HL Deb 18 May 1999 vol 601 cc269-75

(" . Under any schemes for working families' tax credit prescribed under functions transferred under section 2(1)(a) —

  1. (a) comparable to the treatment of families under the disabled person's tax credit, families headed by a couple shall receive a basic tax credit, to take into account the second adult, between 55 per cent and 60 per cent greater than that received by families headed by a lone parent; and
  2. (b) families with a disabled child shall receive an additional credit comparable with that paid under the disabled person's tax credit.")

The noble Lord said: My Lords, this amendment also refers back to our debates in Committee and seeks to clarify further the basis on which the working families' tax credit has been drawn up. However, unlike my previous new clause it refers to the WFTC only because it seeks to draw on the principles which the Government have accepted for the disabled person's tax credit.

This new clause is in two parts. Paragraph (a) is concerned with couples who, according to the information so far provided by the Inland Revenue, will he treated illogically and unfairly. The point was first raised by Professor Steven Webb on Third Reading of the Bill in another place. It was subsequently raised by the noble Lord, Lord McNair, and myself on Second Reading and then again by my noble friend Lord Astor and myself in Committee, but so far we have had no response.

Under the treatment which the Government propose for both WFTC and DPTC, the income and savings of a husband and wife, or of a couple who are living together, will be aggregated and added together. In many cases, that will restrict the tax credit which would otherwise be due. In no circumstances, as I see it, will it be to their advantage.

At this point, the two credits take a different approach. Under the DPTC, a couple gets a higher basic tax credit than a single person. That takes account of the fact that the second adult, who will usually be the able-bodied person—we are not talking here of the disabled person—has to eat, be clothed and incur other expenses of life. Under the WFTC, by contrast, a couple gets the same basic tax credit as a single person.

Having restricted the credit due by aggregating the couple's income and savings, the second adult is then ignored. So far as the Revenue is concerned, that person can starve, go around without clothes and cannot satisfy any of the needs of life. In practice, of course, it will not happen quite like that. The family as a whole will go short and the children will be more likely to remain in poverty.

Indeed, leaving to one side the treatment of maintenance payments, at any given level of net income the children in a family headed by a couple are more likely to be in poverty than the children in a family headed by a lone parent. In the consultative document Supporting Families, the Government showed themselves to be fully aware of the advantages to children if they are brought up in families headed by a married couple, yet the arrangements which the Government are currently proposing for the WFTC will give parents a financial incentive to separate or, if they are apart, a disincentive to come together again.

There are two ways in which this illogicality and unfairness might be sorted out. One would be to follow through the implications of what the noble Baroness has told us many times, which is that WFTC is not part of the benefits system but part of the tax system. Under the tax system the incomes of husband and wife are not aggregated, but taxed quite independently. So the aggregation of income and savings of husband and wife for WFTC could be dropped. That would remove the inconsistency between the WFTC and the tax system. It would also then be consistent to give an additional basic tax credit to the couple in order to take account of the second adult.

This new clause takes the alternative and more comprehensive way of sorting out this muddle. It accepts that, despite the claims of the noble Baroness, the working families' tax credit is essentially a benefit and not a tax. It accepts that the basic unit is for all intents and purposes usually the family and not the individual and the aggregation of the couple's income and savings is appropriate. It then provides for a higher basic credit for a couple than for a single person to take account of the additional cost of food, clothing and so on.

This is not a radical proposal. It follows the practice in income support, the job seeker's allowance, housing benefit, council tax benefit and so on. In these benefits, as in the DPTC, the couple's benefit or credit is between 55 per cent. and 60 per cent. higher than that of a single person. That is the figure adopted in the new clause. I accept that a couple does not get a higher credit than a single person does in family credit, but that benefit is the odd one out.

This amendment is in two parts. The grouping also brings in Amendment No. 10, which was drafted for me by a different organisation. I believe that is better than the second part, paragraph (b) of Amendment No. 8. I shall not press that amendment and, because of the lateness of the hour, I shall not press Amendment No. 10. As regards that amendment, the disability working allowance allows for a disabled child allowance, currently worth £21.90, when a disabled person also has a disabled child. That will be extended to the disabled person's tax credit when it is introduced in October. The calculation for a maximum family credit and its replacement does not include the disabled child allowance.

The purpose of Amendment No. 10 is to provide parity for those eligible for the new working families' tax credit who have a disabled child, by extending the disabled child allowance to the new tax credit. The disabled child allowance was introduced as the disability working allowance in 1995 as part of a package to improve the benefit. The government at the time saw it as a substantial boost to the income of families in receipt of the benefit who have a dependant disabled child. The aim of the package was to improve the take up of DWA. The inclusion of the disabled child premium actually recognised the extra needs of working families with disabled children. There is little reason, therefore, for excluding the disabled child allowance from WFTC. The allowance reflects the additional costs and support needs of the family with a disabled child regardless of whether or not the working parent is disabled. I beg to move.

10.45 p.m.

Lord Higgins

My Lords, my noble friend has moved two specific amendments. They raise some fairly complex issues. I believe that he is right in saying that perhaps the most relevant is Amendment No. 10, which seems to be in a more coherent form in some ways than paragraph (b) of Amendment No. 8. The crucial point is whether or not there should be parity as regards a family with a disabled child. If I understand the situation correctly, there appears to be some anomaly between disabled parents with a disabled child and parents who are not disabled but who have a disabled child. The purpose of Amendment No. 10 is to ensure parity between the two groups, as my noble friend has just said. In that context it seems that there is an argument for parity to be established.

Baroness Hollis of Heigham

My Lords, Amendment No. 8 attempts to align the structure of WFTC with that of DPTC. It focuses on two things: the two different basic tax credits in DPTC compared with the single basic tax credit in WFTC; and the presence of an additional disabled child tax credit in DPTC. I shall deal with them separately.

On the first issue—that in DPTC there are two levels of family tax credit and only one in WFTC—the amendment calls for WFTC to have two types of basic tax credit: one for families headed by a couple; one for families, presumably a lower one, headed by a lone parent; and requires there to be a differential between the two types of credit on the ground that a second adult requires more food, clothes, and so on, as the noble Lord argued. I presume that the noble Lord is working by analogy with DPTC which has a basic family tax credit and a lower single person's tax credit. I hope to persuade him today, as I clearly failed to do in Committee, that these are conceptually two totally different benefits; and it does no one any kindness to try to read across by saying that because there are two tiers in DPTC there should be two in WFTC, which is to add on beyond what a lone parent household would receive for a couple family. The noble Lord does neither disabled people nor lone parents any kindness in pursuing that argument.

DPTC, like DWA before it, has one rate for couples or lone parents—just like WFTC—and a different lower rate for single people who are not responsible for children but who are disabled. There is no analogy between that single rate and the WFTC. The higher rate of DPTC is exactly the same as the single rate in WFTC. The higher rate of DPTC is for couples or a lone parent household where one is disabled. The difference is that DPTC has a lower rate which cannot exist for WFTC because it is for single disabled people by virtue of their disability, and by definition the WFTC is not a single person's benefit. It is a family, household benefit.

I emphasise that lone parents are eligible for the higher family rate in DPTC. They do not receive the single person rate. Already the two benefits are aligned, just as the noble Lord argued. There is, therefore, no need for a single person's lower rate in DPTC if one wishes to align the two tax credits because WFTC applicants never qualified because that benefit is for single people.

The first part of the clause would not be about aligning the two tax credits because they are already aligned. It would make them different. If the noble Lord wishes to do as he suggests, he can do so in only one of two ways. He must either make WFTC less generous for lone parents and align it with that of single disabled people; or he must make WFTC more generous for couples in order to produce a differential at considerable public cost.

Which of those two does the noble Lord want? If he seeks to treat lone parents less favourably by giving them a new lower rate analogous to the single individual's rate in DPTC, even though it is a household, it would save the Government, the taxpayer. money. It would take something like £550 million, over half a billion pounds, out of the pockets of 600,000 lone parents and their children; that is, nearly £20 a week. I cannot believe that he wants that. I think that he made that clear.

His only other option is to increase the couple's allowance for WFTC to maintain a differential. On his account, that would cost an additional £1.25 billion to create a new higher couple's credit. I cannot believe that he and his party want that either. We need to focus help where it is needed. We do not think that increasing the basic generosity of the tax credit by about 60 per cent would be one option.

Nor is it true, as the noble Lord argued, that there would be an incentive to separate. I do not know from where he gets these figures. If a couple separated, she would receive what the couple would get in tax credit, earnings for earnings, because they would remain the same household. If they were separated, he would be a single man and as long as he is not disabled he would receiving nothing. The amount paid, earnings for earnings, would be exactly the same. I do not know from where the noble Lord received his briefing.

Lord Swinfen

My Lords, the noble Baroness has made my point. A single adult with children receives more than a couple with children. The noble Baroness said that if the couple separated the mother would still receive the same. There is no provision for the second adult. The family of two children with a second adult means that there are four people in the family; not three as with a single adult and two children. That second adult needs to be fed and clothed, too.

Baroness Hollis of Heigham

My Lords, I dealt with that argument at some length earlier. I am happy to go over it again but, given the lateness of the hour, the noble Lord might prefer to read what I have said in order to decide whether there is confusion or misunderstanding. If so, we can follow it up in correspondence or at Third Reading.

The point the noble Lord made, which I was addressing, was that, given this, there would be a positive incentive for couples to split up because they would both be better off. That was what he said—I wrote his words down. It is not true, because the lone parent who would be left with the children would receive exactly the same. His argument would apply only if the lone parent received the same and the other parent received something, too. Therefore, it would be financially sensible to separate. But the father would receive nothing because he would be a single person; and the mother, as head of the household, would receive the same as if they were together. The point the noble Lord sought to make, that there was an built-in incentive to separate, cannot be true.

It is of course the case that all families are treated in the same way, whether they are headed by a lone parent or by a couple. That is what we were seeking to establish and therefore WFTC and DPTC are already allowed. I hope that the noble Lord, when he follows this up through reading or correspondence, will accept that.

I turn to Amendment No. 10 in which the noble Lord suggests that DPTC has an additional tax credit for disabled children that is absent front WFTC. As I said in Committee, the disabled child credit in DWA was introduced by the previous government after discussions with disability groups during its development and it has never made its way into family credit. When we debated the point in Committee, I said that the Government would reflect on the matter. It is an anomaly. I agree with the noble Lord, Lord Higgins, that it is not a justifiable anomaly. Therefore, I am delighted to repeat what my honourable friend the Paymaster General said yesterday on this Bill: that the Government will be correcting this anomaly by extending the disabled child tax credit to WFTC families from October 2000. That means that extra help will be available not just to a disabled child living in a disabled family, but to a disabled child living in a non-disabled family. In other words, it means that if a WFTC family has a disabled child, that child will not only receive, as now, the child tax credit worth £15 if the child is under the age of 11 or £20 if the child is between 11 and 16, but he will receive an additional £21.90, more than doubling the value of that tax credit.

I am extremely pleased about that; I am absolutely delighted. I believe that it will help low earning families with a disabled child and I know that the noble Lord, Lord Swinfen, has their interests very much at heart. I hope that the House will welcome that very good news and that the noble Lord will withdraw his amendment.

Lord Higgins

Before the noble Baroness sits down, I am not sure I understood correctly what she said a moment ago, although I congratulate her on her virtuoso performance on the previous amendment. which is linked with this one. She said that yesterday the Paymaster General said in relation to this Bill that the concession would be made. I am increasingly worried about the Treasury taking these things over. Surely, it would be more appropriate for the noble Baroness to have announced the change tonight. I believe that she is right to take credit for what is happening, but am I right in believing that she is therefore proposing to accept the amendment?

Baroness Hollis of Heigham

My Lords, I am not personally taking credit for what has been achieved because it is to the credit of my honourable friend the Paymaster General. It is her Bill on behalf of the Government. As this is not part of the legislation, it cannot be done by way of amendment. It will be done by way of statement and then subsequently by regulation, as appropriate.

My honourable friend issued the press release and statement yesterday, perfectly properly. It is her measure and it is to her credit. I shall convey all the thanks and appreciation of noble Lords to my honourable friend. The amendment rectifies an anomaly. It will help low-earning parents with a disabled child for whom life can be extremely difficult. It produces another £22 a week for that disabled child before the taper begins to take any money away. I am sure that the measure will be very well received. I have a copy of the press release if noble Lords wish to circulate it. Please join with me in welcoming it.

Lord Swinfen

My Lords, I apologise for asking the question again because I missed the beginning of the latest part of the Minister's peroration. Is she proposing to bring forward an amendment to put this into effect at Third Reading, or can it be done purely by regulations?

Baroness Hollis of Heigham

My Lords, it is like the situation with NHS prescription charges, childcare or maintenance; it does not need to be on the face of the Bill and therefore does not need a government amendment. It will be done either by regulations or by guidance. The Paymaster General announced her intent, and that is therefore what will happen. From October 2000 a child who is disabled and living within a WFTC family will get the additional premium that they have not so far received.

Lord Swinfen

My Lords, I am delighted to hear that, and therefore I shall not move Amendment No. 10. I shall read with care what the noble Baroness said in regard to Amendment No. 8. I reserve my right to come back at Third Reading, but in the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Swinfen moved Amendment No. 9:

After Clause 2, insert the following new clause—