HL Deb 08 June 1999 vol 601 cc1356-60

(" . No scheme for working families' tax credit shall be prescribed under functions transferred under section 2(1)(a) unless provision is made in every case for an amount of income to be disregarded equal to the average assessed level of maintenance payments in the 12 months preceding the date on which the regulations giving effect to the scheme are made except where the maintenance received was greater. in which case the maintenance payments actually received shall be disregarded.")

The noble Lord said: My Lords, the purpose of this new clause is to ensure, as far as is possible, that the same amount of credit is given to all families with the same income; for example, the same amount coming in each week. It does that by requiring that every family, whether a married couple, a lone parent not in receipt of maintenance payments, or a lone parent in receipt of below average maintenance payments, should be entitled to an income disregard of an amount equal to the average assessed level of maintenance. Lone parents who receive above average maintenance would be entitled to have the whole of the maintenance disregarded, as the Government have proposed.

When the working families' tax credit was announced, it was unclear how income in the form of maintenance payments would be treated. In Committee in another place the Paymaster General, in an intervention, said that the Government would be proposing that income in the form of maintenance payments would be disregarded. The noble Baroness, Lady Hollis, gave the House an insight into the Government's thinking in Committee and on Report.

I have sought to raise a number of points about the decision to disregard maintenance payments. However, there was one overriding point. If maintenance payments are to be disregarded, will the result be fair to families in similar circumstances who have the same amount of cash coming into the household each week, none of which is in the form of maintenance payments? The noble Baroness invited me to return to that point, as she thought that there may be some misunderstanding on her part or mine.

Prior to the Report stage, I sent the noble Baroness some examples which compared the position of similar families, part of whose income consisted of maintenance payments, with families with the same amount coming in each week but none of that through maintenance payments. From the debate on Report it was not clear whether the noble Baroness had seen that letter or the examples. I assume by now that she will have done so.

For your Lordships' benefit let me explain that one of the examples compared the position of a family of four (two adults and two young children) with earnings of £150 a week with a family of three (a lone parent and two young children) with earnings of £110 a week and a maintenance payment of £40 a week. In other words, both families start off with the same gross income each week of £150 but, because of the income disregard for maintenance payments, the family of three is much better off in cash terms than the family of four. The family of three will receive a weekly tax credit of £94.47. The family of four will receive only £78.96. Allowing for tax and national insurance contributions, the family of four end up with a disposable income—money available to pay the family bills—of £27.31 less than the family of three which receives maintenance payments.

As I understand the Government's proposals, a lone parent who does not receive any maintenance, perhaps because the payer has disappeared, and who also earns £150 a week will, likewise, receive credit of only £78.96 a week.

On Report, the noble Baroness made the point that a lone parent getting no maintenance and a lone parent getting £28 a week in maintenance would receive the same working families' tax credit. That means that the family who receives maintenance will be better off than the family who does not. That was confirmed by the Paymaster General in a Written Answer in another place on 26th April. His figure showed that families with earnings of £150 a week, who do not receive maintenance payments, end up with a disposable income of £236.77 per week, whereas a similar family who, in addition to its earnings, also receives maintenance of £40 a week, will end up with a disposable income of £276.77 per week. The difference between these figures and the figures that I sent to the noble Baroness, and which I have just quoted, is that in one case payments in receipt of maintenance are totally ignored and, in the other, they are included in the family's income. But on whichever basis the examples are drawn, the underlying message is the same: families who do not receive maintenance payments will be treated less well than those who do.

The Government have rightly laid great stress on the need for fairness in taxation. If the system is to be fair, all families and taxpayers with the same income should broadly pay the same tax. The working families' tax credit is in reality a means-tested benefit. Families with the same means should get the same benefit. That will not be the case if some families are assessed for working families' tax credit purposes on the whole of their income—that is to say, all the means are taken into account, whereas other families are allowed to disregard one type of income. If the credit is to be fair, all income and all means must be taken into account or all families should be allowed to disregard income used for maintenance.

The Government have decided, for reasons which seem to them to be compelling, to ignore income in the form of maintenance payments. If that decision is set in stone, then your Lordships need to consider how to rebalance the position so that, in the example I have given, families with the same means—that is, with the same cash coming into the household each week—as the lone parent family in receipt of maintenance payments get the same credit. Alternatively, to make the same point using the assumptions in the Government's examples, how do we rebalance the position so that all families have a sum set aside for their costs of living?

This new clause proposes to do that by giving all families the right to have an amount of their income disregarded which is equal to the average assessed maintenance. That would still leave lone parents who get above-average maintenance in a better position, but the result would be a lot fairer than the position which will apply if nothing is done for families who do not get any part of their income in the form of maintenance payments.

The Government may say that to disregard income in every case to an amount equal to the average maintenance will be very costly. But it seems to be the only option if families and children are going to be treated fairly. I beg to move.

6.45 p.m.

Baroness Hollis of Heigham

My Lords, the noble Lord, Lord Swinfen, is returning to issues that he raised previously as regards the treatment of maintenance payments and the WFTC. As my right honourable friend the Paymaster General made clear in, I believe, December or February, all maintenance payments received will be fully disregarded in the calculation of income for the purposes of WFTC. The argument being advanced by the noble Lord, Lord Swinfen, was that that meant that such parents, by receiving their maintenance as a 100 per cent. disregard, would be effectively better off than intact families, and therefore in some sense that was unfair. That was the basic argument that the noble Lord was addressing.

Perhaps I may just clarify what will happen. As noble Lords are aware, the amount of WFTC received is affected by the level of income of the claimant and, if appropriate, his or her partner. So, in calculating the amount of WFTC due, the tax credit office will assess the maximum award according to the family circumstances based on hours worked, the number and age of the children and any qualifying childcare costs. It will also assess the net weekly income. If it is below the £90 threshold the full award is payable. If it is above, then the maximum award is reduced by 55 pence for every extra pound above the threshold.

Under family credit, if a claimant is receiving maintenance payments, these were included in the assessment of weekly income except for the first £15. There is effectively a £15 disregard because it is a benefit. The maintenance payments could be kept separate and untouched and therefore used for the support of the child. However, as regards WFTC, there will be a 100 per cent. disregard of maintenance and not merely the first £15.

Under this proposal, lone parents will be better off than they would have been under family credit. That is what we want to achieve because we want to provide a clear contribution to tackling child poverty, particularly given that we know that the face of poverty in this country is that of the child and the poorest children are disproportionately in lone parent families. About 1.8 million children in this country are living with lone parents and not receiving the maintenance to which they are entitled. The fact that they have a parent who is not in work and not receiving maintenance are the two biggest determinants of child poverty in this country today. That is why the Government are determined, on the one hand, through the New Deal and the WFTC, to make it attractive to the lone parent to go to work when she feels able to do so and, on the other hand, to propose reforms of the Child Support Agency to ensure that maintenance more reliably goes to the children in the family. Those two things together will in time, I hope, transform the situation of children who would otherwise linger in poverty bumping along on income support. Therefore, it is a recognition of the continuing responsibility to the children.

The second point which the noble Lord made is that it means that a lone parent can be better off than an intact family because the former partner and continuing parent is paying maintenance to the lone parent. That assumes that the situation of the lone parent is comfortable and will be better than that of a couple in work. But we know that a lone parent, even with the same level of WFTC, will remain on family credit, and presumably WFTC, for much longer. There will be less opportunity of climbing up the income rungs to get a decent income independent of the benefit. We know that intact families who may be receiving WFTC will be receiving that credit only temporarily. They dip down to it when their hours have been reduced or someone has lost their job. They spring out of it quite quickly. Therefore, in that respect the situation is not analogous. In other words, the lone parent is likely to be dependent on the support of that tax credit in order to have a worthwhile wage for very much longer than the couple.

If one follows the logic of the noble Lord's argument and only part of the £15 of maintenance is disregarded and the rest does not produce apparent greater fairness between them and an intact family, which seems to be the thrust of the noble Lord's argument, given that tax credit is not a benefit, the noble Lord's position would ensure that, although the first £15 can be kept, the rest would be tapered. But there will be no leverage to require the father to pay it.

As a result, the implication of the noble Lord's amendment would be that the ex-partner's payment of maintenance would become an option and not a responsibility because it would be a tax credit and not a benefit and therefore there would be no obligation to come within the remit of the Child Support Agency, keeping only the first £15. If the lone parent made the choice to go after the rest she would keep only a small fraction of it or she would come to a black economy deal. As a result the ex-partner would not pay the maintenance due.

Does the noble Lord really want to send out a signal to former partners—usually fathers but not invariably so—not to pay the maintenance that they should because there is no way of enforcing it because it is no longer a benefit but a tax credit? I cannot believe that, in trying to ensure that the position of a lone parent is similar to that of a couple, the noble Lord would wish to send out a signal to men that if one has a child there is no need to pay maintenance for that child, and that, if one has a partner who is lucky enough to go to work, even if the pay is low, that should also send out a signal to the male children of the family that the way to be a father is to have a child and then to walk away from the responsibilities.

That is the import of the noble Lord's amendment and I cannot believe that that is what he would wish to happen. I understand where he is coming from, but that is where his amendment takes us. In the light of that explanation I hope that he will withdraw his amendment.

Lord Swinfen

My Lords, it is certainly not my intention to press this amendment, and it never was.

I can see the noble Baroness's point that a father should be responsible for his children; that is something I would never deny. At the same time we should be doing what we can to support the parents in a full family struggling to look after their children. It is the children, as well as the parents, in that family who will be on a reduced income.

I can see the logic of the noble Baroness's explanation, but there seems to be a piece of the jigsaw missing. I realise that it is difficult to cut a piece exactly to fit that hole. It is probably Utopian, but we all strive for Utopia; so far no one has found it. As I said, I do not intend to press this matter, and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Swinfen moved Amendment No. 8: After Clause 2, insert the following new clause—