Low Pay: The Poverty Trap (Hansard, 19 October 1993)

The Parliamentary Under-Secretary of State, Department of Social Security (Viscount Astor)
My Lords, yes. Government policies are aimed at striking a balance between providing for need while improving work incentives.

§ Earl Russell
My Lords, I thank the noble Viscount for that reply, and I welcome it. Will he look with care for instances where government policy may inadvertently not achieve the intended effect? Will he take note of the combined effect of withdrawal of family credit, housing benefit and council tax benefit, plus the phasing in of income tax and national insurance, which may already mean that people are losing 97p. in the pound when they come into employment? Is he aware that if compensation for VAT on fuel is confined to those on benefit it might bring that figure to over 100 per cent.? Will he investigate ways of avoiding that situation by adjusting the tapers on family credit and housing benefit?

Viscount Astor
My Lords, social security reforms and subsequent changes in the tax and national insurance systems have virtually eliminated the worst aspects of the poverty trap. Only a very small proportion of those receiving income-related benefits face marginal reduction rates at the highest level. Steeper tapers concentrate help on those at the bottom end of the income scale while aiming to keep the overall cost and scope of the scheme under control. A shallower taper, as suggested by the noble Earl, Lord Russell, would extend the help further up the income scale but would then not concentrate it on those at the bottom.

§ Lord Harmar-Nicholls
My Lords, is my noble friend aware that special efforts ought to be made to solve the dilemma contained in this Question? Those who have contact with workers too often hear the reply: "I can't afford to take that job because I am better off receiving the aid I am getting now". I do not know the answer, but ought not special thought be given to an investigation to resolve that dilemma?

Viscount Astor
My Lords, we have taken a number of steps to help people get over the trap. For example, I refer to family credit. There are also other benefits which are payable in work. I refer to housing benefit, council tax benefit and disability working allowance.

§ Lord Ashley of Stoke
My Lords, is the noble Viscount aware that those steps are inadequate? Many lone parents are unable to afford to work simply because working makes them poorer owing to the cost of child welfare. In order to help lone parents and society, is it not possible for the Government to invest in child care?

Viscount Astor
My Lords, the average gain from family credit covers average child care cost. Lone parents are on average £30 a week better off working and receiving family credit than on income support.

§ Lord Swinfen
My Lords, will the Government consider a graduated reduction of benefits as against earned income when people move back into employment? For instance, if for every £1 earned a benefit is reduced by, say, 50p., there is a financial incentive for people to move into work rather than to stay on state benefit.

Viscount Astor
My Lords, there are incentives for people to move into work. Those are the tapers to which I referred earlier. The family credit taper is 70 per cent. Therefore there are incentives for people to get a job.

§ Baroness Seear
My Lords, does the noble Viscount agree that the best way to avoid the poverty trap is to ensure that income tax starts at a much higher level than at present, taking low earners out of the tax band altogether? Will he pass that message on to his right honourable friend the Chancellor of the Exchequer between now and Budget day?

Viscount Astor
My Lords, I shall certainly pass the message that the noble Baroness has to offer to the Chancellor. I am sure that he will be interested in it. But the noble Baroness will remember the reduction in the basic rate of income tax to 25 per cent. in April 1992 and the introduction of a 20 per cent. band which was extended from April 1993. Those measures have helped.

§ Baroness Hollis of Heigham
My Lords, does the Minister accept that most lone parents wish to work but cannot afford to because of the high cost of child care—the issue was referred to by my noble friend Lord Ashley—and the low pay that they will receive? In that context, will the Minister explain how abolishing the wages councils and thus depressing low pay even further will encourage people to come off benefits and into work?

Viscount Astor
My Lords, evidence from previous abolition of or reduction in the controls of wages councils suggests that there will be no widespread reductions in pay. The Government believe that wages are best decided in the labour market between the employer and workers concerned in the light of their particular local circumstances. There are plenty of incentives for people, including lone parents, to get back into the system and to get a job.

§ Lord Wakeham
My Lords, I am sorry to intervene but we must be fair to the noble Lord who will ask the last Question. There are only five more minutes of Question Time.