (Kali Mountford) eloquently explained what the Bill is about. It is about giving people their dignity back. We are all used to turning up to work every morning, talking to people and knowing our place in the world. The first question that most people ask when they meet someone for the first time is, "What do you do for a living?" Many people in my community and in other constituencies have not had that dignity, but they will certainly be given that dignity under the Bill.

The Bill will also help to rebuild communities. It will certainly help to put the hope back into those in parts of my constituency. It will tackle some of the scourges, such as crime, that go with poverty in many constituencies and give youngsters a fair start in life, which is vital and something in which I believe passionately. Hon. Members have referred to despair. My hon. Friend the Member for Workington (Tony Cunningham) talked about the cycle of despair that involves a lack of opportunities not just in work, but in education. The Bill must be about giving those people a fair start in life.

The Bill will benefit single parents, and I am pleased that the National Council for One Parent Families has publicly welcomed it and recognised that it will make real progress in tackling poverty among one-parent families. The Government have rightly set a target of ending child poverty in 20 years, and the range of measures outlined already since 1997, which the Bill builds on, will help to tackle the scourge not just of child poverty, but poverty among the children of single parents.

Progress has been made already. Since 1997, more than 1 million children—520,000 of whom are in one-parent families—have been lifted out of poverty by the Government's measures. That has got to be good news. Another good news story since 1997 is that the proportion of one-parent families in work has increased from 44 to 51 per cent. That will make a real difference to a lot of families who are struggling. Clearly, one-parent families are at greatest risk of poverty in the United Kingdom, and the measures outlined today in the Bill will make a real difference to many of them.

I should like, however, to draw the Minister's attention to a couple of concerns that I have about the Bill, one of which is take-up, which has already been mentioned eloquently by my hon. Friend the Member for Regent's Park and Kensington, North (Ms Buck). Take-up has been a problem, especially with the working families tax credit, and I hope that the Minister will give some thought in his reply to how to ensure the maximum take-up.

I cannot understand why we have not previously linked take-up with, for example, free school meals. Schools have a register of children who receive free school meals, and we could use it to try to target their parents. We should involve local communities when we roll out the child tax credit. Local citizens advice bureaux and community groups should be encouraged to get involved in promoting the new credit, and the citizens advice bureau in my constituency would welcome that. Like my hon. Friend, I know that there is sometimes frightening ignorance about such proposals in certain parts of my constituency, and we need to put extra effort into dealing with it.

My hon. Friend referred to the problem of charging for child care, but another problem is the number of available child care places and carers. Alongside the Bill, we need to do a lot to encourage people to enter child care as a career, so that we ensure that child carers are in place to assist parents.

Child care in rural areas is also a problem, because people have to travel long distances. We need to ensure that child care facilities are available in some of the smaller villages and rural communities for those working parents who wish to take up offers of work and the assistance that the new tax credit will provide.

David Taylor

Does my hon. Friend agree that in areas such as ours, which have lost many jobs in one industry over a short period, there is a risk that the working tax credit might perpetuate relatively low wages into the medium term? That might be economically and socially bad, so might not the preferred alternative be to attract more high-paid, high-skill and high-tech jobs into former mining areas such as North Durham and North-West Leicestershire?

Mr. Jones

I accept my hon. Friend's point, but the two approaches should go side by side. We need to get people out of a spiral. In some villages in my constituency, people's hope has gone and, even if high-tech jobs came to the area, they would not be ready for them. They do not have the skills and they have lost the culture of work. The important point about the Bill is that it will get people back into work.

My hon. Friend the Member for Workington eloquently pointed to the need to get people into education and to raise their expectations and aspirations. We must do that not just for the people who receive benefit, but for their children. That is how we can tackle the problems in such communities. I agree with my hon. Friend the Member for North-West Leicestershire (David Taylor) about getting the jobs that he described back to our constituencies, but we need to raise expectations. The Bill will do that, because it is not just about the financial aspects of the problem but about providing people with dignity at work and in their communities.

Mention has already been made of the approach that Conservative Members have taken towards the Bill. The hon. Member for Arundel and South Downs (Mr. Flight) said that it was all motherhood and apple pie but, when I challenged him to provide an alternative, nothing came forward. When the Conservative party was in power, my constituents were given not motherhood and apple pie but poverty and gruel. The same applies to many constituencies across this great nation of ours.

I note that one Conservative Back Bencher is present, but it is disturbing that Conservative Members have not taken part in a debate that is important to all our constituencies. I also note the absence of Liberal Democrat Back Benchers. Their Benches were full the other night when they made anodyne points against the Anti-terrorism, Crime and Security Bill, but when it comes to tackling poverty in our communities, not a single Liberal Democrat Back Bencher has spoken. That fact should be noted. They are more interested in headlines in The Guardian than in dealing with the issues that interest our constituents.

I congratulate the hon. Member for Fareham (Mr. Hoban) on being in his place now, but the Conservative Members who have spoken have reverted to the same old adages that they used in last week's debate on the Employment Bill. The Conservative party makes great play of its claim that it is the party of the family but, when measures are introduced to help the family, we hear the old chestnuts about how they will affect business. We heard that when they said that the Employment Bill's provisions to help people with families would affect business. There is a recurring theme and my hon. Friend the Paymaster General dealt with it eloquently.

The new tax credits will be popular in constituencies such as mine. The hon. Member for Arundel and South Downs said that it was designed to buy votes, but it will obtain the support of our constituents. It will not only benefit people directly, but rebuild communities in my constituency. That is the most important point, and that is why I shall support the Bill.

8.49 pm
Vera Baird (Redcar)

I must confess that I was rather pleased with the result of my modest intervention on my hon. Friend the Member for Corby (Phil Hope). I asked whether he could list all the poverty alleviation measures that could be attributed to the Conservative party, and he was able to come up with none. The massed battalions of Tory poverty campaigners who are overcrowding the Opposition Benches were able to come up with one—the tax credit which, if I remember rightly, they subsequently froze.

I may be more charitable, or perhaps more unrealistic, than some of my hon. Friends, but I suspect that the marked absence of Conservative Members goes beyond simple indifference to well earned and much deserved guilt, backed up by well earned and much deserved shame, for the state of communities such as Redcar, which was raddled with inner-urban poverty for the past decade or more until this Government came to power and introduced measures such as tax credits. Step by step, refinement by refinement, detail by detail, particular by particular, the Government are starting to pinpoint those in greatest need and to work out the best way to alleviate their poverty. I nominate the term "Conservative measure for poverty alleviation" for the dictionary of oxymorons. Enough of them, however, and more about the excellent Bill.

I am going to concentrate on the child tax credit, which builds on the children's tax credit, of which we have some experience. The Government learn as they go, as I have said in relation to a wide range of measures, and the child tax credit is a refinement and improvement on that former tax credit. It has welcome features, the ramifications of which I should like to work through tonight.

A much mentioned facet, but none the less one of particular importance to feminist campaigners such as me and some of my closest friends, is that the child tax credit is paid to the main carer direct. It is not paid through the wage packet, so it is likely to be paid into the purse, not the wallet. Women's equality campaigning groups, such as the Fawcett Society, of which I was pleased to be vice-chair before I came into the House, have campaigned for that simple step for many, many years. It means that the money is always put with the child. Research that goes back as many years as the campaigns to introduce that measure shows that payments that are designed to lift children out of poverty are most effective if they are paid to the primary carer of the child. I congratulate the Government on taking that step.

Another excellent facet of the child tax credit is that it will be paid to families that are out of work and those in work, so there will be a reassuring, consistent source of income on which families can rely as they move out of unemployment and into work, which they are beginning to do in constituencies such as mine. A disruption to benefits seems to be part and parcel of attaining employment, and historically the uncertainty about what specific support will continue in their place has clearly been a disincentive to seeking employment. Jobseekers are not clear about what will replace their benefits and which benefits will entirely be lost. The adaptable concept of the child tax credit, meshed into the taxation system, should encourage people to make that move into work with confidence.

It is hard to overstate how vulnerable people are, especially lone parents who are out of work and people who have been thrown on the scrap heap and made redundant, which the heads of some families on the council estates in my constituency experienced again and again as the older industries restructured and newer ones came and went.

Tony Cunningham

May I stress once more the importance of breaking into the generational cycle of unemployment? There are young people in my constituency who have no experience of work and whose parents, uncles and neighbours have no experience of work. If we do not break into that cycle, we will never establish the role models and routines that work provides and that children need as they grow up.

Vera Baird

My hon. Friend is right. An important benefit of the continuity of the credit while people are in work and while they are unemployed is that it will safeguard against very poor people slipping, even for a week, into greater distress. Consistency and stability are extremely important characteristics of the tax credit.

There is a further, admirable element of consistency and stability in that the child tax credit will be assessed for up to a whole tax year at a time, which means that changes in a claimant's circumstances that change the rate of credit will not end its payment. There will not be an interruption in their receipt of benefits for one, two or three weeks—gaps in the supply that can occur now while benefits of the kind that we are used to are reassessed.

Gone are the days, I suggest, in this sphere of poverty alleviation when a mother with two small kids queued with her book at the post office for a difficult and noisy half-hour, only to have the book removed by the counter staff because some minor alteration in her circumstances meant that her income support, with its child-related element, must be reassessed. That instils the fear—even if it is not the reality—that the process may take a couple of weeks to put right. Meanwhile, she must worry about the absence of the money, although in the end she will not lose it. Poor families cannot afford to be out of benefit for a day, so close to the boundaries of distress are they. This tax credit offers a better structure, and it offers to smooth out what my hon. Friend the Member for Colne Valley (Kali Mountford) called the lumpy delivery of benefits.

I turn now to another feature of this excellent benefit. It is likely to encourage the second parent into work. When the rates, the threshold and the amount by which the benefit tapers away as other family income rises are set, Ministers intend that the second adult in the family, who is of course usually the woman, will also be encouraged into work. It is therefore essential, and I am confident that the Government will perceive it to be so, that the new rate is high and the taper gentle enough to ensure adequate support and a smooth transition to facilitate women returning to work as second earners in a family.

In today's labour market, where many jobs are not long term, it is important to encourage second earners to stay in employment so that households will not be solely reliant on benefits if the other job is lost. In addition, given that most lone mothers become single some time after the maternity period, it is important that women can retain the means of earning independently to reduce the likelihood of the household being workless in future.

Dr. Palmer

Does my hon. Friend agree that it is important to have a flexible system with a smooth transition so that people, particularly women, coming back to the labour market can start with something substantially less than a full-time job, then move up to a full-time job without experiencing a catastrophic loss in benefits?

Vera Baird

That is an important aspect of the smoother delivery that the new structure implicit in the tax credit will guarantee. It will benefit a good many young women who, in the course of the general election campaign, told me that they found it difficult to get back to work when they realised that they would lose more than they would gain, although they devoutly wished to be properly employed and gainfully engaged in society again.

If that is to happen, the taper must start at a relatively high level with a low rate of withdrawal. Similar systems in Canada and Australia cut out payments at the higher end of the income scale, with the top 15 per cent. and the top 10 per cent. of earners respectively shifting from a poverty assessment to an affluence assessment. Structuring the system to include a large proportion of families will help to build a coalition between middle and lower-income families and overcome any residual stigma attached to receipt of payment. That is another paean to the detailed facets of the tax credit.

A further excellent facet of the credit is the disregard of capital except when it generates an income. It is right that the new credit will be calculated in a way that takes into account income from capital only when it is earned by capital in the hand of the claimant. The current rules count into an income assessment a notional return on all capital at what seems to be a fantastic and unrealistic rate. Once one breaks through the barrier of capital required for assessment, it is assessed at a return of £1 a week for every £250 of capital over the limit, which seems to be the equivalent of a return of £52 on £250 a year or an interest rate of about 20 per cent. If that is a realistic estimate of how capital is treated, I would very much like the assistance of the Minister in giving me the address of the bank that delivers such a return, but I believe that it is an inexplicable and invidious myth.

The disregard of capital rules and the scrapping of a frankly silly system will be of particular benefit to the parents of families in areas such as mine on Teesside, where older industry has restructured and is restructuring further, where there is much manufacturing—a very vulnerable sector at present—and where there have been repeat patterns of redundancy. A lump sum redundancy payment is hugely valuable and often all that a person in that situation can be sure of. However, people in that position have been encouraged by the current rules to spend their redundancy money as quickly as possible to safeguard their new dependency on benefits for however long it takes to find another job.

I conclude my catalogue of the Bill's excellent features with the maintenance disregard, a hugely positive characteristic carried over from the working families tax credit. Because maintenance payments are disregarded entirely, they can be received 100 per cent. by the claimant. That will make a massive difference to many people, especially lone parent families and women on their own. Furthermore, it will be an incentive for lone parents to claim maintenance, and an incentive for lone parents who are receiving maintenance to look for employment.

I have only two questions or caveats. Although the child tax credit has all the excellent characteristics that I have mentioned, perhaps the same cannot be said of the Government's plans to accompany it with the abolition of child dependency increases in non-means-tested benefits. The Government have promised to protect the entitlement of existing recipients, which is extremely welcome, but new claimants will soon lose out. A child-dependent addition is worth about £11.35 a week, paid to qualifying families who receive incapacity benefit, retirement pension, widowed mother's allowance, invalid care allowance and severe disablement allowance. The effect of those additions is to raise the incomes of many families enough to keep them out of means-tested benefits, with their well known poverty and unemployment traps.

Incapacity benefit, retirement pension and widowed mother's allowance are national insurance benefits, and the measure therefore represents a cut in the value of national insurance benefits. An anti-poverty strategy that promotes employment should require the enhancement of national insurance benefits, not a further cut.

Another caveat, to which I invite my right hon. Friend the Financial Secretary to direct his mind, possibly in his closing remarks, is the position of the second and other children. As I understand the position under the Bill, as with child benefit, the credit will be paid at a lower level after the first child for subsequent children. I assume that the rationale for a lower level of credit for the second child is that the facility is present to pass down items of child care and so on from the elder to the younger.

However, much highly praised research, some of which was presented to the Select Committee on Social Security and some of which I have read, makes it clear that on average that represents a saving of only about 17 per cent., which means that setting the level of credit for the second child at more than 17 per cent. lower than that for the older child will discriminate among members of a family, and will impact hardest on large families.

Is there to be any element in the provisions to reflect the greater needs of very large families, such as the one that came to my constituency surgery all together in a group on Saturday? The family consisted of a mother managing alone with six children aged from the middle teens down. There is no doubt that such families will feel the impact of a lower rate for subsequent children. I invite my right hon. Friend to consider that position.

My right hon. Friend the Member for Birkenhead (Mr. Field) expressed his concerns about the Bill and about the principle of the top-up on low wages, the encouragement that that offers to thug employers to keep wages down, and the way in which it robs the poor, as he put it, of the freedom to work themselves up in the earnings scale so as to lift themselves from poverty by their own endeavour. I recall—not personally, as it happened at the time of the agricultural revolution—from being at school, which was almost as long ago but not quite, learning about a system similar to the one that causes him concern. Many other hon. Members may recall the Speenhamland system. I see that failed measures of poverty alleviation are well recognised on the Opposition Benches.

The Speenhamland system was devised in the agricultural revolution and had exactly the effect about which my right hon. Friend spoke. Indeed, it went further. The rural poor, who were on low wages, received from the local poor law relief board a subsidy that made up their pay, which meant that rural employers could not merely stop wages rising, but actively reduce pay, throwing people into deeper and deeper poverty of wage, while knowing that there would always be a top-up from the local parish board to save them from the workhouse.

I am delighted to tell my right hon. Friend the Member for Birkenhead that we have the push of the national minimum wage—despite the best endeavours of Opposition Members—to counteract any such effect on employers from a tax credit top-up to low pay. I hope that the minimum wage will go up and up, and increase to a realistic and acceptable level, so that employers do not have the freedom to keep wage bills down, because we had the courage to take statutory control to ensure that they cannot have such freedom.

David Taylor

Does my hon. Friend agree that one way of achieving a national minimum wage that increases in the way that she described would be to set the level unambiguously at half male median earnings—the policy on which our party campaigned in the 1992 general election?

Vera Baird

There is much to reflect on in what my hon. Friend says and I am grateful for his suggestion. I shall have to leave what I would prefer to describe as the details of the matter to other people, but I hope that I have managed none the less to make the point that my right hon. Friend the Member for Birkenhead worries too readily about the effects of the Speenhamland system in 2001.

Tony Cunningham

I have heard nothing from Opposition Members about what the Tory policy would be. Does my hon. Friend think that it is wise to remind them of the Speenhamland system?

Vera Baird

I see that I have rashly run into the danger of trying to draft the Tory party's next manifesto. I shall not take another step in that direction.

I should like to add that the danger that my right hon. Friend the Member for Birkenhead saw in respect of the application of such a system to employees is not very real either. He was worried that employees could not take pride in themselves if they could not get themselves out of poverty wages by their own endeavours. That danger—if it has ever been more than theoretical—is completely outweighed by the absolute urgency of helping families out of the poverty that currently diminishes their lives. The figures given by my right hon. Friend the Chancellor show that there are more than 12,000 such families in my constituency alone. That poverty lowers the horizons of parents and limits the outlook of children, so restricting them that they are in danger of growing up blind to the possibility of improving their position by their own endeavours. Such children are unlikely, therefore, to miss the freedom to do that.

I welcome the Bill for children and for the equalising effect that it has on the income of mothers and on the power structure of families by putting money directly into the primary carer's pocket. It is a thoughtful, clever, well structured and progressive measure, and it is very welcome indeed.

9.14 pm
Roger Casale (Wimbledon)

In the short time that remains, I wish to add my endorsement of the Bill to the enthusiastic support of other Labour Members. If we listen carefully, we may hear something from Conservative Members that rises above their quiet acquiescence hitherto.

I welcome the principle of the Bill. It seeks to underpin the Government's drive to encourage people off welfare and into work, and to make work pay. I welcome the measure's practical implications because it will directly help hundreds of thousands of people throughout Britain, including more than 400 recipients of WFTC in my constituency.

Mostly, I welcome the political vision behind the Bill. It represents another landmark in our determination to reform welfare and eliminate child poverty. The measure will take its place alongside the minimum wage, the lop starting rate of tax and many other measures that are either already in place or will be introduced by the Labour Government to lift families out of poverty and break the cycle of dependency and impoverishment of aspiration, which was passed down from generation to generation and characterised the long years when the Tories were in government.

I do not have time to go into detail. The measure will give our programme to support working families a much stronger foundation. It will consolidate the support that different arms of government already provide, making the system more accessible and easily understandable. It will make important benefits available to more families, help them out of poverty and increase their incomes.

I especially welcome the fact that the new child tax credit will be paid directly to the carer, not the person in work. I welcome the annual assessment of eligibility instead of an assessment of weekly income, based on the previous year's income.

The Bill is more than the sum of its practical reforms, important though they are. Behind it lies the idea of negative income tax, which the hon. Member for Arundel and South Downs (Mr. Flight) mentioned. He said that the Conservative party had considered and rejected that idea 30 years ago. Although his party rejected it as a mechanism for lifting families out of poverty then, I ask him to consider whether it is right to dismiss that approach today when economic forces are those of the global economy, and families, individuals and communities are subject to its vagaries. However, there are also new opportunities to develop skills and reconnect with the labour market if a hand up rather than a handout can be given.

I must limit my endorsement of the Bill to those remarks, but I should like to refer to two points that other hon. Members have mentioned. Although the measure's benefits are clear and we support them, it is important that we do not shut our eyes to the potential costs. I have received representations from small businesses in my constituency. They understand that the measure is important for getting people back to work and appreciate that more than 1 million have returned to work through our measures and because of economic stability. Nevertheless, they find it difficult to administer some aspects of the programme. I ask the Paymaster General to pay special attention to the needs of small businesses when we implement the measure; I know that she will. Perhaps we can revert to that in Committee.

The Bill will provide a bridgehead from welfare to work and, from there, to a better kind of job and a better kind of future for the people concerned. Rather than simply compensating people for being poor, we are working to liberate their energy and potential. This is not just a question of being compassionate towards the poor; everyone has the right to make a better life for themselves and their families. The Bill will help them to do that.

The Bill represents one of the most important changes in support for families since the Beveridge report in the post-war years. It will help the Government to do what they were elected to do: to tackle child poverty; to boost family incomes; and to help more people back into work. It is central to a modern approach to building prosperity for all by offering opportunity to all. It is a measure that combines a passion for social justice with sound economic common sense, and I commend the Bill to the House.

9.20 pm
Mr. James Clappison (Hertsmere)

The speeches from Back-Bench Members today began with what the House will recognise as an important contribution from the right hon. Member for Birkenhead (Mr. Field). He made a very thoughtful speech, on which we would all do well to reflect. I say that even though it contained some uncomfortable comments about my own party, but my assessment of his speech is based on the appetite in politics now for a more open style of criticism. We see a certain amount of public disenchantment with the constant diet of spin—a disenchantment that seems to extend to some on the Labour Benches, when they put their heads above the parapet. It is incumbent on us all to listen to important criticisms such as those made by the right hon. Member for Birkenhead.

In the same spirit in which I took the right hon. Gentleman's comments about my party, I hope that Labour Members will reflect on the important criticisms that he made of the Bill—what he described as the "bear traps" at its heart—which left him fearful of where the measure would lead. Labour Members would also do well to reflect on the right hon. Gentleman's comments about the effect of the measure on incentives and relativities among those in work, and about the important issue of fraud, which he has raised in the past, and to which I shall return later.

We have heard excellent speeches from my hon. Friends the Members for Bury St. Edmunds (Mr. Ruffley) and for Fareham (Mr. Hoban). My hon. Friend the Member for Bury St. Edmunds drew attention to the fact that up to 1 million people could lose out under the measure. He also mentioned the fact that the Government's treatment of tax credits violated international accounting conventions and would not be accepted by reputable international bodies. He made further important points about the additional burdens that tax credits have created for business. I shall return to that subject in more detail later.

My hon. Friend the Member for Fareham drew attention to the complexity of the Bill, which is self-evident. That point was echoed by at least one Labour Member—the hon. Member for Morley and Rothwell (Mr. Challen). My hon. Friend was also right to say that we needed time to scrutinise the Bill properly, and to consider its details, especially as we have only its bare framework before us at the moment. He also made important points about parental choice in relation to how children are looked after.

We heard from the hon. Member for Northavon (Mr. Webb), and there was a running debate throughout the day about the Liberal Democrats' proposals for an increase in personal allowances and a lowering of the threshold for higher-rate tax payers. The hon. Gentleman was at pains to point out that the higher-rate tax payers who would have their thresholds lowered—as well as the lower paid people—would be compensated by the higher personal allowance. We shall explore those proposals in greater detail in Committee. The only point that I wondered about was that, if the hon. Gentleman's system were tax neutral, there would be a gain for some people at the lower end of the tax scale, with nobody paying for that gain.

Mr. Webb


Mr. Clappison

I think that we shall debate this issue at a later stage, but I shall give way to the hon. Gentleman.

Mr. Webb

Lest the hon. Gentleman go to bed confused, the proposal is to replace the employment credit with a tax allowance rise. The money that would be spent on the employment credit would be spent instead on a tax allowance rise.

Mr. Clappison

The hon. Gentleman does not yet know the figure for that, and I am suspicious of any Liberal Democrat proposal described as tax neutral under which everyone gains and no one loses, but we shall debate that later. He also made important points of detail, particularly on the way in which the Bill deals with people's circumstances, which change throughout the year. Again, I shall deal with that in a moment.

From the Government Benches, we heard from the hon. Members for Clwyd, West (Gareth Thomas), for Regent's Park and Kensington, North (Ms Buck), for Morley and Rothwell, for Mitcham and Morden (Siobhain McDonagh), for Colne Valley (Kali Mountford), for Corby (Phil Hope), for Wimbledon (Roger Casale) and for Redcar (Vera Baird). I do not want to upset the hon. Lady, but she asked about Conservative policies and I am afraid that one of her first and most important points referred to the Conservative policy at the general election that in-work payments should be made to carers. She spoke forcefully about that policy, which was in the 2001 Conservative manifesto.

Vera Baird


Mr. Clappison

I shall give way in a moment, although I do not want to upset the hon. Lady even more by saying that she may want to reflect on the fact that my hon. Friend the Member for Arundel and South Downs (Mr. Flight) made similar points to hers about the treatment of capital disregard. I say that gently, given the spirit of her speech, and I shall certainly give way.

Vera Baird

The hon. Gentleman may make the interesting point that, somewhere in the fragmented mists of time, are Tory proposals that almost remembered such people, but they did not get very far, did they? Would they have got far under the current leadership and the current array on the Tory Front Bench? Would they have got anywhere at all? The answer is no.

Mr. Clappison

As to how far any proposal gets, I gently remind the hon. Lady of family credit, which she wrongly described as tax credit. In 1988, Norman Fowler, now Lord Fowler, as Conservative Secretary of State, introduced family credit, which lasted a number of years and helped many low-paid families. It was widely accepted as a well targeted system that worked in practice. It was not greatly complex, it was paid to carers and it helped many poorer people.

Dr. Palmer


Mr. Clappison

I shall give way in a moment, as the hon. Gentleman may want to hear this point. In contradistinction to that honourable record of a successful and practical Conservative measure, since the Government came to power ordinary working families have been subjected to a series of changes—the tax credit system—of extraordinary rapidity and complexity. They could be forgiven for feeling that they are on the receiving end of a series of social experiments conducted by social scientists recruited from the ivory towers to the army of special advisers.

Dr. Palmer


Mr. Clappison

On the point about ivory towers, I give way to the hon. Gentleman.

Dr. Palmer

I am fascinated by the hon. Gentleman's thesis that people resent getting additional benefits. As we are going down memory lane, I would like clarification. There was a time when the Conservative party opposed the working families tax credit. Is it committing itself to abolishing the new tax credit as well?

Mr. Clappison

If the hon. Gentleman can contain himself, I shall set out what we consider to be the important aspects of the proposal. We are concerned that dealing with the working families tax credit and all the other credits is like trying to hit a moving target. A feature of tax credits that is striking above all others is the amount of change that has taken place—constant change, and never mind if it is change for change's sake.

On tax credits, The Guardian, which the hon. Gentleman may be familiar with, said last week: The Chancellor loves them, and invents new ones every year". Let us consider the history of the working families tax credit, which the hon. Gentleman asked about. The Chancellor announced his intention to introduce it in his March 1998 Budget. It was to take effect in October 1999, and payment of tax credits by employers through the wage packet was to take effect from the beginning of the next financial year, on 6 April 2000, but before the first tax credit was paid by employers, the Chancellor announced in his March 2000 Budget that it was to be abolished and replaced by the employment credit for working households. The working families tax credit had a longer history than the employment tax credit, because that never even made it to the statute book let alone the pay packet. In his pre-Budget statement, the Chancellor announced that the employment tax credit was to become the working tax credit.

The Chancellor was a model of consistency on the working families tax credit compared with his handling of the child tax credit. In the 1998 Budget, he announced the introduction of the children's tax credit as an allowance for which relief was to be given at a rate of 10 per cent. That was to begin in April 2001. We note in passing that the married couples' allowance ended in April 2000, so that couples with children, including couples on moderate earnings, lost all such tax relief for a year, which was a cruel trick on ordinary working families.

The children's tax credit barely made it to April 2001, because in his March 2000 Budget statement, the Chancellor announced that the children's tax credit was to be replaced by the integrated child credit. The children's tax credit had the distinction of being abolished before it was even introduced. Instead of a tax allowance in the form of the children's tax credit, the integrated child credit was to be a tax credit integrated with the child premium in income support and the working families tax credit.

I hate to report to the House that, since then, the integrated child credit has disintegrated, and we are now left with just the child credit. I shall tell hon. Members a little tale from history. Under this Government, family credit, which had existed since 1988, has so far been replaced by the working families tax credit, the employment tax credit, the working tax credit, the children's tax credit, the integrated children's tax credit and the child tax credit. To look at it another way, we have had a new family tax credit roughly every nine months.

Kali Mountford

The hon. Gentleman is having some fun with the changes in tax credits. Does he accept that, in the Conservative Government's efforts to introduce simplicity in the system, they cut benefits one after the other or withdrew them altogether? Is that the simplicity that we should expect from his party's proposals?

Mr. Clappison

We are dealing with the Bill, and I do not agree with the hon. Lady. Even she would have to admit that, in view of the Chancellor's past form, it would be a brave man or woman who backed the tax credits in the Bill to last very long. The Chancellor has, beyond peradventure, created what The Guardian called "a hideously complex system." What is more, he has brought more and more individuals and families into means-testing, which he had turned his face against at the 1994 Labour party conference. Individuals and families who pay more and more tax to the Government are having to undergo means-testing to have their own money recycled back to them.

Phil Hope

Will the hon. Gentleman give way?

Mr. Clappison

No, I have given way a lot.

It is fair to say that the simplicity of this legislation is not entirely self-evident, and all hon. Members should accept that. The Bill will require careful scrutiny, not least because it is a framework Bill that leaves the details to be filled in later, as my hon. Friend the Member for Arundel and South Downs rightly made clear. Ministers must answer questions, and we are still waiting for an answer from the Paymaster General to the question of how many people are eligible for the working families tax credit. She dealt with that question very elegantly, but she did not answer it. I look forward to the Financial Secretary dealing with it, perhaps not as elegantly as the hon. Lady, but I shall be interested to see whether he gives us an answer to that simple question on the working families tax credit, which so many Labour Members have praised. Will he tell us how many people are eligible for it?

Phil Hope

Will the hon. Gentleman give way?

Mr. Clappison

No, I shall not give way, because time is short. The hon. Gentleman spoke for quite a long time. His speech was interesting, but I want to finish my speech, if he does not mind. I was being generous when I said that his speech was interesting.

We must consider carefully the issue of fraud. Many people are worried about the potential for fraud, none more so than the right hon. Member for Birkenhead. The right hon. Gentleman spelt out the risk of fraud, including the risks of fraud involving employers and employees. It was worrying for hon. Members on both sides of the House to hear about his request, when he held office, for fraud to be taken into account in the design of the working families tax credit, and that the papers from his time in office had subsequently gone missing. I know that the Financial Secretary will want to deal with the right hon. Gentleman's important comments. He must answer some questions about them.

While we are on the subject of answering questions, let me say that I would be grateful for an answer to a written parliamentary question, for which I have been waiting since 15 October. The Paymaster General was at pains to tell us about the penalties in the Bill, and the framework it established for dealing with fraud. Will the Financial Secretary tell us, then, how many prosecutions for fraud there have been under working families tax credit, and how many have led to successful convictions? I refer to all who have received the award.

Is this a credit that does not attract fraud, and does not involve any fraudulent behaviour? Or is the right hon. Member for Birkenhead justified in being worried and suspicious about the potential for fraud owing to the way in which it was designed?

Fraud, however, is not the only potential source of waste. The sheer complexity of the system increases the risk of error. As has been pointed out by the Institute for Fiscal Studies and also by the hon. Member for Northavon, many people's family circumstances will change during a year. Because of the way in which the Bill will deal with them, there is a serious risk of mistakes.

We shall want to scrutinise carefully the burdens that the Bill will impose on business. The burdens imposed by the tax credits system are already well known, and must be added to all the other burdens created by the Government. The Government claim that tax credits increase people's propensity to enter the work force to take on low-paid jobs; yet the administrative and regulatory burdens the Government have brought about diminish the propensity of, in particular, small and medium businesses to create jobs for such people to occupy.

The greater the burdens thrust upon business, the less competitive United Kingdom businesses become. Jobs, especially manufacturing jobs, go overseas. Worryingly, last month both main measures of unemployment indicated an increase in unemployment in the UK. That must be of concern to Labour Members, in view of all they have said about unemployment today.

It was the Prime Minister, no less, who told the Labour party conference in 1996 by the end of a five year term of a Labour government I vow that we will have reduced the proportion of national income we spend on the welfare bills of social failure … This is my covenant with the British people. Judge me upon it. The buck stops with me. It is a fact that the welfare bill in 1997 was £92 billion. Under these proposals, it is set to rise to £125 billion by 2003. It will then have risen by more than a third since the Government took office. What is more, the Government have given up trying to get it down.

We have the Tax Credits Bill before us; in the Queen's Speech in June, however, we were also promised a welfare reform Bill, which has clearly been abandoned. We do not know exactly why—was it shot down during the battle between the Chancellor and the Prime Minister? But we do know that, in the meantime, the cost and complexity of the welfare system has spiralled out of control.

We will hold the Government to account for the way in which they have dealt with welfare, the way in which they are spending taxpayers' money, and their failure to make good the Prime Minister's promises—not for the first time—to bring welfare under control. We will hold them to account by giving the Bill the careful scrutiny that it clearly needs, which hard-working taxpayers would expect us to give it. We intend to give it extremely careful scrutiny; hard-working taxpayers who pay the Government more and more in tax, and get bewildering and complex schemes in return, deserve no less.

9.39 pm
The Financial Secretary to the Treasury (Mr. Paul Boateng)

Our promise was to move people from welfare to work and it is a promise on which we have more than delivered. In this measure, we are making sure that work pays.

It has been a good debate, which I suspect is a good indication of the quality of debates that we will engage in when the Bill is sent upstairs to Committee; by all accounts it will be, as we have not heard of any intention on the part of Opposition Members to vote against it. In a characteristically generous moment, my hon. Friend the Member for Wimbledon (Roger Casale) referred to the Opposition's quiet acquiesence. That is the sort of acquiesence we like from the Opposition. It is more than welcome.

The Bill is a key element in the next stage of the Government's strategy for tackling child poverty and making work pay. The tax credits brought in by the Bill build on the important reforms that the Government have already introduced. During the previous Parliament, we increased child benefit substantially. At the same time, we increased children's allowances in income-related benefits to ensure that extra support was available to the poorest families. We introduced targeted tax cuts for families through the working families tax credit, the disabled person's tax credit and the children's tax credit.

Our policy has been to ease the transition from welfare to work. That is why we halved marginal tax rates for low-income workers through the introduction of a lop rate of tax, ensuring that they keep more of what they earn. We introduced a basic level of fairness for employees through the national minimum wage. Those reforms are in place now and they are working now. The Government's personal tax and benefit reforms since 1997 have made a real difference.

It is worth while looking at the record of the Conservatives when they were in power. In 1979, 14 per cent. of children lived in households with below 60 per cent. of contemporary median income. By 1996–97, the figure had increased to 34 per cent. Under the stewardship of Conservative Members, the number of children living in poverty more than doubled. That was our inheritance.[Interruption.] It is no use Conservative Members saying no, no, no. That is the fact. That is the record. It has been our task through this Bill, among other measures, to bring that number down. It is not an occasion for self-congratulation or for complacency, but we are getting the number down. Opposition Members should delight in the fact that that problem is now being dealt with. We should be working together to find ways of ensuring that yet more children are taken out of poverty.

As a result of the improvements that this Government have made, families with children are on average £1,000 a year better off. Families with children in the poorest fifth of the population are £1,700 a year better off compared with 1997, but we are determined to do more. The Bill and the new tax credits will allow us to take forward the programme of reform.

We have heard some good speeches. My right hon. Friend the Member for Birkenhead (Mr. Field) and my hon. Friends the Members for Regent's Park and Kensington, North (Ms Buck), for Morley and Rothwell (Mr. Challen), for Mitcham and Morden (Siobhain McDonagh), for Colne Valley (Kali Mountford), for Corby (Phil Hope), for North Durham (Mr. Jones), for Clwyd, West (Gareth Thomas), for Redcar (Vera Baird) and for Wimbledon all made the point that an important start has been made, but that we need to ensure that the Bill is targeted correctly, and that the take-up is as good as we would all wish it to be, recognising that there are specific regional variations that should give us cause for concern, including in London. Indeed, we are determined to ensure that we improve take-up in our capital city.

Phil Hope

When my right hon. Friend read out the roll of honour of those Back Benchers who had participated in the debate, I could not help wishing to point out that only two were Conservative Back Benchers.

Mr. Boateng

I did not mention any Conservatives, but as I have been encouraged to do so I shall refer to their contributions. The hon. Member for Arundel and South Downs (Mr. Flight) made a considered speech. I did not agree with all of it, but I agreed with some points, not least those about fraud which were taken up by the hon. Member for Hertsmere (Mr. Clappison). No one should be under any illusions about our determination as a Government to tackle fraud. My right hon. Friend the Member for Birkenhead rightly drew attention to the need to ensure that we do not lose sight of the importance of tackling fraud. We do not intend to do so. People should be encouraged to claim everything to which they are entitled—that is part of the take-up issue to which several of my hon. Friends have referred—but we will introduce effective measures for deterring and investigating fraud and non-compliance.

The Bill lays down a clear framework for tackling fraud and two clauses in particular are important in that regard. Clause 33 introduces a new criminal offence of tax credit fraud and clause 34 gives the Inland Revenue new and more effective powers to investigate tax credit frauds. No one should be under any illusions: we intend that those powers should be used and we intend to ensure that the Bill addresses the need for penalties when a person has fraudulently or negligently provided incorrect information in connection with a claim or has refused to co-operate with an inquiry. Those powers are in place and will be used.

The child tax credit will deliver our commitment to introduce a single, seamless system of income-related support for families with children. It will replace the array of different support mechanisms with a single, payable tax credit for families, bridging the gap between welfare and work. It will enable families to take advantage of the credit, irrespective of the employment status of the parents. It will also remove the stigma all too often attached in the past to such measures. Reference has been made to the position of student nurses who will get mainstream support for their children, over and above child benefit, for the first time. Families will be able to get support for their children from a single Department, through a single coherent system that will respond to their changing circumstances.

We will go further to rationalise the way in which families get financial support for their children. As my right hon. Friend the Prime Minister announced in June, responsibility for child benefit will transfer to the Inland Revenue so that families will have to deal with only one department to get the support they need. That transfer is also accomplished by the measures in the Bill.

A crucial point was made by my hon. Friends the Members for Mitcham and Morden and for Colne Valley about the importance of child care. We need to get it right so that those who need child care to get back into the world of work, and to stay there, receive it in the manner that is most effective and most directly meets their needs. That is what we are doing, and it is part of a wider package of support for families. Part of the answer to the points that were made by my right hon. Friend the Member for Birkenhead lies in the fact that the Bill needs to be seen in the context of the wider package of support for families, especially working families, that we are introducing.

The Government have continued to make significant new investment to support vulnerable children, young people and their families. Sure start is part of that. The 2000 spending review more than doubled planned expenditure, with sure start's budget increasing from £184 million in 2001–02 to £499 million in 2003–04. Over 430 sure start programmes have already been announced, and more than 200 are operational. By March 2004, 500 programmes will be reaching 400,000 children at any one time. Around one third of young children in poverty will benefit.

We are working within the context of the children's fund. Through our wider social reforms, we are producing a fairer society for families by improving service provision for vulnerable children. That is the context in which the Bill has been proposed. The Government are committed to improving work incentives and making work pay. The unemployment trap—where the gains from moving into work are too low, or the associated barriers too great, to encourage people to take the step from welfare into work—has in the past led to an unacceptable waste of human resources. The working tax credit will help to tackle that.

The working families tax credit and the disabled person's tax credit, introduced in 1999, were an important start. They helped to make sure that work paid for families with children and for people with disabilities. Now, with the working tax credit, we are taking the next step forward, extending the principle of in-work support through the wage packet to people without either children or a disability. The working tax credit not only extends the principle of in-work support, but improves the way in which support is delivered.

The Government have listened to disability groups. The working tax credit will provide a single work-focused credit, so that the extra barriers to work that disabled people can face are addressed within this single system of mainstream support. We have also listened to parents. We will make sure that help with child care costs, provided through the working tax credit, is paid directly to the main carer, alongside the child tax credit. Couples can decide themselves how to share responsibility for looking after their children, and we will allow couples with children to add their hours together to qualify for the 30-hour element within this credit.

We are responding to the point that was made forcefully by my hon. Friend the Member for Redcar by ensuring that there is always a recognition that money in the purse does make a difference. We need to have the transfer of money from the wallet to the purse in order best to meet the particular needs that children have. We know that child poverty is best addressed by the work of women in the home and in the workplace. If we do not get the framework right, all that we seek to do in this area is likely to come to nothing.

I said at the outset of my remarks—as did my hon. Friend the Paymaster General—that we have to ensure that we build on the progress that has been made. The working tax credit is just one of several measures introduced by this Government to tackle the unemployment and poverty traps and to deliver our long-term goal on employment so that, by the end of the decade, there will be a higher proportion of people in work than ever before.

The Bill has to be seen in the context of the national minimum wage—a national minimum wage that was opposed by the Conservative party. We still have not heard any recognition in the remarks of the Opposition spokesmen who bothered to address the House how they view the national minimum wage. [HON. MEMBERS: "What about the Bill?"' Opposition Members want to hear about the Bill. While we were discussing it, there were two of them in the Chamber. Two of them were sitting on the Front Bench, while the Back Benches were bare—denuded. Not one Conservative Back Bencher was prepared to engage in the debate or to suggest that they have learned the lessons that we have been teaching them these four and a half years about how to move people from poverty into work and how to begin to give people the sense that they can, through their own actions, reach a point where they benefit from what work has to offer.

These reforms are supported by the new deal, which provides tailored packages of help and support to enable people to make that transition back into work. It enables them, through contact with personal advisers, access to job search support and help in addressing basic skills gaps, to get into the world of work. In that way, they and their children will benefit from their activity.

During the debate, we heard from my hon. Friend the Member for Morley and Rothwell about the importance of ensuring that small businesses feel, as those responsible for the payroll, that their needs and concerns have been taken into account. That is why my hon. Friend the Paymaster General has introduced a measure that is structured in such a way as to reduce compliance costs. That is why the measure is friendly to small businesses.

It would have been helpful if Conservative Members had given just a hint that they understood that the Government have listened to small businesses with regard to the structure of this measure. However, there did not come from them one spark of recognition that that was the case. That is recognised by employers' groups. The Confederation of British Industry says that it supports and welcomes the attempts made by the government to simplify the rules for tax credits. The Institute of Payroll and Pensions Management stated that it welcomed the beneficial changes from an employers' perspective. In its detailed response, it recognised all the positive changes to the administration of tax credits that will benefit employers". That is what business says. However, we must have balance, and the Institute of Directors remains, as one would expect, firmly opposed to the measure although, to be fair, it says that it warmly welcomes the ending of the requirement for certificates of payment and strongly supports automatic increases in funding when new employees become entitled to tax credits. Even in the heart of the Institute of Directors there is a beginning of an understanding that the measure has some positive benefits. If only that same warm glow of recognition had been present in the hearts and minds of Conservative Members, but look at them—not a sign. The milk of human kindness does not, I fear, flow in very many of those veins.

During the last Parliament, we embarked on a wide-ranging programme of reform of the tax and benefits system. The Bill sees us continue that to the point of success, and I commend it to the House.

Question put and agreed to.

Bill accordingly read a Second time.