The Poverty Trap (Hansard, 30 November 1982)

§ Lord Jacques
My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

§ The Parliamentary Under-Secretary of State, Department of Health and Social Security (Lord Trefgarne)
My Lords, the only lasting way to deal with the problem of the poverty trap is to control inflation and improve the economy generally. That is the way to real increases in pay, which in turn will lead to less reliance on means-tested benefits. Our policies have been, and continue to be, consistent with this aim.

§ Lord Jacques
My Lords, may I thank the Minister for his reply? May I put some supplementary questions to him? First, is the Minister aware that the abolition of the 25 per cent. income tax rate in 1980, the failure to index income tax allowances in 1981 and the increase of the national health contribution from 6½ per cent. to 9½ per cent. have all worsened the poverty trap? Secondly, is the noble Lord further aware that we now have reached the situation when a family can increase its income from £50 to £100 per week and find that it is only 83p better off at the end of the week because of its liability to tax, national insurance and the loss of social security benefits?

§ Lord Trefgarne
My Lords, there are really only three ways in which we can do away with the poverty trap. The first would be to lower the rate of benefits. I do not think that the noble Lord would support that. The second would be to raise the tax thresholds further—and that of course would be a very blunt instrument and would affect a great many people who 1141 did not need to be affected. I do not think that the noble Lord would approve of that. The third method is the one which I have described, which is to get the economy going better. We are achieving that, and I hope that the noble Lord supports that as well.

§ Lord Banks
My Lords, will the noble Lord agree that the best way to deal with the question of the poverty trap, and to eliminate it, is to find a way of reducing the high degree of dependence on means-tested benefits? Will not a tax credit scheme offer such a way?

§ Lord Trefgarne
My Lords, the tax credit scheme to which the noble Lord refers is, I have to say, not without its attractions; but it still presents a great deal of difficulty, not least the very considerable cost that it will incur, and clearly it is not a runner in the short term.

§ Lord Jacques
My Lords, does the Minister agree that perhaps one of the best ways of at least mitigating the poverty trap lies in the application of the national health insurance contribution?

§ Lord Trefgarne
My Lords, the very small increase that we recently announced in the national insurance contribution is of course necessary to cover the cost of improving benefits, which we have been doing. I should have thought that the noble Lord supported that as well.

§ Lord Kennet
My Lords, is it not a reflection upon the Government that the only way of getting rid of an anomaly in our tax structure is to await an improvement in the general economic conditions? Are there not alternative ways of doing so: namely, human ingenuity and kindness?

§ Lord Trefgarne
My Lords, I have described the problems with all the various proposals which come from the Bench of the noble Lord and indeed the Benches of the Liberal party, not to mention the Benches of noble Lords immediately opposite. I stick to what I said earlier: the way to the long-term and lasting solution of these problems is to restore the health of our economy generally, and we have made some progress in that direction.

§ Lord Cledwyn of Penrhos
My Lords, is not that likely to take a very long time? Is it not the case that the numbers caught by the poverty trap have increased substantially since the present Government came to power three and a half years ago? I bear in mind their very clear commitment in their election manifesto to deal with the poverty trap. In those circumstances, would it not be honest and desirable, and in the interests and for the honour of the Conservative Party, for the Government to take some specific step now to deal with the problem?

§ Lord Trefgarne
My Lords, as I have repeatedly said, we are taking specific steps to deal with the problem by restoring the health of our economy. As for the increse in numbers to which the noble Lord refers. I do not want to bandy statistics with him. The figures that I have are not particularly recent and I 1142 would not wish to rely upon them. Many of the figures that we see, and which were referred to in the debate we had in your Lordships' House the other day, are not comparing like with like and take into account, for example, people who could not possibly be said to be in the employment market.

§ The Earl of Onslow
My Lords, has my noble friend not read the Conservative proposal by Sir Brandon Rhys Williams for a cash credit scheme which does not cost any extra money? It is totally tax negative and therefore abolishes the poverty trap. Furthermore, does my noble friend remember that in the 1974 election manifesto it was Conservative policy to introduce a tax credit scheme?

§ Lord Trefgarne
My Lords, no one has a greater regard for my honourable friend Sir Brandon Rhys Williams than I do. But the fact of the matter is that when one studies with great care some of the proposals that come forward from such sources as my honourable friend, and some of the other documents such as the one to which my noble friend referred the other day, they are more difficult than may at first seem to be the case. I do not dismiss the idea of tax credits as my noble friend suggests. I said to the noble Lord, Lord Banks, just now that those ideas are not without their attraction. That is a long-term matter; it is not something which could be done overnight and it would certainly be very expensive.